Thursday, September 18, 2008

Making sense of the economic crisis

Two good artices

Michael Lewis-- Let the Heads Roll

Jack Shafer-- Fannie Mae and the Vast Bipartisan Conspiracy

Lewis has has harsh words for the Wall Street executives who have cratered their companies after pocketing huge bonuses. However, he is also asture enough to nothe the market dynamics that drove their actions.

But interestingly, if any of these men had behaved well and resisted the pressures and temptations of the moment, his firm would have, for several years, dramatically underperformed the competition. Probably he would have lost his job.

This passage from Shafer stopped me in my tracks

Next up is Jamie S. Gorelick, whose official résumé describes her as "one of the longest serving Deputy Attorneys General of the United States," a position she held during the Clinton administration. Although Gorelick had no background in finance, she joined Fannie Mae in 1997 as vice chair and departed in 2003. For her trouble, Gorelick collected a staggering $26.4 million in total compensation, including bonuses. Federal investigators (PDF) would later say that "Fannie Mae's management directed employees to manipulate accounting and earnings to trigger maximum bonuses for senior executives from 1998 to 2003." The New York Times would call the manipulations an "$11 billion accounting scandal." Gorelick, it should be noted, has never been charged with any wrongdoing.

Gorelick was responsible for hindering counter-terrorism efforts in the Reno Justice Department. The Wall she helped erect may have contributed to the 9-11 disaster.

Now we find out that she was hip-deep in the largest economic disaster of our time. Yet despite her sorry track record, she was selected to serve on the 9-11 Commission.

Gorelick is interesting in another way. She has exactly the sort of "elite" resume that lights David Brooks's fire. Given the results she's produced (almost uniformly bad), Sarah Palin's "Limited experience" looks like a powerful point in her favor.

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