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Commentary :: Globalization
Defending the Indefensible
19 Apr 2012
Defending the Indefensible

by Stephen Lendman

Robert Shiller is Yale University Professor of Economics and Professor of Finance and Fellow at the International Center of Finance, Yale School of Management.

He's best known perhaps for his 2000 book titled, "Irrational Exuberance." At the height of the tech bubble, he got it right predicting it would burst. His analysis included structural, cultural, and psychological factors.

His 2005 second edition was right again. He explained the housing bubble and likely aftermath. It peaked in 2005, began declining in 2006, and hasn't yet hit bottom. Maybe a third edition will cover the next inevitable decline.

When it comes, expect far greater trouble than what preceded it. It's building inexorably for eventual collapse. Only the fullness of time knows when, but so will we when the thud's felt round the world.

Shiller's new book titled, "Finance and the Good Society," has another purpose. Instead of criticizing predatory finance, he defends it. Doing so may erode years of hard-won credibility.

He claims financial capitalism promotes prosperity. In the process, he defends Goldman Sachs and other Wall Street giants. It's wrong thinking they cheat clients, he claims. Not according to former Goldman executive Greg Smith. After 12 years with the firm, he resigned, calling its " toxic and destructive as I have ever seen it."

Goldman's business model replicates others on the Street. It includes advising clients to invest in assets it wants to dump, selling them what makes the firm most money, and trading "any illiquid, opaque product with a three-letter acronym," no matter how toxic or worthless.

It made him "ill," he said, "how callously people talk about ripping their clients off." Goldman's entire history, or most of it, reflected it. It's been involved in nearly all financial scandals since the 19th century. So have other Wall Street crooks. They make money the old fashioned way by stealing it.

Shiller's right saying not all bankers are banksters. Mostly too-big-to-fail Wall Street ones qualify, but so do many medium-sized banks, large hedge funds, insurers like AIG, Fannie and Freddie for gaming the housing market, Sallie Mae for debt entrapping students, and other major players manipulating markets fraudulently for profit.

Engineering a financial coup d'etat, Wall Street giants inflated multiple market bubbles, pump and dump schemes, naked short selling, precious metals price suppression, high oil prices during falling or steady demand, currency manipulation, and other predatory schemes.

Together with political Washington and the Fed, they game the system, commit massive fraud, scams trillions of public wealth, and get open-ended bailouts when inevitable crises occur.

Bill Black Knows the System Well

In his book titled, "The Best Way to Rob a Bank Is To Own One," former bank regulator expert on white-collar crime, public finance, economics, and related law, Bill Black explained the disconnect between the real economy and finance.

The latter's supposed to make the former work better. In fact, it operates only for itself. In the process, economies are wrecked and millions in them harmed.

Black explained how failed bankers collude with failed regulators to create and sell unwary buyers failed assets. Speculation and debt need more of it to prosper, but it's always a losing game. The greater the expansion, the harder it falls.

Ordinary people are hurt most because freed from regulation, bankers and other FIRE sector (finance, insurance, and real estate) players speculate on financial derivatives and an alphabet soup of securitized garbage.

It includes asset-backed securities (ABSs), mortgage-backed securities (MBSs), collateralized mortgage obligations (CMOs), collateralized debt obligations (CDOs), collateralized bond obligations (CBOs), credit default swaps (CDSs), and collateralized fund obligations (CFOs).

They're sliced, diced, packaged, repackaged, and sold in tranches to sophisticated and ordinary investors. Many buy it unwittingly through mutual funds, 401(k)s, pensions, and other financial products.

Investors often end up bilked. Bankers get bailed out when fraudulent schemes fail. Regulatory free markets let major players game the system through fraud, price manipulation, insider trading, misrepresentation, Ponzi schemes, false accounting, liar loans, and other deceptive practices.

Shiller to the Rescue

Defending the indefensible, he says:

"People think that the wealthy in our society -- among them the financiers -- have a real and genuine incentive to use devious means to attack and subjugate, economically, the majority of the population." It's "an illusion," he claims.

"The assumption today often seems to be that businesses have a real incentive to behave in an aggressive and evil manner."

It's not so, says Shiller, despite volumes of indisputable evidence proving otherwise.

Believing it, he says breeds resentment and adversely affects prosperity. Maybe he hasn't noticed how disproportionately wealth is shared among an elite 1%. Most others are entirely left out, and it didn't happen by chance.

Yet Schiller calls finance a force for good, no matter its flaws. Over time, it builds richer, more equitable societies, he claims. Where's the beef!

Since the 1970s, real wages haven't kept up with inflation. Automated plants displaced workers. High-paying production and service jobs went offshore to low-wage countries, and regulatory free finance capital scams investors repeatedly for profits.

Marx was right. He explained capitalism's destructive contradictions, and condemned free market mumbo jumbo as anarchic and ungovernable. It alienates masses, destroys or prevents the creation of humane societies, produces class struggles between "haves" and "have-nots," and reveals what's happening today.

It includes stagnant wages, eroding benefits, high unemployment, low-pay mostly temp or part-time service jobs, unmanageable debt, for students debt entrapment at times for life, and booms followed by busts, followed by heading America and EU countries for third-world status.

Social responsibility lost out to predatory capital. It games the system for maximum profits. It buys politicians like toothpaste to let them. The result is a downward destructive cycle. Financialization replaced industrial America. Speculation replaced producing things. Fraud replaced obeying laws and regulations or get punished.

Instead of creating prosperity, Wall Street destroys it. Economies are wrecked. Millions in them are harmed. Fraud's legitimized, and troubled banks most responsible get trillions in bailouts to keep them operating to steal more.

Shiller doesn't excuse financial chicanery. Financial capitalism is like nature, he says:

"For all its beauty, it produces ugly things as well."

Nonetheless, we need more financial innovation, not less, he believes. We need to "democratize" and harness it to create good. He fails to understand that money power in private hands and democracy can't co-exist. Crooked bankers prove it repeatedly.

Finance capital's too broken to fix. Harnessing it productively is nonsense. Shiller knows better but claims investment bankers resemble "diplomats negotiating an understanding between contentious powers." They're "keepers of the peace and promoters of progress."

His students hear this bunkum. He wants finance given redemption. Forgive their sins because they can, should, and often do improve societies, he claims. He believes financial innovations and societal gains go hand in hand. Securitized fraud proves otherwise.

At issue is permitting finance to operate unrestrained, letting it consolidate to super-sized levels, allowing it to occupy and run Washington, and giving it control of the nation's money for private gain. It results in the grandest of grand thefts. Government becomes a willing partner.

Instead of praising finance capital, Shiller should condemn it, demand too-big-to-fail institutions be broken up, insolvent ones shut down, regulations with teeth be reinstituted, lawbreakers do hard time in prison, and most of all return money power to public hands where it belongs. It includes publicly run state and local banks, replacing predatory ones.

It's an idea whose time has come. Wherever they exist, prosperity follows. Privatized money power is trouble. It creates zombie economies, banana republics, and poverty.

When federal, state or local governments lend their own money, prosperity, not profit's the issue. Everyone benefits, including households, small businesses, farmers, and municipalities. Replacing a predatory, rapacious system with one proved workable and equitable is vital to assure societies grow, prosper and help everyone in them.

Expecting bankers to act responsibly is like believing political Washington can reform. Both are irreparably corrupted, dysfunctional, and destructive. In their hands, societies and people in them are wrecked. Entirely new political, economic, and financial systems are needed.

Shiller's book excluded them. Instead he defended the indefensible and lost credibility in the process. He'll be hard-pressed regaining it.

Sustainable, prosperous societies aren't possible without freeing them from rapacious bankers and similar FIRE sector players ripping them off for profit.

It never worked before and won't now. Claiming otherwise doesn't wash.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen (at)

Also visit his blog site at and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
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