GRETCHEN MORGENSON and LOUISE STORY write in the New York Times today a long story about how Goldman Sachs raped AIG and in the process, got us tax payers, all of the unemployed in America, and all of the savers who received low interest rates because of the need to stimulate the economy link here. It didn't cause all of the problem, but it lit the match that started the conflagration, forced the bailout of AIG, and then made out in the wreckage. Building on its connections and the boldness of its gunslingers, it flourished and now it seems to be in a position to hold off even the most minor reforms that have been put forth by the administration.

Read it. The story is too long to repeat here to get the flavor of what went on. There are lots of details that will emerge in the future, but this reporting tells us how bad it was and hints at what is to come.

I want to end with this Dilbert which is a kind of visual epitaph on where we are today.

Lawrence Lessig's name appears on our blogrole which, however, has been hibernated since August 20 last year. I can't tell whether our readers or my colleagues are aware of what he is up to. Today I came across this article in The Nation link here and this video on the internet link here and then he appeared on Bill Moyer's Journal last night (the transcript is up, but the video will appear next week) link here.

The easiest way to parse Lessig's current thinking is the four-minute video. He picks up on his disappointment with Obama who vowed to change the way business is done in Washington--and then seemed to forget his promise. Larry thinks along with many of us that Congress is broken and that the only way to change that is to limit campaign contributions. He proposes that they be funded by individuals and that they be limited to less than $100.

The most complete and eloquent account of Lessig's views is The Nation piece. Here he picks up on the recent Supreme Court decision in Citizens United v. FEC, which would make any limit on campaign contributions unconstitutional. "... the clear signal of the Roberts Court is that any reform designed to muck about with whatever wealth wants is constitutionally suspect." He despairs of getting the Congress, (that he calls the Fundraising Congress) to do anything. He proposes instead a Convention to amend the Constitution as the only possible avenue.

Here are two paragraphs from The Nation piece:

"Here a second and completely damning response walks onto the field: if money really doesn't affect results in Washington, then what could possibly explain the fundamental policy failures--relative to every comparable democracy across the world, whether liberal or conservative--of our government over the past decades? The choice (made by Democrats and Republicans alike) to leave unchecked a huge and crucially vulnerable segment of our economy, which threw the economy over a cliff when it tanked (as independent analysts again and again predicted it would). Or the choice to leave unchecked the spread of greenhouse gases. Or to leave unregulated the exploding use of antibiotics in our food supply--producing deadly strains of E. coli. Or the inability of the twenty years of "small government" Republican presidents in the past twenty-nine to reduce the size of government at all. Or... you fill in the blank. From the perspective of what the People want, or even the perspective of what the political parties say they want, the Fundraising Congress is misfiring in every dimension. That is either because Congress is filled with idiots or because Congress has a dependency on something other than principle or public policy sense. In my view, Congress is not filled with idiots."

And:

"But it is this part of the current crisis that the dark soul in me admires most. There is a brilliance to how the current fraud is sustained. Everyone inside this game recognizes that if the public saw too clearly that the driving force in Washington is campaign cash, the public might actually do something to change that. So every issue gets reframed as if it were really a question touching some deep (or not so deep) ideological question. Drug companies fund members, for example, to stop reforms that might actually test whether "me too" drugs are worth the money they cost. But the reforms get stopped by being framed as debates about "death panels" or "denying doctor choice" rather than the simple argument of cost-effectiveness that motivates the original reform. A very effective campaign succeeds in obscuring the source of conflict over major issues of reform with the pretense that it is ideology rather than campaign cash that divides us."

For those of us who want to see intellectual property law changed or eliminated, here is the reality we face: nothing will change until something sharply limits campaign contributions.

Price Waterhouse Cooper has compiled a study of the costs of non-performing entities in patents (otherwise known as trolls) link here

No surprises: the trolls make more from suing than performing entities (manufacturers) do from suing (shorter time to trial, higher success rate, higher damages).

More evidence of a sick system. And the trolls have learned how (jury trial) and where (Eastern Virginia and Eastern Texas federal district courts).

The Supreme Court decided Citizens United v. Federal Election Commission this week link here. It declares that corporations and other groups have the same rights as live humans. The left considers this a great defeat which will lead to a flood of corporate money in elections to the detriment of the average voter while the right only sees a justified extension of corporations and other groups freedom to speak and spend money to affect political races.

Professor Juan Cole in his blog, Informed Comment, asks a sensible question: Does this decision really change the amount of corporate money in political campaigns? The cynic might note that both parties seem to be captive of one interest group or another. Another blogger noted that TV time for political ads is already fully spoken for.

There is some irony, however, when one notes that both Chief Justice Roberts and Associate Justice Alito carefully claimed to be judicial conservatives and would stick with precedent. In fact, they are turning out to be radicals of the right. Stay tuned to learn the new surprises they have for us.

For the record, the blog, Economics of Contempt, has what it calls The Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble link here

It begins, "The housing bubble has precipitated a severe, and possibly catastrophic, economic crisis, so I thought it would be useful to put together a list of pundits and experts who were dead-wrong on the housing bubble. They were the enablers, and deserve to be held accountable."

It cautions, "The list includes only pundits and (supposed) experts. That means the list doesn't include policymakers such as Alan Greenspan and Ben Bernanke, because however wrong they may have been, policymakers and especially Fed chairmen are undeniably constrained in what they can say publicly. I strongly suspect that both Greenspan and Bernanke honestly believed that there was no housing bubble, but alas, we'll never know for sure. The list also doesn't include pundits/experts who were wrong only about the fallout of the collapse of the housing bubble that is, the extent to which the collapse of the housing bubble would harm the economy."

Most of these names are new to me. But after the dot.com bubble, I stopped paying attention to "financial" experts. The current record doesn't make it any more likely I will change my judgment.

Bill Moyers Journal has had several programs on the financial crisis; the latest was this last week and is well worth watching (both the video and the transcript) link here.

Moyers interviews two writers for Mother Jones magazine, David Corn and Kevin Drum who have been investigating and reporting the scandal for some time. They detail how Wall Street money is fueling the political campaigns of both parties, is deeply embedded and enjoyed by the economic officials of the administration, and by Congress, not to mention the Washington think tanks. It pretty well dooms any meaningful financial sector reform; although the Obama White House has been leaking hopeful sounding trial balloons this week, holding one's breath is not to be recommended.

To predict the outcome, check what Wall Street is willing to accept and then read the fine print very carefully. And enjoy the video if you can.

"What's a Bailed-Out Banker Really Worth?" writes Steven Brill in his exploration of the ins and outs of setting executive salaries and benefits under the government's bailout of the too-big-to-fail banks and companies link here.

Started in response to the public anger over the financial mess, it is not likely to satisfy most people, based on this account. We are more likely to find our anger reignited, first by the level of compensation established and second by the behavior of the banks and their senior management, most of whom orally agreed to return their 2009 bonuses but then all but two failed to do so.

In some ways, this account is of a kabuki dance between special master for executive compensation Kenneth Feinberg on the one hand and the Wall Street banks where "by their account, all the bankers are above average and worth every penny of it", the Treasury Department, and the New York Fed on the other. The proof was the happiness of the bankers at what they got about 60 percent of the total compensation they had tried to justify.

Brill notes that the executives, their boards of directors, and the recruiters for board members are tightly meshed in their common interests in maximizing the levels of compensation, so that won't change.

Where the article fails is its lack of attention to overall financial reform. Executive compensation is a minor issue compared to the tens of billions that were earned by the banks and passed out to the Wall Street elite. The public is still waiting for that and hopefully will not be put off by minor cosmetic fixes such as are described here.

As we all know, the public is angry about the big Wall Street bank bailout and they have reason to be. Peter Goodman writes a "fair and balanced" piece quoting both critics and the banks on the government program to protect homeowners from foreclosure that is offering some palliatives but really only delaying the inevitable loss link here. At the same time, the banks seem to be making out very well. Goodman suggests with a few examples, that they are exploiting their superior bargaining position and knowledge to maximize their return.

The public is paying the banks in ways most people don't realize. They are of course aware that the government--i.e., the taxpayer--is on the hook for the direct payouts which must ultimately be covered by taxes. But that is a pain somewhere in the future, not today. But they are also paying in the form of reduced earnings on their savings as the FED continues its low interest rate policies. Low interest is essential for the banks to be able to get deposits or borrow in order to lend and "earn their way" back to solvency, but there it is again--the public pays, not the banks, or their stockholders or their management with their gigantic salaries, bonuses and benefits.

The public should also be asking about the reform they have been promised so that the same crisis doesn't occur again or is at least much less devastating. Instead, they hear about the successful lobbying of the financial industry to block it.