Osborne Ink ::

Thursday, all of America was distracted by a bright, shiny object. For two hours, every major news source followed the slow progress of a homemade blimp, and reported with very little skepticism about the 6 year old boy riding within it, and America watched. And what did we watch? A shiny balloon. A balloon with, we were told, a boy inside of it.

Sure, the reporters told us, it wasn’t a certainty that the boy was inside the balloon. But here’s the balloon anyway, shutting down airspace and hurtling through the atmosphere. Schrodinger’s cat type stuff–we can’t see inside, so there’s no way to know for sure, but look at the shiny object, and visualize the poor 6 year old child inside of it.

Apparently, no one bothered to look–really look–for the boy, who was hiding in a box in the attic of his Fort Collins, CO, home as if performing an abridged version of The Diary of Anne Frank, minus Nazis. No, the boy needed to be in the balloon, because who wants to spend an afternoon staring raptly at television images of a balloon floating through space, no matter how interesting Wolf Blitzer makes it seem, unless there is a precocious 6 year old inside of it?

I don’t really fault the parents for the absurdity of this Thursday afternoon. I mean sure, having a dirigible in your back yard is irresponsible parenting, at best, but most parents do equally irresponsible things (my parents used to throw me in a trunk and drive me to drive-thru movies, just to avoid paying my admission, for example), and most of those things are not nearly as (frankly) cool as building and maintaining a flying apparatus, then storing it the back yard.

And I don’t really fault the emergency response team. They did their job. They followed the shiny object, they secured the shiny object, they prepared to rescue the imaginary child inside the shiny object. Task-oriented. That’s what emergency response teams should be. Critical thinking should be limited to the task, and not to the media circus surrounding that task.

Some blame rests with the investigative team, all of whom interviewed the only eyewitnesses to the launch of the 6-year-old-boyless balloon. Falcon Heene’s older brothers. The elder brothers all insisted, time and again, and with unanimous consistency, that little Falcon had been inside the balloon when it slipped the surly bonds of earth to touch the face of ratings gold. But apparently it didn’t occur to those investigators to thoroughly search the Heene residence.

Most of the blame for the Day America Stopped Working and Watched a Balloon, As if Suddenly Everyone Understood American Beauty, rests with the media. The media, which are so concerned with mini-narratives and storytelling that they are incapable of actual reporting. The media, ratings-starved and secretly hoping for another Jon-Benet, another Columbine, another OJ. The media, which should have taken a moment to reflect on this:

If a 6 year old kid is flying around in a helium-filled balloon for 2.5 hours, he’s dead from asphyxiation. It is therefore morbid and perverse to hype the flight of a balloon carrying a 6 year old dead boy, and show unlimited coverage of what amounts to the child’s airborne coffin.

But! It didn’t occur to the media that the kid, if aboard the mini-zeppelin, would be stone dead within an hour from asphyxiation since HELIUM ISN’T OXYGEN. Or at least it didn’t occur to the journalists at 9 News out of Colorado, which was the feed most networks relied on for their breathless “OMG It’s a little boy soaring above the earth” coverage. It occurred to me. It probably occurred to a lot of passive watchers of the potential tragedy. But to the intrepid journalists of 9 News, too busy shaping the ‘narrative’ of the story to be bothered with the facts of it, not one of them seemed to consider the difference between a kid surrounded by oxygen and a kid surrounded by helium.

Around the second hour of 9 News’ determined coverage of a childless balloon’s progress across a small swath of Colorado, producers apparently had the bright idea to call in an expert of some sort, to give the on-air talent someone other than each other to jaw at. The expert–maybe he was a doctor? A physicist? A balloon-animal clown? I don’t know! I should work for 9 News!–casually mentioned that if the child was in the balloon, and if he was not in a compartment separate from the helium of the balloon, he most likely would be dead. The expert dropped this little nugget of mortal clarity while answering one journalist’s question about the kid’s chances of hypothermia (the journalists had spent most of the balloon’s flight discussing the prospect of little Falcon’s body being deep-frozen); when the expert brought up the more likely, obvious scenario of asphyxiation, the journalists looked as if it had been they, and not Falcon, who’d been hit by sub-zero blasts of air.

I’m not kidding. The most obvious fact of the whole situation, and not one journalist had thought of it. The expert mentioned “asphyxiation,” and you could quite literally see the on-air talent go cold. One of the anchors even said, hastily, “We’ll be cutting away when the balloon lands, because we don’t want to show a dead child live on the air.” At no point in the previous hour had that statement been made (to my knowledge, anyway. And it was a frequent refrain from that point onward:”We’ll cut away. Respect for the family. You don’t want to see a dead kid, do you?”).

When they mentioned hypothermia in that first hour, the reporters seemed disingenuous, as if they knew it wasn’t a possibility but wanted to play with the idea just to keep the audience concerned and watching. Until the expert said ‘asphyxiation, the journalists (anchors, on-air talent, whatever) had been presenting a tragedy-deferred type story, where the denouement would be on the ground, cut and dried: if the balloon crashes, the boy is dead and you have a sad story; if it lands safely, the boy will pop out in tears but alive and you’ll have a happy story. At no point did it occur to the journalists that the story was already over, and they’d been reporting on a floating grave.

Once the balloon landed and it was revealed that no one was inside (and, btw, they did NOT cut away, as promised, but doggedly followed the visuals as the rescue team secured the balloon), a new narrative twist emerged: the boy had fallen from the balloon before anyone had started tracking it. The “Little Falcon died before we had a chance to figure it out” narrative went on for a while.

A grid search began. Interviews began. The media dug deep, found out the Heene family’d been on “Wife Swap,” and “Storm Chasers.” Found out this fact, found out that fact, dug up everyone who’d ever known the family, put them in front of a camera. Pushed and pushed the possibility of Falcon being dead long before the media ever got hold of the story, as if deflecting the responsibility of there even being a story. As Vonnegut would say:

No damn cat, no damn cradle. No damn kid, no damn story–unless he was dead before we got here. So watch this interview with the psychic mom from ‘Wife Swap.’

And the kid was, all the while, in the attic of the family home, not too far from all the cameras and the reporters and the investigators and the interviewees.

The story, as small as it was, turns out to be this: A young boy did something he thought he’d be punished for (set loose his father’s weird UFO-shaped helium balloon), and hid in the attic to avoid punishment.

But what really happened was this: a desperate media turned their collective backs on the simple story, and went bold, creating elaborate fictions out of a bright, shiny object.

And of course America–me included–followed the bright shiny object because that’s what Americans have been taught to do. We know the story is always in an attic in a box, terrified of discovery, but we’re so used to looking at White Broncos that we’ll follow the bright shiny object every time. Then hate ourselves after.

Hey, how’s Afghanistan going? Who cares–Iraq is much brighter.

The story of our ongoing financial disaster is an epic global labyrinth. There are so many moving parts to the meltdown that it still hasn’t been given a name. Paul Krugman may have gotten a head start in calling this epoch of history The Great Unraveling, but in light of the events of these last few days — time I spent wrapping my head around this tale even as events unfolded — a good name for the phenomenon behind The Unraveling presented itself.

I call it MAD MONEY.

Over the last ten years, a kind of insanity infected Wall Street, Washington, and the financial media. Metastasizing throughout global markets, this phenomenon became more than simple greed. What has raised its ugly head is nothing less than a malevolent force of atavistic evil. While talking heads yap about ‘class warfare’ and socialism, Mad Money is really about wealth destroying wealth. Newsweek columnist Daniel Gross has offered to call it “the war between the estates:”

…while a lot of (small) bad loans were made to poor people by the subprime-lending industry, a bunch of (really big) bad loans were made by wealthy institutions—Wall Street investment banks, opportunity funds, hedge funds—to other really rich people.

But whereas Gross would have us regard Madoff as the end of the story, it is just the beginning. We begin as the ponzi schemer gets marched off to the klink today, never to emerge alive:

NEW YORK — Saying he was “deeply sorry and ashamed,” Bernard Madoff pleaded guilty Thursday to pulling off perhaps the biggest swindle in Wall Street history and was immediately led off to jail in handcuffs to the delight of his seething victims. Madoff, 70, could get up to 150 years in prison when he is sentenced in June.

This is the story of how our own modern-day masters of the universe, that elite corps of financial geniuses in power ties, destroyed the global economy. We lesser mortals are just collateral damage in their apocalypse of wealth. Over at Newsweek, Gross sums it up nicely:

…let’s not forget the scams. Plenty of poor and working-class people got fleeced in housing-related scams. But you could add them all up, and they’d still be dwarfed by the biggest one of them all, Bernard Madoff’s Ponzi scheme, which disproportionately targeted the already wealthy.

Madoff was just the first of a series of schemers who’ve started to fall. Everyone has now heard about ‘Sir Stanford’ and his international bank collapsing. Federal investigations are multiplying. Some of this is just due to the way bad economic times leave these high-flying con artists high and dry, but the Madoff scandal alone is already turning out to be bigger than we thought – much like the continuing bailout of insurance giant AIG.

Indeed, there are striking similarities in the fallout of Madoff and AIG. Just as we are still learning the extent of Madoff’s perfidy, AIG refuses to explain exactly to whom they made those collateralized debt obligations (CDOs) and how much they actually owe. AIG wrote insurance policies for all those toxic mortgage-based securities, so every time a bank has written down those assets the insurance giant has needed another trip to the government trough. There’s no telling how deep this hole has been dug.

Here’s Gross again:

The Dumb Money debacle required the active work (or passive nonwork) of hordes of really well-compensated professionals: executives at financial-services companies, hedge-fund managers, corporate board members, credit ratings agency officials, private-equity investors, CEOs. These were people who had every incentive to preserve the system and the wealth it had produced for them, their friends, and their neighbors. So if you want to find the real culprits in the war on wealth, don’t look to Washington.

Again, Gross is wrong about one thing: the architects of this disaster were NOT given any incentives to “preserve the system.” Indeed, Mad Money actually provides incentives to undermine the system.

Mortgage brokers got Mad Money by creating subprime mortgages.

Bankers contracted Mad Money by turning those mortgages into bonds.

Investment rating agencies were infected by collusion with the bankers, passing these bonds off as good risks when they were deeply flawed.

Investors developed Mad Money when they drank from a flood of toxic securities.

Insurers caught the illness by backing up these investments.

Congress was so bloated on Mad Money that it deliberately infected the agencies tasked with monitoring for Mad Money.

The chain of Mad Money infection could have been broken at any point. If just ONE of these links had been incentivized against Mad Money, we might not be where we are.

Which brings me to this item:

WASHINGTON – Dramatic changes in the global economy may merit restoring a federal rule aimed at preventing a massive plunge in a stock price caused by a rush of short sellers, the head of the Securities and Exchange Commission said Wednesday.

[...]

The uptick rule, which the SEC eliminated in 2007, requires short sellers — those who try to profit from a stock’s decline by selling borrowed shares — to sell at a price above a stock’s most recent trading price.

What does short-selling have to do with Mad Money? Everything. Because while the apostles of Ayn Rand were busy destroying banks, credit raters, and the rest, they were also undermining the fabric of the markets themselves:

“Approximately US$1.8 trillion worth of trades remain outstanding and unsettled globally every business day, contributing significant credit and operational risk exposure to the trading participants.”

Mr. Mad Money himself not only admits to short selling, but admits to deliberate destruction of American companies. And there’s absolutely nothing ‘constructive’ about that destruction when it’s done through media and market manipulation in the sheer pursuit of profit and not because a company is doing badly.

The problem is particularly acute with so-called “naked short selling,” or NSS. Whereas normal short selling can be an important part of keeping stock prices honest, naked short selling is patently illegal if the short-seller doesn’t deliver the shares they borrow — and almost $2 trillion of all shares traded every day “fail to deliver.” Here’s a video of Patrick Byrne, CEO of Overstock.com, a company that’s been hammered by exactly this sort of activity:

For years now, Byrne’s company has been on a special list of companies suffering from the naked short sell. Appearing many times on financial news shows, he endured ridicule in both print and video for calling attention to NSS. Many financial pundits spoke against him, assuring readers and viewers that his claims were ridiculous. That media denial ended when the SEC put a ban on naked short selling last year.

Byrne is lucky his company still exists at all. By one estimate, a thousand US companies have been destroyed by NSS. This is purest manifestation of Mad Money; it leaves a buyer with “phantom stock,” the company less able to raise capital, and the naked short seller with every incentive to repeat the process.

Madoff was up to his neck in this racket. From Bloomberg:

Jan. 27 (Bloomberg) — Bernard Madoff’s brokerage firm owed customers $600 million in stock it didn’t have on hand, Securities Investor Protection Corp. President Stephen Harbeck told Congress.

[...]

The clients included banks, hedge funds, charities, universities and wealthy individuals who have disclosed about $41 billion invested with Bernard L. Madoff Investment Securities LLC, according to a Bloomberg News tally of disclosures and press reports.

This is wealth attacking wealth. Hedge funds undermining hedge funds. Investment firms undermining investment firms. These are capitalists destroying 45% of the world’s capital, according to Steve Schwarzman, CEO of the Blackstone Group and arch-capitalist. The financial world has been littered with the corpses of capital institutions and there’s not a communist, socialist, or liberal anywhere in sight.

But back to the original Mr. Mad Money, who once bragged of his creative ways to destroy a company and now headlines the evening lineup on CNBC. Jon Stewart has been hammering Cramer the last few nights on The Daily Show, playing revealing clips of Mr. Mad Money making terrible stock picks. Cramer’s track record has been truly abysmal: according to Barrons investment magazine, you are better off short-selling his buy recommendations. The fued led Cramer to appear on the entire NBC morning show lineup this week to attempt damage control. But tonight, Cramer appeared on Stewart’s show to face the music:

NEW YORK — There were laughs, but in the larger sense there was nothing funny about CNBC stock picker Jim Cramer’s widely anticipated appearance on Comedy Central’s The Daily Show with Jon Stewart Thursday night.

In response to aggressive questioning by Stewart, Cramer said that he was “chastised” and wished that the financial news network had done more to expose Wall Street corruption.

Stewart repeatedly blasted the channel for cheerleading Wall Street in the run-up to the worst economic downturn since the Great Depression. He questioned whether it was “selling snake oil as vitamin tonic” in a way that was “disingenuous at best and criminal at worse.”

“Absolutely, we could do better,” Cramer said. “There are shenanigans, and we should call them out. Everyone should. I should do a better job at it. I’m trying.”

Let us hope he tries very hard, because Jim Cramer has been the Typhoid Mary of Mad Money disease. His channel has become little more than a glossy brochure for Wall Street, trading any journalistic integrity for access. But CNBC is not alone; in fact, the entire financial media has become the public relations department for Mad Money disease. This even extends beyond the MSM; the internet is not immune. As PR expert Judd Bagley explains at his website, even Wikipedia has been infected by Mad Money. This is a rabbit hole Patrick Byrne has also explored in depth at his website.

It’s bad enough that the SEC couldn’t be bothered to investigate Madoff even when a whistleblower handed them a pile of evidence on a silver platter. Bad enough that Congress still can’t get officials from the Federal Reserve to name names in the bailout mess. It’s worse that the media treated “Sir” Allen Stanford like a rock star. (I’d post a YouTube video of one of these fawning interviews, but they’ve all been removed from YouTube by embarrassed media conglomerates.) But most damaging of all, the financial media never warned us about mortgage-backed securities, fraudulent bond ratings, or naked short selling. In fact, their approach to NSS has been much like Exxon’s approach to global warming: denial.

Why would journalists be so worshipful of these scam artists and capital destroyers? Again, Mad Money has incentivized cheerleading instead of reporting:

In short, The Great Unraveling happened because money attacked money in the pursuit of money. This goes beyond greed. It is the logical end to a theology of wealth that began with Ayn Rand, whose novel Atlas Shrugged is now back on the bestseller list:

Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns–or dollars. Take your choice–there is no other.

Treating money as “the root of all good” is the very essence of MAD MONEY. But rather than Darwinian utopia, Rand’s prescription has brought about a massive, willful destruction of money. Rand, who espoused selfishness as religion, has long been the apostle of naked short sellers and non-creative destroyers as well as Alan Greenspan. She promised a race of supermen, but instead we got Bernie Madoff and Jim Cramer — hardly ubermenschen. Perhaps it’s time for another book, Hannah Arendt’s meditation on the banality of evil, to experience a renaissance as our Great Unraveling continues.

Below is a 30-minute Bloomberg video about the problem of naked short selling.

h/t to dday over at Hullabaloo for turning me on to all this. Also, kudos to The Easter Bunny at Sanity Check, my new favorite blog.