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Fun with vampire squids: The post on Goldman Sachs you must read

[I'm leaving this sticky because a synonym for "economic rent" would be really nice to have and propagate. -- lambert]

Go read Numerian for a lucid explation of how GS is making its money. I'll wait.

Now, I want to pull out two paragraphs:

We’ve seen this year the scandal over High Frequency Trading, where Goldman and other firms have computers positioned at the New York Stock Exchange getting information on trades a millisecond before they are posted publicly. Goldman sees where the market is going second by second, positions itself for very short term profits, and in effect extracts a tax on trading by individual investors and mutual funds.

This tax is, exactly, a "rent," a concept which -- lambert blushes modestly -- we were hammering on rather early on, and which our tribunes of the people on the A list still haven't latched on to.

The second paragraph:

Why is the government allowing Goldman Sachs to function this way? It now has access to the Fed discount window and lender of last resort facilities, it gets funding from the Fed at close to zero percent, it is no longer subject to market runs on its stock because the FDIC backs up its deposits, and supposedly it is now visited routinely by Fed examiners who can see exactly what is going on. Yet there is not a peep of objection from the Fed, the Treasury, the White House, or even Congress about a soi-disant investment bank now converted into a commercial bank, which openly disdains any suggestion it should act like a commercial bank, which is struggling in its traditional investment banking businesses, and which is still allowed to make money hand over fist through outright speculation and what we might call “trading with advantages.”

Again, rents.

We could ask the same question of GS that Anthony Weiner asked of the health insurance companies: "What value do they add to the transaction?" None at all. They're parasites, both Goldman Sachs and Blue Cross/Blue Shield, Anthem, Aetna, and all the rest of 'em.

Back in the populist era, the term for parasites like Goldman Sachs was "robber barons." The metaphor was from Germany in the middle ages: Barons with castles along the Rhine would install a chain across the river, and for a boat to pass, they'd have to pay a toll, or the Baron wouldn't raise the chain. The toll, exactly, is a rent. What value did the baron bring to the transaction? None. The baron was a parasite.

Of course -- and the lightbulb just went on for me on this two seconds ago -- that metaphor sounds old-fashioned today. However, in the populist era, it would not have: Working class German immigration was huge, and they would have understand the metaphor immediately.

So, for today we need a better metaphor. Parasite doesn't quite do it, because parasites are sneaky and weak; but the robber barons extracted their rent by force, by controlling a central artery -- just as the banksters and health insurance companies do today, except the rivers are of money, not water. Perhaps vampire squid is an even better metaphor than I thought... Readers?

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CMike's picture
Submitted by CMike on

These words are in popular use but each are associated with a different definitional sense from the ones you are using here. The Right has been able to reeducate the public understanding of words like "theft" (e.g. taxes are theft) and "freedom" (e.g. freedom to work for lower than living wage pay). I'm not sure how they pulled it off, I guess you need a lot of spokespeople in media using the same talking points.

Your use of the word "toll" works better and it lends itself to a little history lesson. The problem is that today's plutocratic plundering is so taken for granted that it is essentially invisible to the general public. And the corporate owned MSM keeps that magic trick working.

How about something along the lines of: we're living in the Corporate Casino where the game is fixed and still the house takes a rake out of every pot played? Or you could get a bit more literal: the corporate lobbyist as a recidivist mugger of the public interest ever making a mockery of the First Amendment freedom to "petition the government."

Submitted by lambert on

But until we have the right word, I'd rather use the specialist's accurate term.

I've thought of "private tax."

I think "rake" is obscure.

"The house cut"? (I think it's great to connect with gambling -> casino -> finance -> banksters.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Jeff W's picture
Submitted by Jeff W on

the term, not the actual thing.

I'm not any sort of economics expert (in fact, I barely understand the stuff Ian writes about) but I like the term rent, not only because it appears to be the correct technical term (see Confucius's Rectification of Names) but also because it just fits in with terms like rent-seeking and rentier state. (Maybe, because I had read John Ghazvinian's highly readable Untapped: The Scramble for Africa's Oil, where he talks about "rentier states" like Gabon, I didn't find the term so weird.) And rent does sort of convey a rapacious, evil landlord kind of image:

Yeah, I agree that it doesn't quite work rhetorically but it does have its own advantages. And, besides, I read Corrente and other blogs not only see what people are saying on topics of interest but to actually learn new stuff—and the concept of economic rent is a good one to learn (even if I didn't learn that particular one here). Just my 2¢.

And parasites doesn't work for me at all. I just don't picture Cigna or Aetna as a tic sucking blood from my body. Too tiny and too dependent.

Every apathetic citizen is a silent enlistee in the cause of inverted totalitarianism.—Sheldon Wolin

Submitted by lambert on

Is there a more intense and exploitative synonym for "rent"?

* * *

Agreed on "parasite." That's why "vampire squid, sinking its blood funnel" has such great merit.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Jeff W's picture
Submitted by Jeff W on

I was thinking of that exactly as I wrote that comment but was too lazy to find his picture.

Here it is (used, appropriately enough, in the Wikipedia entry for "villain"):

(I have, believe or not, a certain fondness for that image. Years ago I used that exact image to illustrate the word "villain" on, of all places, the English language forum of China Daily, the CCP's English-language mouthpiece; one of the more mischievous forumites—who reminds me a little of you, lambert, in a way—said it was a typical image of Uncle Sam, which I, ever a complete fan of subversiveness and snark, whether I agree with it or not, found amusing. I shot back with a Chinese phrase to the effect that "A base person often thinks of a man of honor as being mean as himself," or maybe, "Villains often see honorable people as being as villainous as themselves"—the best I could do, since I don't speak Chinese—and started a friendship that continues even to this day.)

Every apathetic citizen is a silent enlistee in the cause of inverted totalitarianism.—Sheldon Wolin

Submitted by cg.eye on

Vigorish, or simply the vig, also known as juice or the take, is the amount charged by a bookmaker, or bookie, for his services. In the United States it also means the interest on a shark's loan. The term is Yiddish slang originating from the Russian word for winnings, vyigrysh. Bookmakers use this concept to make money on their wagers regardless of the outcome. Because of the vigorish concept, bookmakers should not have an interest in either side winning in a given sporting event. They are interested, instead, in getting equal action on each side of the event. In this way, the bookmaker minimizes his risk and always collects a small commission from the vigorish. The bookmaker will normally adjust the odds, or line, to attract equal action on each side of an event.

Prob is, our banksters can't even be honest enough not to bet in a setup where they already get vigorish for creating the market.

CMike's picture
Submitted by CMike on

A lot of working class people are familiar with the concept of "the vig" if not the word itself. So, introducing that word to a wider audience very well might be doable.

I suggested the word "rake." That's how the house makes money off of poker in cash games, lower-limit ones anyway. There's a lot of poker on television but it's all tournament action where the house makes money the same way a lottery makes money, i.e. by holding back some of the buy-in money when it's time to make the payout.

As Adam Smith recognized:

The world neither ever saw, nor ever will see, a perfectly fair lottery; or one in which the whole gain compensated the whole loss; because the undertaker could make nothing by it. In the state lotteries the tickets are really not worth the price which is paid by the original subscribers, and yet commonly sell in the market for twenty, thirty, and sometimes forty per cent advance...

There is not, however, a more certain proposition in mathematics than that the more tickets you adventure upon, the more likely you are to be a loser. Adventure upon all the tickets in the lottery, and you lose for certain; and the greater the number of your tickets the nearer you approach to this certainty.

Why are people willing to play? For-profit lottery sponsors have long recognized and exploited a widespread but anachronistic form of hunter-gatherer logic:

That the chance of gain is naturally overvalued, we may learn from the universal success of lotteries. The vain hope of gaining some of the great prizes is the sole cause of this demand.

These days a lot of talking-head champions of unregulated capitalism play upon that same failure of logic when signing up marks in their corporate sponsored racket. At least there is some entertainment value in playing the lottery.

I probably should refer to my all-time favorite Paul Krugman article at this point now that I think of it. Here he is commenting about the then growing tech bubble of the late nineties:

If you follow trends in psychology, you know that Freud is out and Darwin is in. The basic idea of "evolutionary psych" is that our brains are exquisitely designed to help us cope with our environment - but unfortunately, the environment they are designed for is the one we evolved and lived in for the past two million years, not the alleged civilization we created just a couple of centuries ago. We are, all of us, hunter-gatherers lost in the big city.

Submitted by Joshfulton.blogspot (not verified) on

There's also the fact that Goldman Sachs may have stolen or, more likely, have been given this program from the government.

http://www.huffingtonpost.com/eben-ester...

Basically, the idea is that this high frequency trading program comes from a group called "the Plunge Protection Team." The plunge protection team was set up by an Executive Order in 88 to help prevent stock market crashes. There are four members on the Working Committee: Secretary of the Treasury, Chairman of the SEC, Chairman of the Commodity Futures Trading Committee, Chairman of the Board of Governors of the Federal Reserve.

As far as I know, the main way they had of preventing these crashes is through some computer program that was used to stabilize things. Well, the belief is that Goldman Sachs, through their connections with the government, got access to this program. There was all this stuff on Zero Hedge how Goldman was having all these $100 million trading days that seemed to support it.

gqmartinez's picture
Submitted by gqmartinez on

And we need to be explicit in noting the active, ongoing process. I don't think "private tax" is strong enough. Something like "privatization tax" seems at least a little stronger. We are subsidizing a process, privatization, that is making life harder for people. Alternatives: "piracy tax", "looting tax", etc. What's going on isn't an inherent property of the system, but a deliberate gaming of the system. Government isn't bad, but the current operators are. And they are trying to make things even worse for people.

Only tyrants rig elections.

CMike's picture
Submitted by CMike on

That word "privatization" has to start having a cost to the Right when it is used. I'm reminded of this passage from Eric Schlosser's Fast Food Nation:

The McDonald's Corporation now [2002] operates more than 8000 playgrounds at restaurants in the United States. Burger King has more than 2000. A manufacturer of "playlands" explains why fast food operators build these plastic structures: "Playlands bring in children, who bring in parents, who bring in money." As American cities and towns spend less money on children's recreation, fast food restaurants have become gathering spaces for families with young children. Every month about 90 percent of America's children between three and nine visit a McDonald's. The see-saws, slides, and pits full of plastic balls have proven to be an effective lure. "But when it gets down to brass tacks," a Brandweek article on fast food notes, "the key to attracting kids is toys, toys, toys."

Beware, however, of trying the judo move of using the word "tax" pejoratively as that is likely to end up doing our side more harm than good.

Submitted by lambert on

That's a boomerang in the making, definitely. I don't think we can revamp it for our purposes, it's such a charged word.

* * *

I'm starting to like "the vig." Thoughts? Interesting alternatives:

Vigorish, or simply the vig, also known as juice or the take, is the amount charged by a bookmaker, or bookie, for his services. In the United States it also means the interest on a shark's loan. The term is Yiddish slang originating from the Russian word for winnings, vyigrysh. Bookmakers use this concept to make money on their wagers regardless of the outcome. Because of the vigorish concept, bookmakers should not have an interest in either side winning in a given sporting event. They are interested, instead, in getting equal action on each side of the event. In this way, the bookmaker minimizes his risk and always collects a small commission from the vigorish. The bookmaker will normally adjust the odds, or line, to attract equal action on each side of an event.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

CMike's picture
Submitted by CMike on

It does have a readily identifiable ethnic origin, though. And, unfortunately, for centuries, when any movement goes after that band of brothers (financiers I mean), Shylock always ends up bearing more than his share of the brunt.

Tricky business, this framing stuff. (One thing's for sure, we can't be any worse at it than wannabe Democratic Party framing guru George Lakoff.)

Submitted by lambert on

... what will happen when the wingers get to work on "Goldman Sachs." I mean, really. Truly, they are stupid.

So, I see the issue with "vig." Isn't "rake" obscure? What's wrong with "the house cut?"

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Submitted by hipparchia on

how much explaining does that one take?

although i like gqm's suggestion of piracy too.

Submitted by lambert on

And also has social connotations that aren't correct. Ditto piracy.

I don't mind using looting or theft as generic terms of well-deserved abuse, but the word needs to fit the concept.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

CMike's picture
Submitted by CMike on

We may have a winner. And perhaps hipparchia was actually in the middle of slow rolling you as it looks to me like she and Dylan Ratigan, the former CNBC cheerleader for the Plutocrats who is now a born again MSNBC populist, were kicking their terminology around together yesterday and they've come up with the needed modifier. See the last paragraph of Update III here.

The first two minutes of the video are a waste but thereafter it gets interesting. I also like the "black magic" term thrown out by Alex Witt at the end of the segment. During the transition to the next segment, which dealt with the stimulus, Ratigan refers to "Corporate Communists." I'm surprised that wasn't followed by a rimshot.

(As to the technical term for what we're discussing, there all ready is one that's a bit more overarching than economic rent. I've been meaning to work up a particular comment about it for a while now, to stick in a BDBlue thread. In these neo-liberal times it is about as politically incorrect as it can be. I want the concept and the terminology to get a fair hearing so I won't just throw it out here now.)

Bryan's picture
Submitted by Bryan on

It literally means "bite", derived from the verb "to gnaw on". It is used in all trading, which, thanks to the marvelous Soviet system, was illegal and underground.

If you bought something on the black market, everyone took "a bite" before you got it. This is generally called a commission or handling fee in the West.

In some situations, like the GULags, the "bite" was a literal description of what happened, as food was the only thing of real value.

While few people in the US are Russian linguists, most watch cop shows, and "vig" and "vigrish" are standard cop slang for illegal profits.

The Russian infinitive is vygryzat [preview permits Cyrillic, but the comments font doesn't].

Jeff W's picture
Submitted by Jeff W on

Isn't that strange? I get that also if I use a few of the ASCII characters or symbols like the greater than or equal to sign.

If Preview and the Chat Box can accommodate different fonts, can't the comments font? (Not complaining, lambert—just a friendly request.)

Every apathetic citizen is a silent enlistee in the cause of inverted totalitarianism.—Sheldon Wolin

Submitted by lambert on

That's the connection I make. Which has the great merit of being true.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi