If you’re interested in the ongoing financial calamity, or maybe even if you’re not, and whether or not you think you understand what happened, I highly recommend that you set aside a few minutes to read Michael Lewis’ remarkable The End. I find myself, off and on, suffering from unmanageably severe anger at the financial professionals who paid themselves millions for driving the economy into a brick wall at high speed, then walking away while we pick up the pieces. Reading The End didn’t help. So what are we going to do?

Lewis of course first burst onto the scene with Liar’s Poker, all about the Eighties flavor of Wall Street, and I’ve sung his praises here while reviewing Moneyball. He’s an outstanding writer and good at picking the right subjects to cover.

The Scumbags · That’s what they are. They bid up each others’ prices so it somehow seemed reasonable and natural to pay traders tens of millions and executives hundreds of millions, all to make high-risk bets with other people’s money leveraged at a factor of forty to one; when it all went sideways, the pension plans of a lot of honest men and women went in the toilet.

“Don’t obsess about your pension-plan statement, don’t even look at it,” they say. Well, sorry, I did, and I’m extremely angry. I don’t think I’m alone right now, and I’m going to be less alone as exposés like Lewis’ work the truth into the popular consciousness.

I suspect that the political class of the developed world is so busy staving off catastrophe (quite appropriately) that they haven’t really woken up to how incredibly angry the general population is with the clique of liars and thieves in really good suits who frittered away our pension funds and are now enjoying the proceeds. People are going to want to see some heads on pikestaffs. I want to see some heads on pikestaffs.

Let’s Get Real · We are after all, thank goodness, a government of laws rather than men, and probably these guys mostly didn’t break too many laws, at least too obviously. And while a public lynching of a representative sample of the population chosen from among hedgies and i-bankers and ratings-agency folk would be terribly satisfying, that’s not how we do things. I assume that to the extent that laws were broken, the guilty will get hauled into court. It occurs to me that a lot of financial executives signed SarbOx assertions that their financials were accurate, right? Which obviously they weren’t.

I’ve already offered some opinions as to how we can keep the next group who gets its hands on the financial steering wheel from steering the truck into the wall. But at the end of the day, I do actually believe in markets. And in that context, I’ve come to a conclusion as an individual, one I hope that a lot of other individuals come to.

For a living, I’m an IT generalist and a Web specialist. For doing this, I get paid reasonably well and thus I have some savings to take care of. My conclusion: it is neither fair, nor is it sane, for me to hand them over to people who get paid ten times and up what I do. So I’m not gonna. If that means I have to deal my nest-egg out among real estate, gold, and cash under the mattress, so be it.

So if anyone wants to help me with my money, I’m going to insist on complete transparency as to how they’re getting paid and how much they’re getting paid, and if it’s really a lot more than me, then I’ll know I can’t afford their services.

Which should have been obvious a long time ago. If a lot of other people come to similar conclusions, maybe we can bring some sanity to the money business.

A Request · Dear governments of the world: Can you please identify at least a few lawbreakers so we can watch the perps walk? It would make your citizens feel so much better.


Comment feed for ongoing:Comments feed

From: mogden (Nov 11 2008, at 23:00)

The really sad part is when you realize that Government is in cahoots with the looters of Wall Street. I used to be cynical before this year, but now the cynicism and distrust is 100 times more intense.

I have a shred of hope that Obama will improve things, but I'm not impressed with his plan to bail out Detroit (another fiasco in the making).


From: Tim Howland (Nov 12 2008, at 02:34)

I think the truly interesting question is the role that the rating agencies played here. Their job is to evaluate the safety of these securities, and their ratings were clearly far off. If you think of financial markets as information markets, the ratings agencies were clearly certifying garbage as if it were investment grade- without their abandoning their central responsibility, this mess would not have happened.


From: Wille (Nov 12 2008, at 03:14)

<i>I suspect that the political class of the developed world is so busy staving off catastrophe (quite appropriately) that they haven’t really woken up to how incredibly angry the general population is with the clique of liars and thieves</i>


Sorry to break your bubble, but the political class is in bed with the band of thieves and liars.

The current Fractional Reserve Banking system is inherently unstable at its core and allows for just this type of shenanigans when money can be made out of thin air backed by nothing but a hope and a prayer, whilst banks can lend out 10-20 times what they have in deposits (what happens to the capital base when its leveraged by 20 times and the assets backing the leverage fall by 5%?).

It is a reflection of the medias and our own ignorance that the current crisis has not led to a wider debate about the sustainability of fiat currencies and fractional reserve banking.

The politicians certainly don't have any interest in discussing it without being forced by general opinion, because the same system that allows bankers to rack up massive risk and make-believe profits before the fall, is the same system that lets governments rack up massive deficits whilst covertly taxing people through inflation.


From: len (Nov 12 2008, at 06:03)

I'm with Tim on the heads on pikes. I wonder if we have enough pikes.

Obama received generous donations from the same people who's heads should be adorning the pointy end of the sticks. I don't expect much in the way of reform initiated in the White House. I suspect it will take citizen's groups and a few ambitious Senators and House Members to make even a semblance of that happen.

As soon as Obama walked away from public financing in favor of the magic money machine of the web to the cheers of those here, he said with his feet that he would not cross swords with Wall Street. In this he is shadowing the footsteps of John Kennedy whose father's mob connections in Chicago made it difficult and some claim fatal to cross swords with his financiers.


From: david Simmons (Nov 12 2008, at 06:07)

I whole-heartedly agree. If only there weren't such collusion between the financial market and the tax code such that I *could* manage it myself. I have little choice but to hand it over to my 401(k) in order to realize any tax relief, and I have no control over how the managers of my 401(k) funds are compensated.

Maybe it's time to a) insist that our *own* corporate officers are not compensated at 25x the basic employee rate and b) have *them* insist that, if a fund manager wants to manage our 401(k)s, they have to have transparency in how they are compensated.

I'd settle for just b, but a & b would be ideal.


From: Stephen Waits (Nov 12 2008, at 07:33)

I suggest you read The Web of Debt, by Ellen Hodgson Brown, J.D. It may further anger you, but it's good stuff.


From: Paul W. Homer (Nov 12 2008, at 08:24)

What I find really sad is how we hold these people up on a pedestal, often making them into celebrities when they are winning, and then are so quick to cast them into the eternal fires. For a society that espouses hollow philosophies like "just do it", and a host of other "win at all costs" attitudes are we not being hugely hypocritical when that "devil may care" and "ends justify the means" type of "go-getter", "gumption" becomes the cause of our own personal financial pain? We set these fools lose didn't we? They're showing that type of entrepreneurial spirit that we're told is good, isn't it?

Honestly, I'm less angry at wall street, then I am with the people who will be drooling over the next set of crooks in an upcoming issue of Business 3.0 in a few years. It's a cycle that's been repeated too many times already.



From: John Cowan (Nov 12 2008, at 08:26)

All very well for pure cash, but what about 401(k) money? You can't keep *that* under your mattress, or the Collector of Taxes (who is no gentleman, and may he rot!) will come around and mulct you of a huge amount of it. You are stuck with the so-called professionals there. (When I worked at Kidder, Peabody before its demise, my boss, a former quant and even more former physicist, said that stockbroking was the professional field in which one was paid the most for knowing the least.)

Fortunately for me, and out of sheer laziness rather than craftiness, all my 401(k) money is in a money-market fund, so I dare hope that most of it is still intact.


From: callmeike (Nov 12 2008, at 08:49)

Hey Tim,

I absolutely share your sense of anger. If we are going to stop this kind of stuff, though, I think it is important to understand why it happened. I do not see this collapse as something done by a handful, or even a couple thousand, "bad guys".

To the extent that I understand what happened, lots and lots of people each took advantage of an opportunity to do something that benefited them, personally, with -- to be generous -- little sense of responsibility for the consequences. Some did it on a grand scale, some smaller. Some of us didn't get the chance... but might well have done the same thing, if we had.

I'd love to see responsibility actually mean something. Laws are an important part of that. Letting the problem go after the emotional release of a couple perps walk, though, is counter-productive in the extreme. It isn't that *we* need justice for *them*. It's all just us.


From: Eric Promislow (Nov 12 2008, at 10:27)

Interesting how last night on Ideas, Margaret Atwood, talking about debt, mentioned Jane Jacobs' excellent but overlooked book, Systems of Survival. Jacobs' thesis is that every successful society has two separate classes, a guardian class and a commercial class. When the line separating the two begins to blur, or, even worse, the two classes intersect, corruption results.

Now take that, and read the recent works by Naomi Wolf (The End of America) and Naomi Klein (The Shock Doctrine). It won't do much about your anger, but they provide a convincing framework that explains the current situation.


From: robert (Nov 12 2008, at 12:51)

A couple added (as of this writing) thoughts:

- what the Right Wing has been calling Socialism (bailouts, etc.) is really Original Fascism. Look up Mussolini's definition.

- in 1971 I wrote my senior thesis (economics) on the situation in Uruguay. They had decided to go Post-Industrial with a vengence, and well before other countries, especially the USofA. My conclusion was that we were headed for disaster, too, if we bought the Post-Industrial nonsense. Took a bit longer than I thought it would. Paul Ehrlich was dismissed too. Not so much now.

- Galbraith (father and son) is being listened to a bit more: both were adamant that economic collapse in Industrialized economies is a direct result of income inequality. Too obvious for the Right Wing, so they give us abortion, war, and God to make us look the other way.

- finally, the hypocrisy of the Right Wing is always beyond belief: it works very hard to destroy a nation's middle class ( at which it is very adept; Warren Buffett reminds us), then destroys its own market value when the disappeared middle class can no longer afford to support them.


From: Joe Pallas (Nov 12 2008, at 14:30)

I'm just not sure I buy the argument that the guy handling my money shouldn't be paid much more than I am. My reasoning is that I want the guy handling my money to be much smarter than I am, and that seems to mean he ought to be paid more than I am. The problem is that I can't easily tell the difference between a guy who's much smarter than I am and a guy who is actually dumber than I am (or much crazier) until it's too late. But I wasn't alone in this.


From: walter (Nov 12 2008, at 16:29)

Somebody please comfort me and tell us that the two books "The End" and the The Web of Debt" are fairy tells. That they are not based on reality.


From: Derek K. Miller (Nov 12 2008, at 23:59)

A new casino opened in our neighbourhood recently, and my wife and I were discussing our ambivalence about casinos in general, especially in B.C. where the money (as with lotteries) goes substantially to government programs, as a weird kind of taxation.

And then I had a thought, and said to her, only somewhat facetiously, "Well, people can blow their money at the casino, and have a good time while they're at it. Or they can do something really silly and wasteful and boring, like invest in the stock market, and lose their money anyway."


From: casey (Nov 14 2008, at 19:23)

Hi Tim,

I too feel angry and powerless about the recent crash. In my opinion, government has failed us as much as the vanity and greed of these now crashing financial institutions. I am about as excited about the new pushback toward overregulation as I am about the monthly 401k contribution my current employer makes to Fidelity.

What can we do as technology professionals to fight back and upend the system in a completely new direction? Render the Fed irrelevant with ubiquitous anonymous digital cash? Flood global markets with trader bots to break the hegemony of hedge funds? Let's find a way to strike back!


From: Martin Malmsten (Nov 16 2008, at 12:31)

It turns out that if you pay millions, apparently you still get monkeys. Or worse in this case.


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