Wall Street Crybabies

I didn’t need to hear the This American Life story to get steamed about the subject of the bailout, but it did add fuel to the fire. This American Life is a public radio program out of Chicago Public Radio that does stories on a huge variety of subjects. My wife has pointed out that most of them are either dark or depressing, which is a concept I resisted for a while. Now, while I can’t really argue with her, I have concluded that my tolerance for dark subjects is much stronger than hers.

This particular episode that I listened to recently was about crybabies, people that whine about their lot in life, often without justification. It had a section on these Wall Street types that just got bailed out and had their jobs and industry saved, yet are vocally bitching about government interference. The reporter went to several bars near Wall Street and tried to find someone from an industry that got bailed out and was thankful. Far from being thankful for having their jobs and livelihoods protected and preserved, they were scornful of the government and convinced that it was interfering with their industry and actively harming them. These workers that had been saved by the bailout kept saying that government didn't help them, they kept their jobs through their own value and intelligence. They kept professing how the people on Wall Street were the most intelligent people in the country. I kept thinking, when I heard this, that the only form of intelligence they displayed was the ability to outsmart people by deceiving them It shows that, for the most part, the Wall Street bailout has benefited people that don't appreciate or acknowledge it. Financial firms have record profits this year, exorbitant bonuses, and a healthy financial environment (for a financial investment firm – not for the rest of the country) yet they can't do anything but bitch about government interference.

I had earlier heard about a scheme by a major firm (I believe it was Citibank) where they are now being investigated for fraud. In this scheme, they put together an investment package that was designed to fail. They deliberately selected things that they were sure were bad bets, investments that were certain to lose value. They put these investments into packages and pushed them on anyone that they could sucker into buying them. At the same time, they put down a huge investment on shorting these packages. That means they placed a bet that the investment would fail. They knew this bet would win, because they designed the investment specifically to fail. Somehow, they found individuals with either no morals or no intelligence to go out and push these faulty investments, and they sat back to make a fortune off the manufactured misfortune of their customers.

I got into an interesting conversation with a retired stockbroker about this situation. This is an individual that I had a great deal of respect for, that I trusted, who I thought was above reproach. His response to my query of what his opinion was about the story was that stocks have always been a buyer beware vehicle for your money. He had no sympathy about the people that bought the toxic assets, he felt they should have read the prospectus. He said that every investment has a description in the prospectus that is supposed to clearly state what the investment’s risks are. I found this to be an incredulous statement. I asked him if he believed that the prospectus had a line in it that said, “this is designed to fail”.

He equated these bad investments with an auto company that produces a car with brake problems, I countered that those companies did not deliberately make a car with a defect, and that they immediately had fixed the problem. I told him that engineered products had to work or the company that sells them could go out of business, but that these protections did not seem to apply to the financial district. He claimed that the people on Wall Street are the smartest people in the USA. My reaction is that they aren't smart, they are crafty. They certainly are trying to outsmart people rather than earn money for their stockholders.

The truth about earning money and multiplying it by investing it is that people generate money by transferring wealth. The best way to guarantee that the society as a whole is wealthy is that the money is being spent and invested in vehicles that actually make something or do something like provide some service. We have for a long time expected that simply by amassing a large amount of money that you will generate a healthy interest income. The question I have is why should income be guaranteed by wealth if the only thing you do with it is by stocks that you don’t demand be accountable.