“It is useless to attempt to reason a man out of a thing he was never reasoned into”

Jonathan Swift
"The Democrats have moved to the right, and the right has moved into a mental hospital." - Bill Maher
"The city is crowded my friends are away and I'm on my own
It's too hot to handle so I gotta get up and go

It's a cruel ... cruel summer"

Sunday, November 16, 2008

House of Cards

I have been reading everything I can about our markets, credit, investment banking. Clients are screaming, businesses are nervous. My 401k statement came in and I just shredded it without looking. I already looked at it the day before online.

How? When? What now? Before the what now, we have to look at our macroeconomic journey over the last 30 years, especially the creation of the next big bubble economy rather than one based on things we all can get our heads around, you know, like energy, infrastructure, touchable tech, production for export, etc.

The best article I have read so far has been by Michael Lewis called, "The End" regarding all the subprime mess, and wall street's mentality. Go read it TODAY.

It bugged me, being in the industry, but it can be summed up by a quote in it from Steve Eisman, "These guys lied to infinity. What I learned from that experience was that Wall Street didn’t give a shit what it sold.”

Here is how, "In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds."

Get it? Over the last several years, a big pile of shit, leveraged several times, rated by companies that had no downside models in their calculations, slightly polished said turd, and then it was sold as AAA bonds to your state pension, municipal governments, and retirement plans. It was made larger by hedge funds who shorted the whole mess and provided more funds to continue feeding the hog.

The article gives a great example of wall street's new ideology formed in the in the 80's by the "Reaganauts" when Salomon Brothers went public at the behest of CEO John Gutfreund, "He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. [Bold Mine]

It didn’t, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers.

Is it sinking in? The economy is not about you, or us, or small businesses, or America. It's about the insiders. And you and I ain't one of those.

And really, can you blame them? Who among us could have passed it up. Big BIG bucks were made.

Speaking only for myself, if someone from Lehman came up in 2003 and said, "We need you to come over and be a collateralized mortgage bond trader, and sell them to XYZ. You will make $10 mm this year"! Would/could I have . . .

1. Staring down that amount of $$$ admitted that, after doing some research, I had no frikkin' clue what the CDO/CMO banking division was doing accounting wise, and NOT taken the job?

2. After I had made some bucks, get out there and faced down all of Wall Street and exposed the now tarnished big shitpile?

Could you? Maybe that says it all. Maybe nothing.

-Prodigal Son