A Memo Found in the Street
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This morning, I have an editorial in Barron's on "Uncle Sam the enabler."
Its a memo from Wall Street to Washington D.C., discussing how all of the excesses of Wall Street were made possible by the actions in nation's capital.
I was thrilled to publish this at Barron's. Here's an excerpt:
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To: Washington, D.C.
From: Wall Street
Re: Credit CrisisDear D.C.,
WOW, WE'VE MADE QUITE A MESS OF THINGS here on Wall Street: Fannie and Freddie in conservatorship, investment banks in the tank, AIG nationalized. Thanks for sending us your new trillion-dollar bailout.
We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.
But here's a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.
The full text is below in PDF format.
It was a pleasure working with Thom Donlan on this, who turned my blunt, meandering scribbles into a razor sharp scalpel.
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Source:
A Memo Found in the Street
Uncle Sam the enabler
By BARRY L. RITHOLTZ
OTHER VOICES
MONDAY, SEPTEMBER 29, 2008
http://online.barrons.com/article/SB122246742997580395.html
A_Memo_Found_in_the_Street (text).pdf
Barrons Other Voices (Print edition).pdf
Saturday, September 27, 2008 | 09:23 AM | Permalink
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Well done Barry! I was looking just yesterday for that single succinct piece which sums up what got us here. And congrats on getting this published in Barron's.
Posted by: Curt Wehrley | Sep 27, 2008 9:48:52 AM
BR and all the informed posters here. Am not much of a talker, but I appreciate all the informed comments/info/opinions.
I can add a couple of more wall street buddies in the list:
# PE firms, who kept the equity demand high during -- 2005-07 slow growth boom -- and hence kept the equity markets high without any correction for over 3 years
# Hedge Funds, with their easy access to the same easy credit, were in bed with wall street and PE guys during the early part of the boom and now the same hedge funds are having to liquidate their black-box driven quant strategies, and hence forced to dump stock/shit-pile on ordinary investors 401K statement.
CRASH IS HERE (I would give it a few days) -- W, W & W -- all deserve a bad ending to thier immoral greed and fear campaign.
Dow rallies 100+ on Friday and ^vix still closes above 34. W-S knows it -- they are dead regardless of bailouts.
Posted by: Nihilism | Sep 27, 2008 9:51:47 AM
How about the financial accounting standards board also and it's treatment of options in compensating said wall st. executives.
Posted by: nk | Sep 27, 2008 9:52:37 AM
And the hundreds of millions of dollars that Wall Street and FNM/FRE spent in Washington on campaign contributions, hosted fund raisers, think tanks, PR campaigns, and below market mortgages for congressmen had nothing to do with the government de-regulation/looking the other way? That money was spent in Washington to bring about that exact result, and now it is not their fault that they were successful. What other favors, future jobs, or outright bribery were also promised for the slack they received, and now the bail-out. More sleaze from the Street.
Posted by: capt dave | Sep 27, 2008 9:53:28 AM
Well done, Barry. I recall Thom Donlan's libertarian-themed editorials, from the days when I used to subscribe to Barron's. Yours is in the same vein, and marshalls the facts in an undeniable manner.
It's sad that the deeper root cause -- the fundamentally unsound fiat money system which Goofball Greenspan oftens babbles about -- isn't even on the table for discussion in Washington.
Bailout or no bailout, nothing will restore stability until the Ponzi scheme of creating currency backed by debt is ended. All indications are that it will end with the flames of burning cities lighting the horizon, as millions of internal refugees scour the countryside for food.
It didn't have to be this way ...
Posted by: Jim Haygood | Sep 27, 2008 9:56:39 AM
Well the Street is right about one thing, it is all of our faults for continuing to vote for anybody in the two major political parties, who are totally bought and paid for by the people who want our tax dollars. Both parties stand for more government, more war, and more debt. That is not our future.
Posted by: capt dave | Sep 27, 2008 10:00:36 AM
CRASH IS HERE (I would give it a few days)A few days? How about a few years?
The Fall of Rome The Great Depression wasn't built in a day.
Posted by: Darkness | Sep 27, 2008 10:05:51 AM
Twenty five years as a broker in several firms. The main thing wrong with the financial end of the economy is, in my opinion, that we brokers continually mislead our client list as to what the chances were of "winning" each and every play. Management used to threaten us if we didn't produce more, the consensus was always that "they (the government assholes) are too stupid to figure us out" as we pitched complex product after even more complex product to clients that trusted us. I joined the crowd of hundreds of thousands in looting client accounts for the sole purpose of commissions. We all learned to lie within compliance rules and only client poverty would stop us. So why did I quit? I finally looked in the mirror and decided to take a pay cut and leave that part of the business. Most of us finally woke up and stopped and the government finally woke up and fined the companies and executives. The movie "Boiler Room" captures accurately to the last word exactly what we did. Do I feel guilty? Yes. Why don't I pay everyone back? Get serious, I took several millions and I cannot pay them back in any other way than to never do it again. We have a network of "investments" that were actually speculations of the most risky and the people who bought them had no idea. And it ended up that the people who created these complex "products" also bought them and...then couldn't make the margin calls.
Posted by: Howard | Sep 27, 2008 10:15:06 AM
I now see that one of the biggest cheerleaders for Wall Street, Jim Cramer, is now telling us Dow 8000...
I am going to refer to him as "Kite" Cramer because he too, like Paulson, just seems to go whichever way the wind blows...
http://www.cnbc.com/id/26906947
By the way, if you read his ideas, FDIC insurance of 2.5 million for each depositor in each bank...would be a very poor idea, only because with this type of backstop you could easily get subprime lending started again, and that isn't what is needed...a better idea would be keep FDIC limits where they are but allow rates to rise so that people would want to make deposits to actually make money...(and yes, I see the counterargument to this)...
Posted by: Bruce in Tennessee | Sep 27, 2008 10:16:19 AM
There are lots of feedback loops creating this mess that can be traced to all sectors of society and back decades, if not centuries into the American, western and human psyche. Bubbles do have their uses, as life is a process of bootstrapping itself upward and consuming what comes before in the process. The question is what monetary model can replace this one. Here are my thoughts;
Money is a medium of exchange and store of value. These work at cross purposes because as a medium of exchange, money functions as a public utility, while as a store of value, it is a form of private property. It is as private property that most people think of it, due to its historical origin as an accounting of assets, yet the reality is that modern monetary systems are fundamentally a medium of exchange and only as a function of that are they a store of value, as they have no real backing other than faith in the issuing institution and must be invested for the system to function and maintain value.
The monetary system, with its broad connectivity, is similar to a road system. You own your car, house, business, etc., but not the roads connecting them. That the money in your pocket is interchangeable with what is in others pockets is what makes it a function of exchange. Money is not private property, since you cannot print what you want, as the government retains copyrights, but effectively leases it out to the private banking system. Its value is based entirely on public faith in the institution issuing it, so the taxpayer is ultimately responsible for guaranteeing its value. The result being private gains and public responsibility.
snip
Posted by: John Merryman | Sep 27, 2008 10:23:15 AM
"Well the Street is right about one thing, it is all of our faults for continuing to vote for anybody in the two major political parties, who are totally bought and paid for by the people who want our tax dollars. Both parties stand for more government, more war, and more debt. That is not our future."
capt dave,
I hear you, brother. The breathless back and forth about which party is at fault is pathetic and laughable. Look at the way the rats from both parties are fighting to get their little piece of this bailout mess without having to absorb any blame when it inevitably fails, like everything else they lay their greedy fingers on.
As long as the myth exists that we have a "choice" and that either major party holds any solutions that don't involve lining their own pockets and getting reelected, our decline into Third-Worldism will only become swifter.
Posted by: Mark | Sep 27, 2008 10:26:22 AM
Must See
http://www.youtube.com/watch?v=S27yitK32ds
Posted by: Rohit | Sep 27, 2008 10:27:05 AM
BR, excellent article! What are your views on the Final GDP #s & the 1.1% price deflator? When are the birth/death employment seasonal adjustments going to be reported?
Posted by: FLskeptic | Sep 27, 2008 10:31:40 AM
;-D
AIG Farm :
You've got two huge cows, and you sell them to the butcher. A few days after the butcher comes back with your cows for a refund because they're too big to die.
Citigroup Farm :
You've got two huge cows, and you are confident they're too big to die. The farm is on fire, but nobody notices because it's burning off-balance.
Washington Mutual farm :
You've got two huge cows, you'd like to sell them to the butcher, and you know he won't take them because they're too big to die. So you split them in two, and your four newly attractive cows are immediately bailed out.
Alan Greenspan Farm :
You have two cows. You feed them with hormones, and sell their milk to all your neighbours. Then you retire and warn everybody about breast cancer.
Treasury Bond Farm :
You didn't breed any cow, so you lend two from your chinese neighbour. Then you explain him you ain't no land neither and he has to open his pasture for the cows he lent you, otherwise they would die, geddit?
Bald & Beard Farm Bailout plan :
You've got two cows, you put the farm on fire to get the insurance premium, and you explain on tv that everybody in the neighbourhood has to come fight the fire with their milk.
Short-Selling Ban Farm :
You thought you had two cows, but those are calves. Your wife calls them calves and she tells you to immediately run to town, and exchange them against a proper cow. Bitch. You point your gun at her and shout her to milk those two calves as if they were two cows, right?
Lehman Brothers farm [...]
Cows and banking, continued :
http://www.lacrisepourlesnuls.com
Posted by: michange | Sep 27, 2008 10:38:09 AM
He left out the Community Reinvestment Act. The subprime loans enabler.
Without this act and Fannie and Freddie's help, banks would not be lending to the "poor".
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BR: No, I elected to keep it to the actual facts that mattered, and avoided wingnut theories and urban myths.
Posted by: Hulu | Sep 27, 2008 10:40:42 AM
Hey Bar, you tell them!
I must say, the morning after the debate, I feel deflated. Yes, by most accounts, Obama won. But the problem is how much the unprecedented $700 billion bailout might hamstring an Obama Presidency, even before it starts. Listening to Obama begin to backtrack last night on his promises of clean energy investment made me realize the true cost of Paulson's gambit, and Congressional Democrats' fearful complicity in it. Today, I put my old Republican hat on again (I am a registered Republican, after all) and will be cheering Shelby, Bunning, etc. on CSPAN as they fight this bailout.
Let the credit spreads rise, I say, let the credit markets freeze. Let the violent bursts and catastrophes of true Schumpeterian capitalism take its toll. Let the chips fall where they may. Let freedom reign.
Posted by: CNBC Sucks | Sep 27, 2008 10:52:30 AM
Barry,
Amen! The Dotcom bubble isn't that different from the housing bubble in the sense of the role the Fed played in each. In each case the increased demand for investment would have driven interest rates higher to moderate that demand except for the Fed's loose money policy. The Fed bares blame in both cases. Capitalists respond to distortions. Distortion is what the Fed continually does by lending money that has never been saved.
Posted by: algernon | Sep 27, 2008 10:59:57 AM
I’ve said this once, and I’ll say it again, in the current state of our dismal economy, we need scape goats to take the fall, to protect the “elites”. By blaming uncle Sam, or saying the Fed were enablers is only a portion of the blame. Lets not forget we’re sitting on nearly $6.9 Further Reading
Trillion in trade deficit, I personally believe that their should also be fingers pointing at the credit agencies. The S&P’s and Moody’s of the bond rating agency. If we had done a correct job, in indicating the true creditworthiness of a company we would have been able to avoid the majority of the contagion that occurred. Or perhaps it was the greedy mortgage lenders who increased loans to a “particular group of citizens” from comprising of 2% of the total issued loans in 2004 to 30% in 2007. Numbers talk, and it would have been impossible for the FED to have predicated the outcomes with accuracy. However, it would have been obvious that SOMETHING would have occurred. The proper prevention should have been implemented, and now, we simply suffer the repercussion.
Posted by: OilyGasMiner | Sep 27, 2008 11:04:32 AM
Is anyone going to mention the Community Reinvestment Act??
Posted by: oaktree | Sep 27, 2008 11:08:05 AM
"Without this act and Fannie and Freddie's help, banks would not be lending to the "poor."
You're an idiot. There was no "act" prodding the mortgage industry to lend to the "poor." They BEGGED people with horrible credit histories to take out loans because those loans were making bucketfuls of money for everyone in the pipeline.
Posted by: Jasper | Sep 27, 2008 11:13:24 AM
I just hoped you haven't shamed D.C. into doing something about it. We need to stop this bailout plan. Then focus on fixing what went wrong after the mess is cleaned up.
Posted by: BIll | Sep 27, 2008 11:40:16 AM
Howard, that was very honest and open. You needn't feel so guilty, I'm sure you helped a lot of people, too.
John, that was a great comment. I see money much as you do, as a tool for growth and not as an end in itself. I hope others will come to share our viewpoint.
Barry, great piece. I'm generally a libertarian in my viewpoints, but have come to understand that there are simply greedy bastards in the world that need to be reined in, and others who simply can't take care of themselves and need help. It's sad to me that the damage from the greed couldn't be contained and has now infected our entire economy. Those of us who have lived within our means, not taking on more debt than we could handle or buying more than we needed for the sake of driving a fancy car or living in a big empty house are simply left shaking our heads these days, the "we told you so" constantly behind our sad half smiles... knowing we will be the ones to pay for cleaning up the mess, yet again.
Posted by: donna | Sep 27, 2008 11:43:10 AM
@Jasper: Don't waste your time or energy arguing your valid points regarding CRA. There will always be ignorant assclowns who will blame everything on the poor. It's the oldest scapegoating trick in the book. It's what the real "elitists" do. They can't help themselves. It's embedded in their DNA.
These are the same folks who claim to be "good Christians" and who tell others how they should live. They should be ignored.
Posted by: Jeff M. | Sep 27, 2008 11:51:30 AM
'Idiot'? Check your facts. The CRA coerced some fed supervised banks into making loans for social engineering purposes. Traditional lending standards were discarded in the name of expanded home ownership among fairly specific classes of 'borrowers'. Some estimates are as high as a trillion $ of such loans over an 8 year period.
[BR: What does that mean, "coerced" fed supervised banks? What facts show this? Any links to something authoritative? I've researched this, and I cannot find anything that said -- "LOAN $6 TRILLION TO PEOPLE WHO CANNOT AFFORD TO PAY IT BACK]
Fees and commissions were doled out to groups like acorn for finding 'underserved' borrowers which may be as high as a billion $. Cuomo's record at HUD, recently highlighted in a Village Voice article, spells out the politicization of mortgage lending practices during that period in the name of social engineering and vote buying. Countrywide, among others, was happy to participate due to the larger fees and rates permitted under the new regime. No party is without blame, however, since this sytem of twisted incentives continued to play out under both parties, until the music stopped.
Posted by: loan shark | Sep 27, 2008 11:55:32 AM
Fabulous Barry, Way to Go. In case you don't already know this you stand out as a reasonable voice, saying the most important things, maybe of anyone with a national level voice. We are all really glad you are here.
Posted by: VoiceFromTheWilderness | Sep 27, 2008 11:56:59 AM
