Cleveland, Wall Street and an endoscopy

As the poet once wrote:

Cleveland city of light city of magic
Cleveland city of light you're calling me

Someday the world may agree, but not this week.

I read “The Big Short” by Michael Lewis this week and can recommend it without reservation, but with two warnings. The first is that it is fairly technical. When you finish you will have a much better understanding of the difference between CDO’s and CDS’s, and you’ll learn the importance of tranches and how Goldman Sachs and other thieving Wall Street bastards used them to obfuscate their schemes to defraud their customers and dupe the ratings agencies.

Lewis worked as a bond trader at the old Solomon Brothers twenty years ago and wrote his first best seller, “Liar’s Poker” based on his experience there. In the opening pages of “The Big Short” he talked about how the wretched excesses of the early ‘80’s on Wall Street shocked him, and how sure he was that they were ripe for a fall. He admits to finding that notion quaint today in light of what was to come.

This leads me to the second warning. This book is likely to make you angry, depressed, or both. (I finished it the same day as game five of the Cavs-Celtics series, so imagine how I felt!) Lewis tells the story of the sub-prime mortgage melt down through the words of a half dozen professional investors who saw it all coming, told anyone who would listen for several years, withstood the ridicule and scorn their opinions brought down on them, and ultimately, made hundreds of millions of dollars by betting on their beliefs.

Lewis puts to final rest the fantasy espoused by Wall Street CEO’s and government officials that the meltdown was an event of such unforeseeable randomness that no one could possibly be blamed for not having seen it coming. It also removes any doubts about the rapacious disregard Wall Street had (and has to this day) for its customers, its shareholders, and for the good of the country. And it kills the myth of the “Wall Street genius.” They might be able to kick your ass on an SAT test, but only a collection of stupendously dumb shits could have produced the end result brought about by Goldman and their imitators. Hundreds belong in jail. I hope they go and I hope they get remedial math classes while they are there.

Lewis is a wonderful writer and makes the story feel like you are reading it in real time.

I’m going back on the road for a while; I’m driving north for the summer, stopping for three rounds of golf in South Carolina, dinner in Charlotte, baseball and an endoscopy in Winston-Salem (don’t ask), and a couple of other fun things before I get to New York just in time to clean up and head out again for my daughter’s graduation in Boston. I may be out of touch for a while, but feel free to talk amongst yourselves.

Wouldn’t you really rather have a Buick?

Rick Wagoner spent the last 10 years trying to catch a falling knife, and yesterday it bounced off the table and stabbed him in the heart. He’s a decent man who tried to do the right thing, but it was never enough fast enough. When you’re borrowing tens of billions from the taxpayers, a human sacrifice may be called for. Wagoner is it.

My question is, “when do we start sacrificing bankers?” At least Wagoner can point to Buick coming in number one in the latest J.D. Power study for vehicle dependability (tied with Jaguar). Can anyone name a single thing any of America’s top banks have ranked number one in lately other than quantity of bad investments, boldness of consumer exploitation, or size of taxpayer bailout?

And has the government forced out a single bank CEO? No. Their specialized knowledge is too valuable, their experience too extensive, and their judgment too sound. We just can’t lose them.

If Lincoln had managed the Civil War the way President Obama is managing the financial crisis, McClellan would have still been holed-up in Washington in 1864 while Lee controlled the rest of the continent.

I understand the need to get tough with Detroit. Let’s just dish out the same medicine to Wall Street.

Follow the money

The market closed down 770 points today, on the news that the House rejected the bail-out plan -- although it was down 300 even before the vote. I’m guessing investors fear two things: 1] that this problem dwarfs even a $700 billion slush-fund’s capacity to solve it and 2] our political leaders are too inept to act in time to stop significant damage occurring to the economy from a credit freeze.

The complexity of the situation is overwhelming. No one knows how big the problem is. No one knows if this plan will fix it. No one knows what shoe will drop next – or on whom.
One thing we know for sure, however, is that the problem was known to be on its way and growing for a long time. (One observer has called it the world’s slowest moving train wreck.)

Another thing we know for sure is that members of Congress in both parties are scrambling to be the most outraged at the “corporate greed” that caused this mess. They’re working on CEO salary caps and can’t wait to hold hearings so they can wag their fingers and scold a few fat-cats for the cameras. It’ll look great on the local news back home.

But not only did Congress and the Executive branch do nothing to stop it, they were like the sweepers in a curling match, sweeping their brooms along the ice to make a nice smooth path for the stones being tossed by their Wall Street contributors.

Barry Ritholtz, who publishes a blog read by in-the-know financial-types, published an opinion piece in this week's Barron’s that lays out the path of destruction in simple, clear language in his essay "Uncle Sam the Enabler."

(Before any of your knees jerk, or fingers point to one party, you might be interested to know that Goldman Sachs, the biggest political contributor among financial institutions, has given more to Democrats than Republicans in each of the last ten national campaigns, and by increasingly large margins. See: http://www.opensecrets.org/) There is plenty of blame to go around here.

Oh, the photo. Benjamin Disraeli: “What we learn from history is that we do not learn from history.”