Sunday, November 16, 2008

Lewis on Wall Street

Embarrassed that you don't understand what this gigantic crises is about? Don't be. Till this very day, 79 years after it began, no-one has satisfactorily explained what the previous gigantic one was about, either. This one isn't as bad as that one was, but if it helps, the folks who made it happen - even they - don't understand what happened. Or perhaps more accurately, they didn't manage to see what they were doing wrong as they were doing it.

Over here, however, Michael Lewis writes a hilarious but sobering account. He's found a couple of fellows who not only claim in retrospect to have seen it coming. Apparently, they bet lots of money in advance on the inevitability of the crash.

The weirdest part of the story is that apparently thousands of those whiz-kids and their elders who populate Wall Street and look down on the rest of us for being plodding yokels, didn't have any idea what they were doing. When confronted by the few who understood what was going on, they continued not to understand.

Another thought, one that some won't like, is that while the crises had a number of tiers of stupidity and recklessness, the original foolishness was in allowing large numbers of people with practically no money to purchase real estate is if they did. Shades of 1928, with housewives and janitors investing in Wall Street. Perhaps it really isn't such a good idea to democratize the financial markets beyond a certain degree. Most people should live with the limited money they have, and need not engage in matters they really don't understand. I know, this sounds elitist, but in this case, since I'm of the majority that doesn't need to be there, maybe you can forgive me for being elitist.

1 comment:

Anonymous said...


Let me explain the best anecdote out of the Great Depression.

In the summer of 1929, while getting his shoes shineed, Joseph Kennedy listened to the shoe shine boy touting a stock. (See? Back then, GREED brought people into the market. People who didn't have the slightest idea of what they were doing. But they were taking money off their tables, to "gamble." Because their eyes were popping out of their heads on what they saw were "profits.")

That day, in August 1929, Joseph Kennedy; (Who had a big family to feed). Raced to his office and SOLD EVERYTHING! (It was the top of the crest. HE PROFITED BY SELLING, like nobody's business.)

This has happened, again.

You can always use GREED to tempt people who don't belong in the pool, to jump in just the same.

The current wave was increased in size by Wall Street. They found ways to make "new products" to sell! Hedge funds bought these "derivatives." These "collaterals."

And, of course, the story will go out that the "poor" caused the probems. Because? They were given loans, with no ability to ever pay them back.

But for a time, in the escalating market, where housing prices went out of sight; you had people buying homes.

In one story Michael Lewis tells, a gardener, earning $14,000 a year, was given a loan to buy a $720,000 house. NO. MONEY. DOWN. A 100% loan.

So many people who owned homes watched their equities build. What my mom called "paper profits." Up and down. Doesn't matter. IF YOU HOLD? You still own "diamonds." You don't have to run around looking for the fire sale. Unless you can't afford your loans. In which case the banks come in and you go belly up.

I love the author, Michael Lewis. He was all of 23 years old when he went to work for SALAMON BROS. And, from that experience he was PAID to write LIAR'S POKER. In other words? A publisher, up front, saw his talent. And, made him an offer. (Most of us can't earn a living on the stuff we write.)

Lewis has pulled together an anthology. The book is coming out on December 8th. It's called PANIC. And, he pulls together the writings of those who predicted this would happen.

Back in December 1929, while Winston Churchill was on an American tour. And, in Manhattan at the time of the crash. Wrote an article (that's how he made his living), detailing how America's system of government bested anything England had!

In other words? When an economy fails, in a Parliamentary system, the people go crazy. And, the government falls.

In America, said Churchill, then; And, it still holds true, now. The government doesn't fall! America just comes in with laws "and cleans up the greedy bastards."

Those with money, however, knew enough to gamble in the other direction. So, Hank Paulson, (the head of Goldman Sachs), gave the order to BET AGAINST his own bond traders! He made billions. For a very few.)

Paulson and Bernanke. The two Wall Streeters elevated by Dubya to handle our economy, then went to Congress and got a trillion dollars, which goes unaccounted for ... Which is the difference, here, between "now," and "then."

Sometimes, I wonder who will go to jail?

SOmetimes, I wonder if this is not a card to hand Guiliani? Guiliani entered politics by taking down Michael Milken and his house of Drexel.

But it still needs to be played out.

Lots of equity has been lost. But those who really lost? Pension funds. Where ordinary workers looked forward to their retirement incomes. And, this was "blown away" by "buying into" the "bonds" that were being sold.

Bonds, I might add, that were Triple AAA rated. Shows ya. Real thieves first take over the rating agencies, and let stupid people just hang tags on "garments." Until their words are worthless. Which will happen, ahead.

Takes a long time for the people to figure things out.

Even though this story has to do with housing. And, people do need to have roofs over their heads.

It also portends poorly for the economy. Do you know why?

One of the engines of a good economy is HOME BUILDING. Until you've got a glut. In which case you've flooded your engine. And, things don't just get a switch flipped back on, to go "again."

That's why it's gonna take a long time to shake out.

On the other hand, if you go to a casino to gamble, you realize you're lost your shirt, when you no longer have money left.

As to GREED, it's been in place since HOLLAND had it's TULIP INDUSTRY (I kid you not), go bust.

Imagine banking on flowers?

Greed's your worst enemy. It blinds people.