Tuesday, April 01, 2008


The cries of "Where's mine?" are getting louder, aren't they? It's clear the Bear Stearns episode will have a seminal effect on economic and social policy. Expect rolling bailouts and interventions to happen over the next couple of years regardless of who wins in November; if you believe John McCain's protestations about personal responsibility and moral hazard, I have a bridge over the Tigris to sell you. Since everyone will foot the bill for the individuals and Wall Street firms who were most idiotic, piggish, or irresponsible during the past few years, it's important to know as much as possible about those who stand to benefit.

From news reports and perhaps personal experience, most people are familiar with those who got in over their heads during the housing bubble and are now in line for a government giveaway. But how many are familiar with those in the financial industry who not only made pantloads of money during the past few years but, because of the Bear Stearns precedent, now have a taxpayer-financed backstop behind them? Here's a bit of perspective that probably won't surprise some readers, but may others. A close friend of mine works at one of the largest sell-side firms on Wall Street. Until around 2003, he made about $1 million total compensation per year. Since then, he's made between $3 million and $5 million per year. Promotion? More responsibility? Nope. He's had the same job, same title, same desk for years. And he's not one of the firm's senior executives. He's a trader whose business directly benefited from the Fed's monetary policy. Now he's obviously well-paid. But it's important to realize that he's far from unique. There are thousands of others like him on Wall Street, some making far more money, and lots in the same ballpark or at least making well north of $1 million a year. Under the Bear Stearns template, his firm would certainly be considered "too important to fail" and thus deserving of taxpayer money in a pinch. And after Bear, its top executives wouldn't be shy about calling up the Fed on a Sunday night and asking, "Where's ours?" Since my friend's firm has been dogged recently by rumors of bad paper (some of which could be on his desk) at some point that scenario might come to pass.

I think Washington's post-Bear Stearns populist tone springs as much from the political establishment's innate sense of self-preservation as from election-year opportunism. Public resentment of "greedy money changers" (or variations of that phrase) has led to some of history's most destructive cases of political and social upheaval. We ain't there yet, or even close, but a lot depends on what happens with the economy in coming years.

Anyway, that's just one quick example. As the Wall Street and Main Street giveaways ramp up and they come for your wallet (either overtly or via inflation) keep it in mind.


Anonymous Anonymous said...

Lovely. I see that UBS has over $12 billion in subprime write downs.

Personally there is no small part of me that wishes these companies to bleed. As you reap so shall you sow. These loans were written and sold, resold, and resold again when people knew that a good bit of them were bad for one reason or another. They did it because they could and they did it because the got a shit load of money. Why should the government and taxpayers bail out the guys when we all know they would do the same thing over again if given half the chance. They fell no guilt - business is just business. Well the course of history is littered with business ventures that failed. They thought capitalism was wonderful when it worked to their advantage, but now that it isn't working to their advantage their looking for handouts.

A pox on all their houses.

4/01/2008 8:57 AM  
Anonymous Anonymous said...

I'm waiting for the Financial Press to start using the word "disgorging"; but then again I will be a much older man before that happens with this current crop of Cheerleaders that pass as journalist today.

I harbor no ill will towards your friend at the trading desk but rather the CFO’s, COO’s, CEO’s and Board members who allowed this fraud to happen

Tar and feathers anyone?

4/01/2008 9:39 AM  
Anonymous Kilfarsnar said...

These days, I'm constantly reminded of the lyrics to "Spreading the Disease" by Queensryche:

Fighting fire with empty words
While the banks get fat
And the poor stay poor
And the rich get rich
And the cops get paid
To look away
As the one percent rules America

Yeah, that pretty much sums it up for me.

4/01/2008 10:27 AM  
Anonymous goldhorder said...

It all comes down to a complete lack of ethics. The people follow their leaders. Our leaders have been looking out for their own selfish interests for some time. They have let the country rot. Everybody knows what a pessimist I am. I am but a midwestern boy so I have no ties to our elites in New York and DC...Thank God. TCR, I suspect still holds out faith that his people will see the light and start acting more responsibly. I hold out no such hope. We started rotting at the head and it has spread down. While China was buying up pieces of our manufacturing sector and shipping them back to China...piece by piece.... our elite were cheerleading the “dawning of a new age” where we did the finance and the management...and the rest of the world does the grunt work. For years our pathetic public school system has failed to turn out students capable of performing at the highest levels in the hard sciences. No to need to worry though...say our elites...we will just ship them in. Foreigners filling research positions at our universities has kept the US on top in R&D but the trend is set. Research is beginning to move overseas...following the manufacturing...as of course it must. No need to worry though...America doesn’t need to do anything useful. We are at the top of the heap in finance and management! And of course if that doesn’t work we still have the most powerful military in the world.

John Taylor Gatto traced the beginnings of our public school education back to Andrew Carnegie and the original industrialists. They decided that the era of free market capitalism needed to end and the mass of the population needed to be managed. They imported the mass education and licensing system from Prussian Germany. Thus began the dumbing down of America. Elite America doesn’t care about the future of our country. They have sold us out...pawned off everything of value in the country to foreigners...and don’t give a damn about "the people". Our entertainment industry, our educational system, our service sector economy...all designed with one thing in mind. Make everything scalable! The more dumb people the better. This is what our great management turned us into!

For a business to be scalable —
the business must be able to grow — even if you throw mediocre resources at it
(both in terms of people and money — i.e., it must be able to flourish with dumb people and dumb money)
The importance to entrepreneurs is this corollary:
If your business requires smart talented hard-driving management or sophisticated investors or customers to grow, it is, by definition, NOT SCALABLE!!!

Smart people are nothing but a nuisance to our rulers. That is why they want as few of them around as possible.

4/01/2008 10:42 AM  
Anonymous Thomas Daulton said...

Interesting you should post this, TCR. Just this morning, I noticed a story on the left-leaning news blog Truthout, which described someone in a similar position as your friend, as a "Welfare recipient". I wish that meme would catch on, but I presume it won't.

Welfare is for icky poor people -- news pundits aren't going to start referring to bankers receiving million-dollar government bailouts as "welfare" ... because then some gadflies like Ralph Nader might just remind the public about the $96 Billion Digital Spectrum giveaway to the media companies...

4/01/2008 4:54 PM  
Anonymous goldhorder said...


Great post by Kevin Phillips. Smart conservative having to resort to posting on a liberal blog!

4/01/2008 5:14 PM  
Anonymous Anonymous said...

buy gold. buy silver. they bashed them down today to pretend that the dollar is still worth having. Buy all you can, and then......get a Canadian safe deposit box. Why Canada? Read the Patriot Act.

4/01/2008 8:20 PM  
Anonymous Hairhead said...

Actually, back in the 1970's David Lewis, the leader of Canada's socialist party, the New Democratic Party, called such people, "Corporate Welfare Bums". The phrase resonated in the Canadian political system for several years. The Corporate fuckers hated it, and the public remembered it.

4/02/2008 1:43 AM  
Blogger Spider said...


You quote one of my favorite bands, Queensryche. The album that you reference, Operation Mindcrime, is just as relevant today as it was when it was released during the reign of Bush I.

I wrote a blog post, Revolution Calling!, about that album back in February 2005. Scary that things aren't much different 3 years later. I think you'd appreciate it.

Here are some lyrics quoted from Queensryche's song "Speak." Still quite fitting today.

“Seven years of power,
The Corporations Claw
The rich control, the media the law
To make some kind of difference
Then Everyone Must Know
Eradicate the Fascists, Revolution Will Grow

The system we learn says we’re Equal Under Law
But the streets are reality, the weak and poor will fall
Let’s tip the power balance and tear down the crown
Educate the masses, we’ll burn the White House down. . .

Speak the Word. . . .(Revolution!)”

4/02/2008 1:37 PM  
Anonymous Anonymous said...

"As the Wall Street and Main Street giveaways ramp up and they come for your wallet (either overtly or via inflation)..."

I realized this week during Congress' grilling of oil executives that the masses will never associate the inflation they are paying with Wall Street's bailout. The oil exec's were served a softball over the plate when asked the reason for gas price increases. They could have said look at the FED. It's the devaluation of the dollar that's driving oil higher. But they didn't. You think they are in on it too?

I'm resentful and know where the blame lies. Our club isn't very big and never will be. Impotent rage.

4/03/2008 3:04 PM  

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