In the fashion world, the rule is: "One day you’re in, and the next day you’re out." Or so says says Heidi Klum, the beautiful blonde host of the television series, "Project Runway."
But this cruel reality doesn't only apply in the case of this or other creative arts. The movers-and-shakers on Wall Street have also experienced their share of abrupt popularity shifts through the years, though the fickleness tends to be broad-based.
During the boom times, those who know how to make and accumulate large sums of money are lionized and fawned over, in the hope that their golden touch might somehow rub off on the minions below.
Eventually, when the bubble bursts and conditions turn sour, so does the mood of the public. Former "masters of the universe" are villified and singled out for a growing share of the blame. In a sense, castigation replaces coronation.
In a commentary at TomDispatch.com, "The 'Best Men' Fall: How Popular Anger Grew, 1929 and 2009," Steve Fraser, a visiting professor at New York University, co-founder of the American Empire Project, and the author of Wall Street: America's Dream Palace, discusses the sentiment shift that is now under way and contrasts it with that which took place almost 80 years ago.
Obtuse hardly does justice to the social stupidity of our late, unlamented financial overlords. John Thain of Merrill Lynch and Richard Fuld of Lehman Brothers, along with an astonishing number of their fraternity brothers, continue to behave like so many intoxicated toreadors waving their capes at an enraged bull, oblivious even when gored.
Their greed and self-indulgence in the face of an economic cataclysm for which they bear heavy responsibility is, unsurprisingly, inciting anger and contempt, as daily news headlines indicate. It is undermining the last shreds of their once exalted social status -- and, in that regard, they are evidently fated to relive the experience of their predecessors, those Wall Street "lords of creation" who came crashing to Earth during the last Great Depression.
Ever since the bail-out state went into hyper-drive, popular anger has been simmering. In fact, even before the meltdown gained real traction, a sign at a mass protest outside the New York Stock Exchange advised those inside: "Jump, You F*ckers."
You can already buy "I Hate Investment Banking" T-shirts on line. All the Caesar-sized salaries and the Caligula-like madness as the economy crashes and burns, all the bonuses, dividends, princely consulting fees for learning how to milk the Treasury, not to speak of those new corporate jets, as well as the government funds poured down the black hole of mega-mergers, moneys that might otherwise have spared citizens from foreclosure -- all of this is making ordinary Americans apoplectic.
Nothing, however, may be more galling than the rationale regularly offered for so much of this self-indulgence. Asked about why he had given out $4 billion in bonuses to his Merrill Lynch staff in a quarter in which the company had lost a staggering $15 billion dollars, ex-CEO John Thain typically responded: "If you don't pay your best people, you will destroy your franchise. Those best people can get jobs other places, they will leave."
Apparently it never occurs to those who utter such perverse statements about rewarding the "best people," or "the best men," that we'd all have been better off, and saved some serious money, if they had hired the worst men. After all, based on the recent record, who could possibly have done more damage than the "best" Merrill Lynch, Wachovia, Wamu, Citigroup, A.I.G., Bank of America, and so many other top financial crews had to offer?
The "Best Men" Fall
Now even the new powers in Washington are venting. Vice President Biden has suggested that our one time masters of the universe be thrown "in the brig"; Missouri Senator Claire McKaskill has denounced them as "idiots… that are kicking sand in the face of the American taxpayer," and even the new president, a man of exquisite tact with an instinct for turning the other cheek, labeled Wall Street's titans as reckless, irresponsible, and shameful.
To those who remember the history, all this bears a painfully familiar ring. Soon enough, that history tells us, Congressional investigators will start hauling such people into the public dock and the real fireworks will begin. It happened once before -- a vital chapter in the ongoing story of how an old regime dies and a new one is born.
After the Great Crash of 1929, those at the commanding heights of the economy who had enriched themselves and deluded others into believing that, under their leadership, the United States had achieved "a permanent plateau of prosperity" -- sound familiar? -- were subject to a whirlwind of anger, public shaming, and withering ridicule. Like the John Thain's of today, Jack Morgan, Charles Mitchell, Richard Whitney, Albert Wiggins, and others who headed the country's chief investment and commercial banks, trusts, insurance companies, and the New York Stock Exchange never knew what hit them. They, too, had been steeped in the comforting bathwaters of self-delusion for so long that they believed, like Thain and his compadres, that they were indeed the "best," the wisest, the most entitled, and the most impregnable men in America. Even amid the ruins of the world they had made, they were incapable of recognizing that their day was done.
Under the merciless glare of Congressional hearings, above all the Senate's Pecora Committee (named after its bulldog chief counsel Ferdinand Pecora), it was revealed that Jack Morgan and his partners in the House of Morgan hadn't paid income taxes for years; that "Sunshine" Charlie Mitchell, head of National City Bank (the country's largest), had been short-selling his own bank's stock and transferring assets into his wife's name to escape taxes; that other financiers just like him, who had been hero-worshiped for a decade or more as financial messiahs, had regularly engaged in insider-trading schemes that made them wealthy and fleeced legions of unknowing investors.
The Pecora Committee was not the only scourge of the old financial elite. Franklin Delano Roosevelt, as publicly mild-mannered as and perhaps even more amiable and charming than President Obama, began excoriating them from the moment of his first inaugural address. He condemned them in no uncertain terms for misusing "other people's money" and for their reckless speculations; he blamed them for the sorry state of the country; he promised to chase these "unscrupulous money changers" from their "high seats in the temples of American civilization."
Jack Morgan, called to testify by yet another set of Congressional investigators, had a circus midget plopped in his lap to the delight of a swarm of photo-journalists who memorialized the moment for millions. It was an emblematic photo, a visual metaphor for a once proud, powerful elite, its gravitas gone, reduced to impotence, ridiculed for its incompetence, and no longer capable of intimidating a soul.
What happened to Jack Morgan or later Richard Whitney -- a crowd of 6,000 turned out at New York's Grand Central Station in 1938 to watch the handcuffed former president of the New York Stock Exchange be escorted onto a train for Sing Sing, having been convicted of embezzlement -- was the political and social equivalent of a great depression. It represented, that is, a catastrophic deflation of the legitimacy of the ancien régime. It was part of what made possible the advent of something entirely new.
Speculators and Con Men
Under normal circumstances, most Americans have been perfectly willing to draw a relatively sharp distinction between the misguided speculator and the confidence man's outright felonious behavior. One is a legitimate banker gone astray, the other an outlaw.
Under the extraordinary circumstances of terminal systemic breakdown, that distinction grows ever hazier. That was certainly true in the early years of the first Great Depression, when a damaging question arose: just exactly what was the difference between the behavior of Charles Mitchell, Jack Morgan, and Richard Whitney, lions of that era's Establishment, and outliers like "Sell-em" Ben Smith, Ivar Kreuger, "the match king," Jesse Livermore, "the man with the evil eye," William Crappo Durant, maestro of investment pool stock kiting, or the one-time Broadway ticket agent and stock manipulator Michael Meehan, men long barred from the walnut-paneled inner sanctums of white-shoe Wall Street?
Admittedly, their dare-devil escapades had often left them on the wrong side of the law and they would end their days in jail, as suicides, or in penury and disgrace. Nonetheless, as is true today, many Americans then came to accept that between the speculating banker and the confidence man lay a distinction without a meaningful difference. After all, by the early 1930s, the whole American financial system seemed like nothing but a confidence game deserving of the deepest ignominy.
In that sense, Bernie Madoff, a former chairman of the NASDAQ stock exchange, already seems like a synecdoche for a whole way of life. Technically speaking, he ran a Ponzi scheme out of his brokerage firm, as strictly fraudulent as the original one invented by Charles Ponzi, that Italian vegetable peddler, smuggler, and after he got out of an American jail, minor fascist official in Mussolini's Italy.
Ponzi, however, was a small-timer. He gulled ordinary folks out of their five and ten dollar bills. Madoff's $50 billion game was something else again. It was completely dependent on his ties to the most august circles of our financial establishment, to major hedge funds and funds of funds, to top-drawer consulting firms, to blue-ribbon nonprofits, and to a global aristocracy of the super-rich. True enough, people of middling means, as well as public and union pension funds, got taken too. At the end of the day, however, Madoff's scheme, unlike Ponzi's, was premised on a pervasive insiderism which had everything to do with the way our financial system has been run for the past quarter century.
Once Madoff was exposed, everybody questioned the credulousness of those who invested with him: why didn't they grow suspicious of such consistently high rates of return? But the equally reasonable question was: why should they have? Not only did you practically need an embossed invitation before you could entrust your loot to Madoff, but the whole financial sector had been enjoying extraordinary returns for a very long time (admittedly, with occasional major hiccups like the Dot-com bust of 1999-2000, which somehow seemed to fade quickly from memory).
Keep in mind as well that these lucrative dealings were based on speculative investments in securities so far removed from anything tangible or comprehensible that they seemed to be floating in thin air. The whole system was a Ponzi-like scheme which, like the Energizer Bunny, just kept on going and going and going… until, of course, it didn't.
Locked into the Bailout State
After 1929, when the old order went down in flames, when it commanded no more credibility and legitimacy than a confidence game, there was an urgent cry to regulate both the malefactors and their rogue system. Indeed, new financial regulation was at the top of, and made up a hefty part of, Roosevelt's New Deal agenda during its first year. That included the Bank Holiday, the creation of the Federal Deposit Insurance Corporation, the passing of the Glass-Steagall Act, which separated commercial from investment banking (their prior cohabitation had been a prime incubator of financial hanky-panky during the Jazz Age of the previous decade), and the first Securities Act to monitor the stock exchange.
One might have anticipated an even more robust response today, given the damage done not only to our domestic economy, but to the global one upon which any American economic recovery will rely to a very considerable degree. At the moment, however, financial regulation or re-regulation -- given the last 30 years of Washington's fiercely deregulatory policies -- seems to have a surprisingly low profile in the new administration's stated plans. Capping bonuses, pay scales, and stock options for the financial upper crust is all well and good and should happen promptly, but serious regulation and reform of the financial system must strike much deeper than that.
Instead, the new administration is evidently locked into the bail-out state invented by its predecessors, the latest version of which, the creation of a government "bad bank" (whether called that or not) to buy up toxic securities from the private sector, commands increasing attention. A "bad bank" seems a strikingly lose-lose proposition: either we, the tax-paying public, buy or guarantee these securities at something approaching their grossly inflated, largely fictitious value, in which case we will be supporting this second gilded age's financial malfeasance for who knows how long, or the government's "bad bank" buys these shoddy assets at something close to their real value in which case major banks will remain in lock-down mode, if they survive at all. Worse yet, the administration's latest "bad bank" plan does not even compel rescued institutions to begin lending to anybody, which presumably is the whole point of this new financial welfare system.
Why this timidity and narrowness of vision, which seems less like reform than capitulation? Perhaps it comes, in part, from the extraordinary economic and political throw-weight of the FIRE (finance, insurance, and real estate) sector of our national economy. It has, after all, grown geometrically for decades and is now a vital part of the economy in a way that would have been inconceivable back when the U.S. was a real industrial powerhouse.
Naturally, FIRE's political influence expanded accordingly, as politicians doing its bidding dismantled the regulatory apparatus installed by the New Deal. Even today, even in ruins, many in that world no doubt hope to keep things more or less that way; and unfortunately, spokesmen for that view -- or at least people who used to champion that approach during the Clinton years, including Larry Summers and Robert Rubin (who "earned" more than a $115 million dollars at Citigroup from 1999 to 2008), occupy enormously influential positions in, or as informal advisors to, the new Obama administration.
Still, popular anger and ridicule of the sort our New Deal era ancestors once let loose are growing more and more common, which explains, of course, the newly discovered voice of righteous anger of some of our leading politicians who are feeling the heat. Certain observers have dismissed popular resistance to the bail-out state as nothing more than right-wing, Republican-inspired hostility to government intervention of any sort. No doubt that may account for some of it, but much of the anger is indeed righteous, reasonable, and coming from ordinary Americans who simply have had enough.
Progressive-minded people in and outside of government must find a way to make re-regulation urgent business, and to do so outside the imprisoning, politically self-defeating confines of the bail-out state. Just weeks ago, the notion of nationalizing the banks seemed irretrievably un-American. Now, it is part of the conversation, even if, for the moment, Obama's savants have ruled it out.
The old order is dying. Let's bury it. The future beckons.
All eloquently explained and case made. However, while all of these malefactors did great damage to the lives of some very good people, they at least eventually paid a price for their misdeeds and bad judgment.
We have a Congress and former Presidents that due tremendous damage to all of our lives, often in the name of the "greater good", and they suffer no repercussions from their poor judgments or the harm that they cause. On the contrary, they get to sit in judgment on people, some of whom tried to do the best that they could for their clients and their shareholders and who actually stuck their necks out, and vilify them for the negative results of their efforts when they themselves have never worked in the business world, never stuck their necks and daily make decisions that cause incalcuable harm to the people in whose best interests they are suppose to represent. Why do they do this? It is because they are the truly stupid ones, the truly ignorant, the truly incompetent. It is they who are the most arrogant, the most condenscending, the truly conceited, the most hypocritical, the most irresponsible and the most unaccountable.
As far as socialism goes, we are not on the way to becoming a socialist nation. We are already there; it's just that most haven't realized it yet. The debt that our Congressional masters of the universe are bestowing upon us has determined our future. Even the lower middle class will be condemned one day to burdensome tax rates to pay for the various rescue packages and bailouts our fearless leaders have devised for us. In the end, Nancy Pelosi, Harry Reid, Dennis Kucinich, Hillary Clinton and Barach Obama will get the collective society they have worked so very long for. Of course, it won't apply to them; they already have their money.
Posted by: Rob M | February 11, 2009 at 07:27 AM
Rob M, you were going well until your final paragraph when you blew your credibility out your ass.
Nice try, though, to blame this entirely on Dems.
Posted by: weinerdog43 | February 11, 2009 at 10:22 AM
Not long now till the Barbarians start running.
Posted by: Ancient Brit | February 11, 2009 at 10:37 AM
200 year anniversary of Darwin.Here is a man that with
a pencil,paper and keen observation revolutionized our
primitive religious view of the world,the church was not
happy with him.The same has been done for the economic
workings of the Capitalist system,but because these findings
are contrary to the the interest of the rich & powerful you
get nailed to the cross,Changing the system is anathema to
the power elite.Kings only give up power when faced with the
guillotine &that happens when the masses can not take it anymore
Posted by: roger | February 11, 2009 at 12:52 PM
It is obvious that Mr. Panzner has an ax to grind against Wall Street and rightly so. He positions his writings, however, as if Wall Street operated in a vacuum and without any oversight. This is absolutely untrue. He also writes as if there is absolutely no symbiotic relationship between Wall Street and the US Government. He writes as if US Government debt financing is immaterial to any discussion about banking reform and regulation.
I am beginning to believe this website is nothing more than a platform for a talented, articulate well meaning malcontent with left-leaning sentiment.
As an example: the SEC was contacted on numerous occasions regarding Madoff and his fund. What has been leaked to the press indicates that the SEC was given adequate information to justify an audit/review of his fund. It did not do so. The result: Tens of billions of stolen savings. Yet, Panzner acts as if there is some super-double-we-really-mean-it- wink-wink proof regulation that needs to be enacted that will eradicate the corruption inherent in the GOVERNMENT'S need for excessive and perpetual deficit financing.
Panzner is also silent about the GSEs. Franklin Raines, of Fannie Mae fame, admitted to falsifying accounting statements so that he and his management team could reap millions of dollars in bonuses. Franklin Raines committed criminal fraud; Franklin Raines greatly contributed to the housing bubble; Franklin Raines suffered no consequences other than resigning his position with Fannie Mae; Franklin Raines now walks the streets a multi-millionaire from money provided by the tax payers.
So here is the apparent rationale: If you are in the private sector financial community and you act arrogantly and your decisions cause losses you deserve public excoriation. If, however, you are in the public financial sector and you commit criminal acts, well that's fine, after all we don't want public scrutiny of public operations. If you are in the public sector and you are greedy for power, it is fine to run unconscionable budget deficits, distort the credit markets with astronomical requests for credit and then use a Panzner to ask for more power. It is sophomoric to believe the same insatiable, money consuming institution will police the people who supply it with unlimited cash flow.
No one will worry about inherit risk when they know their great Uncle Sam will bail them out of any financial trouble, especially if they finance budget deficits or secret little wars. Why is Citibak ceaselessly bailed out? Because of Wall Street greed? Yea, right! There is considerable regulatory control currently in place over banking operations yet Citibank will be receiving to-big-to-fail-money for the third time. In fact, I would posit that Panzner is part of the problem. Instead of educating the masses concerning the lack of enforcement of current regulation, he writes as if there is none. I will restate it again: No amount of regulation will be effective when its enforcement will restrain the power of the enforcer.
As far as the Obama administration is concerned: There is no difference between it and the Bush administration. TARPII is exactly like TARPI except its Geithner’s buddies getting the money. So, Panzner's assertion that a new regime is being born is true only to the extent that a different group of people will be getting the keys to the treasury. Now, Old Geithner has to sell $500,000,000,000 in bonds to keep the wars running, pay foreign patronage, pay all conceivable social benefits, bailout the financial sector, provide raises for the members of the service employees union, and fulfill his boss' other political promises. I know for a fact, that as I write this, hundreds of democratic lobbyists are converging on Washington, D.C. to get their piece of the stimulus action. They have been out in the cold for the last eight years watching their republican lobbyist buddies get wealthy on graft and corruption from Iraq development money: Now they want there end.
They will not kill the golden goose that lives in lower Manhattan; at worse a couple of feathers will be publicly plucked.
Posted by: Anthony Teamson | February 13, 2009 at 12:46 PM
As a 25-year Wall Street veteran, I find it ironic that I am accused of having an "ax to grind against Wall Street."
Regardless, those who have read my book (and, indeed, many of the nearly 1,000 posts I've published at this blog, which was created just over two years ago) know that I have criticized myriad politicians, regulators, the GSEs, etc., etc., etc. As I've often made clear, there is plenty of blame to go around for the mess we are in.
It seems like the commenter is confused by the fact that I quoted a long article written by another author. Although I often make reference to others' opinions at Financial Armageddon, that doesn't neecessarily mean I endorse everything they say.
Otherwise, perhaps the commenter should do a bit more research before criticizing my allegedly one-sided perspective.
Posted by: Michael Panzner | February 13, 2009 at 01:38 PM
Mr. Panzner - I stand corrected. I vented in the wrong direction. I will be more diligent in the future and am grateful that you take your precious time to maintain this website. Please understand, I am not omniscient but I do know this: The economic cycles we are witnessing will increase in frequency and severity unless financial (economic)discipline is peacefully and responsibly implemented in Washington, D.C.. I don't see this happening so bankruptcy, via direct currency devaluation or double digit inflation is next.
Posted by: Anthony Teamson | February 14, 2009 at 05:01 AM