This essay by Eric D. Wanger was originally published in a newsletter for the financial clients of the multifamily office he ran in Chicago. At the time he wrote, three months into 2009, America had seen more than 2.3 million jobs lost for the year.
April 3, 2009
Lehman, UBS, Bear Stearns, Refco.
Madoff, Bayou, Stanford, Pequot.
Countrywide, American Home Mortgage; AIG, Merrill, Citi, BofA, UBS.
Anybody up for a good rant?
Let’s rant! We just went through a huge financial bust. Busts always make Wall Street look like an evil clubhouse for crooks, lazies, crazies and dupes. This one was no exception: Bankers, once again, are greedy parasites, and their lawyers, we are reminded, are crooked scumbags. (Any good rant should include a diatribe against greedy bankers and crooked lawyers.)
This most recent bubble was as exceptional as its bust. An extraordinary amount of wealth was created and then destroyed. I’ve not been disappointed with the quantity or quality of rants in the press. Every editorial page and blog is bursting at the seams with moralistic homilies. Crooked bankers and sold-out fiduciaries grace every page.
America is not over and the free market is not dead. Did we collectively screw up? Yes. Did we get drunk on debt and leverage? Yes. Did we honestly think that there were really enough millionaires to buy all those million-dollar condos? Maybe. But this has happened before and it will happen again.
The history of finance is filled with booms and busts and the crooks and robber barons that symbolize them. There is a whole literature on this topic. My personal favorites include the sections of A Random Walk Down Wall Street, by Burton G. Malkiel, that deal with famous securities scams as well as an obscure little book from the 1980s called: Other People’s Money: The Rise and Fall of OPM Leasing Services, by Stephen Fenichell.
Some might expect that my vote for the greatest rant ever would come from the literature of the Great Depression. It took the American public decades to regain its trust in Wall Street after the bubbles and busts surrounding 1929 (and the screw-ups that extended the misery). Yet the greatest rant in history may be one produced in the nineteenth century by Mr. Karl Marx and Mr. Frederick Engels. The Communist Manifesto of 1848 was a really kick-butt rant against capitalism and its greedy bankers and crooked lawyers. Sample some of it in English:
The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors”, and has left no other nexus between people than naked self-interest, than callous “cash payment”. It has drowned out the most heavenly ecstasies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom—Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.
Now that’s a rant!
There is no law that can eradicate greed or make fraud more of a crime. There is no law that will restore our trust in the financial system. Please remember the disaster that is Sarbanes-Oxley. Our system became great by choosing to regulate disclosure, not by trying to legislate common sense.
We need to increase the level of disclosure and transparency demanded of certain markets and instruments. Likewise, we need to re-integrate certain areas of our financial system that successfully evaded scrutiny in the past.
Fraud is already a crime. And stupidity, unfortunately, can never be one.