Category Archives: financial crisis

A Very Good Six Years

Today marks six years of writing as a free agent. When I hung out my shingle back in 2006, I wasn’t sure what it would be like to get up in the morning, walk into the next room (my office) and find my job waiting for me.

I wondered, would it be a matter of time before my writing turned into more of a hobby than a profession?

Actually, it was the other way around.

My home life, for a long time, disappeared. In its place was my writing life, only my writing life. During this time, the phone would ring at all hours with editors making frantic requests that frequently fell under the rubric of pie-in-the-sky. (This often would be something along the lines of, ‘We really love what you did with the contango piece, but do you think we could add a talking dog? We’d really love a talking dog.’ To which, I’d say, ‘Of course, how could I have forgotten the talking dog?’ And just as often as not, we’d never speak of it again.)

When I relocated to London, the New York editors’ calls would roll in past midnight. The hardnosed, salty-mouthed (usually male) editors were my favorite. I strongly preferred them to the pinched Barnard ladies who would fuss and fidget over every last accent aigu until their magazine was put to bed. It was a long time before I learned how to balance the steady stream of demands with a life that allowed for, among other things, regular meals, the occasional exposure to sunlight and sleep.

But it was worth it, because any topic I stumbled across I could make into a story. The world, I found, was full of maddeningly fascinating mysteries nobody else seemed to be noticing. On an Emirates flight to Dubai, I thought, how is it we are allowed to quaff champagne on a Muslim airline — and have Muslims serve us without breaking with their faith? This led to a series of feature-length articles on Islamic finance.

My first book proposal was written from snatches of time over many weekends, because it was impossible to do during the busy work week. Once I returned to New York in late 2008 with my first book deal, Wall Street was falling apart. Yet even with half the magazines I’d written for cratering, there were still plenty of stories to write about the crisis for the publications left standing.

Whether boom or bust, it has never been boring. This is the reason, I believe, so many executives on Wall Street can’t bring themselves to ever leave. Certainly, there is the realization that any sickness of mankind will be exacerbated there and duly amplified. That is unavoidable. But the genius is there too. There is a loneliness among the truly gifted that seems to find a home along the corridors of Wall Street.

I have talked to many people over the years who say they would like to leave. But for what? The money is good. But that’s not the main stumbling block. It’s more furtive than that. It’s a feeling that to remove oneself from the vortex of power would be to forevermore live life in the outback. The vortex is addictive. And, ultimately, it’s not really about the money. It’s about being an insider. To leave would be to become an outsider.

Unless, that is, you leave for politics. Because the fight here is not for money, but personal relevance.

Even for mere Wall Street writers, this is true (despite the fact financial journalists are outsiders by definition). I could very well write about art and wine and great, great literature. Sometimes I do. But artists and vintners and writers will never be as interesting as the people I talk to on Wall Street. Sooner or later I am going to ask a vintner how much artisan wine is pressed in California annually or what the yearly cash flow is of an average vineyard and I will get a blank stare. Faced with a dearth of quantitative facts, I cannot help but be crestfallen.

On the other hand, Wall Street is never so banal. One of my favorite hedge fund managers is into extragalactic physics and biblical textual analysis. Not for any reason. Just for fun. How can any writer walk away from that?

I was raised by an English teacher and an artist. They did all could to ensure that I would never be interested in finance. They discouraged me from taking an unwholesome interest in balance sheets, Beige Books, black swans.

But as soon as I found out about triple witching, it was all over.

 

 

PAST PERFORMANCE IS NECESSARILY INDICATIVE OF FUTURE RESULTS

S also stands for 'sinister,' 'scurrilous' and 'slippery'

It met rarely and whined often. It gave up before the actual deadline (Nov. 23). It sought to shear over a trillion off the national budget, but came up with peanuts. It inspired satire in the form of, among other things, superhero cartoons. It was the “supercommittee.” For these reasons and so many more, America’s elite political body truly lived up to its name in that was super-lame.

This again proves that when Congress gets together and can’t make a deal, guess what? Moving the date back and getting together again — on the taxpayers’ dime, replete with catered lunches — still doesn’t lead to a deal. Funny how that works.

Whenever confronted with the need to make an actual decision, Congress prefers instead to commence lengthy studies, probing inquiries and cerebral surveys — all of which require much munching and lunching and the drinking of fresh coffee and spring water — that rack up bills yet infrequently give rise to any answers… Continue reading PAST PERFORMANCE IS NECESSARILY INDICATIVE OF FUTURE RESULTS

How To Make Someone Else Swallow Your Losses, The Mastercourse

It’s official: when a Wall Street powerhouse suddenly collapses and (possibly) more than a billion dollars goes missing, it’s no longer just the ordinary taxpayer’s problem. Now, it has moved up the chain. Below, the piece I wrote today for Fortune on what traders do when you misappropriate their money.

While Occupy Wall Street was holding its two-month anniversary rally in Manhattan last week, traders were quietly mounting a rather more sophisticated version of OWS on their own. Call it Occupy Wall Street Bankruptcy Court.

FORTUNE — Big institutional investors are getting a taste of what many frustrated taxpayers experienced during the financial crisis: Being on the hook for losses of a major financial firm against their wishes.

This time, of course, it’s MF Global at the center of the dispute. A once-trusted brokerage with roots dating back to the 1700s, MF Global is now a bankrupt firm suspected of misappropriating customer funds to the tune of at least $600 million.

More than two weeks after MF Global’s Halloween bankruptcy filing, there are more questions than answers and a surfeit of conflicts in an investigation that should be aiming to restore the public’s confidence, but is doing the opposite. On Monday, the bankruptcy trustee for the case announced that there may be much more than $600 million missing from MF Global accounts — perhaps as much as $1.2 billion.

Hundreds of millions of dollars of trading capital and collateral were frozen without notice, dramatically disrupting the derivatives marketplace and ushering in a phalanx of federal prosecutors, regulatory agencies and forensic accountants working around the clock to determine where the missing money is. This, after a lawyer for MF Global assured a New York judge earlier this month “there is no shortfall.”

What’s different about this case?  One hedge fund executive summed it up best: “What is scary about MF Global is that there is no political will in this country to look out for people. Let this be a lesson that, if someone tries to steal from you, there is no one who is going to save you. I mean it is literally the most frightening thing that can happen in finance.”

Led by a sense of outrage — as well as the conviction that if they don’t look out for themselves, no one else will — investors have been pooling information and banding together to defend themselves for weeks. Continue reading How To Make Someone Else Swallow Your Losses, The Mastercourse

Final Words From U.S. Bank Watchdog Sheila Bair

Castle on the Fuschlsee

Not all banks are the same. A handful of banks — such as the one that invited me to speak in Austria this autumn– were not happy to see the multibillion-dollar bailouts, the hue and cry of the public and the resumption of the indefensible bonuses on Wall Street that have, again, given banks a bad name.

I had never been to Salzburg before, so I was heartened to see another American there who had not been either: Sheila Bair, the outgoing head of the Federal Deposit Insurance Corporation, the federal agency that insures bank deposits and unwinds the banks that fail. Bair has been very busy these past few years.

Bair was the only other female speaker in a sea of bank governors, finance ministers and consultants from a wide range of European nations. What united the group, however, was a sense of urgency in examining the origins of the global debt crisis and its possible solutions. A prominent boutique bank in central and eastern Europe, Erste Group, held a series of panel discussions at a private castle in the Alps on Lake Fuschlsee with provocative titles such as “Who needs banks?” (The answer, according to the moderator, was that we would like more “normal banks, banks that take our deposits and don’t try to gamble with them.”)

Ms. Bair offered her own pearls of wisdom in a keynote speech sizing up the banking system and the current state of the world’s financial affairs from the perspective of a Washington insider:

– On the highly popular banking credo of profits will be privatized; losses will be socialized: “There is still an issue with Wall Street’s perception of too big to fail,” Bair says. “The problem is, too big to fail is not over until Wall Street thinks it’s over. I have argued that the ratings agencies should not be rating banks more highly than they deserve, based on the expectation they will be bailed out. It is unfair for the taxpayers to have to put their money at risk again.”

– On bank bonuses: “We have got to do something about these huge bonuses…We are still seeing huge political movements based on the anger generated from this. We do need some tough love to address this.”

– On the fight over the U.S. debt ceiling (our nation, by the way, now owes over $54.5 trillion): “I am not going to defend our politicians…it was appalling, unnecessary and self-imposed,” Bair says, adding: “I am not going to defend it and I feel somewhat helpless about it. It’s a very sad situation.”

– On U.S. politicians primarily being driven by “short-term interests” and “the idea of driving decisions based on keeping your job” (her words): “It’s not like you get into public service for the money, so if you’re not doing the public good, it’s like, why are you doing this?'” Bair, who has worked for George Bush senior and Bob Dole — both military men — offered her suggestion for a better type of leader: those who have gone to war. “If you are willing to go to war for your country, then you’re not just willing to lose your job, you’re willing to sacrifice everything.”

– The prognosis for global growth and stability… Continue reading Final Words From U.S. Bank Watchdog Sheila Bair

A Certain Stylishness In Hating The Rich

In Marie Antoinette's days, the guillotine was called the 'National Razor.'

Our national discourse on the nature of wealth has been a good cure for sanity of late.

News that a book coming out from the surviving son of Bernard Madoff, mastermind of the largest Ponzi scheme in history, elicited comments from readers that could be called anything but charitable. Alongside an interview with Madoff’s wife, Ruth, whose picture speaks volumes about the toll the scandal has taken on her life — not in the least the suicide of her other son — are comments that plainly show how bitter the feud has become between the rich and the working class in our country. In response to Ruth’s claims of not knowing of her husband’s illegal financial dealings, readers wrote:

“What a bunch of lies. Anyone in the industry knows that the returns had to be made up…the sons knew it, the wife knew it, everyone knew it.”

“I do not think Ruth knew, but she strikes me as remarkably incurious and shallow.”

And:

“This is a woman who married at 18 and never took responsibility for her own financial security. True, she raised their children but she chose to ignore the choices made by her husband.  Now she claims to be a victim. I am sorry but I do not buy this. She chose to remain ignorant.”

Overlooked was this part of the interview, in which Ruth Madoff discusses falling in love with her husband, as it would inevitably inspire some modicum of humanity.

Aside from Madoff-venting, the debates rage about the solutions. At Occupy Wall Street, which I visited last week, you have, on the one hand, a number of concerned Americans questioning — or outright decrying — capitalism in all its trappings. They suggest that the only solution is to raze and rebuild the entire political and financial system.

Unfortunately, they are still experimenting with new models to offer in its place.

On the other, you have national leaders quick to denounce the financial crisis, but just as quick to vote down any new rules aiming to prevent a financial crisis in the future.

Two G-Men (Goldman, that is): Obama and Corzine wave for the crowd

Already, we are seeing the results of this splintering of the populace: we remain effectively paralyzed to redress our own fragility, forced to lurch from one crisis to the next. Large financial powerhouses continue to fail spectacularly as the Department of Justice, the Federal Bureau of Investigation, the Securities and Exchange Commission and a smattering of other government agencies struggle to keep up with reports of unchecked theft, negligence and fraud amid budget cuts frequently meant to hobble them (as if the backlog of cases they’re drowning in wasn’t enough).

In the meantime, too much money in all the wrong places undercuts the healthy cleansing that might otherwise be achieved through a democratic elections process. As one hedge funder told me while in New York last week: “Nothing can pass C0ngress, because the Republicans believe all regulation is bad. They don’t want another financial crisis, but they don’t approve of any new rules either. They haven’t quite worked out their dogma yet.” And we know Obama and the Democrats, whatever the dogma, do not appear capable of executing a plan.

Last week, former U.S. senator, New Jersey governor and high-ranking Goldman Sachs executive, Jon Corzine, stepped down from a job he held for just over a year as head of the world’s largest futures brokerage house. The 200-year-old-plus brokerage, MF Global, handled traders’ transactions in the multitrillion-dollar futures market, where people bet on the future prices of everything from soybeans to gasoline to interest rates.

Corzine’s company, which sought to become a mini-Goldman Sachs, filed for bankruptcy after betting more than $6 billion on bonds tied to the European debt crisis and getting caught short. Corzine, a self-described son of an insurance salesman who grew up on a “small family farm” in Illinois, raked in hundreds of millions at Goldman as he ascended to its highest echelons after starting out as a bond trader there.

Given his trading background, Corzine very likely understood exactly what kind of risk his brokerage was taking ahead of its downfall. (“A good rule of thumb is, if the guy is not a former trader, he probably didn’t know what hit him,” the hedge funder told me over a nice-sized steak. “But if you’re a former trader, you get the joke. You probably wrote the joke.”) Continue reading A Certain Stylishness In Hating The Rich

Warren Buffett Has Some Choice Words For ‘Billionaire-Friendly Congress’

Warren Buffett, the world’s third-richest man, hasn’t raked in his $50 billion-plus by  nursing a bleeding heart for the middle class.

In fact, those closest to him (I am talking about his kids and grandkids here) have personally told me the Seer of Omaha is as hard-nosed as they come. To him, playing the market is a game — and he wants to be the best on the planet. “Dad always says, ‘Bury me with a Ouija board, because when I die, I want to keep on playing,'” one of his sons told me in 2008.

Bottom line: this is not a man looking to be parted with his bucks.

And yet…when confronted with the Hieronymus Bosch painting of political and financial horrors of the past few years, he has felt the need to speak up about the wounds he feels are needlessly being inflicted on ordinary Americans.

In the following New York Times editorial, which should be read by one and all, he offers a brief economic education for those who seek to propagate the untruths ginned up by the deep thinkers in Washington to protect the wealthy from their worst horror of all — tax hikes.

Stop Coddling The Super-Rich

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me.

I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched. Continue reading Warren Buffett Has Some Choice Words For ‘Billionaire-Friendly Congress’

The Ascent Of Decline

The decline of ascent.

The shot across the bow in the Great American Decline came at the usual time: just before the weekend after the market closed on a Friday.

This time-honored tradition of announcing horrid things just as one tucks into Friday night was invented by flaks who believed — rightly — that nobody notices anything going on between 4:30 pm on a Friday and 9 a.m. on a Monday.

This hat trick does not always work. When Standard & Poor’s downgraded the U.S. credit rating from ‘AAA,’ the highest rating possible, to ‘AA+’ this past Friday I was traveling through New York and working in offices on Park Avenue. In the streets, it was absolute bedlam.

Later, having dinner on Wall Street with friends it was the same.

This effectively strips the U.S. of its golden credit for the first time in history.

We have lost our standing in the world.

Debt Deal ‘Achieved’…By Leaving Tough Decisions To A Yet-To-Be-Convened Special Committee

Turns out it is not at all hard to find a picture of a sweaty wad of cash on the Internet.

The good news: in a deal yet-to-be-passed by either house, Obama and Boehner’s Raucous Caucus have finally agreed to raise the debt ceiling by $2.4 trillion in two stages, in exchange for an equal amount of spending cuts — with $917 billion of the cuts to span the next 10 years.

How will the rest of the cuts be administered? By special committee. (That’s the bad news.) Why rush these cuts when we were all starting to have so much fun?

Part of keeping the fun going is that Americans will continue to live in the shadow of the sword. Due to a small proviso cleverly tucked into this legislation, if the special committee doesn’t come up with at least $1.2 trillion in additional cuts (the goal here, is actually more like $1.5 trillion in cuts) or Congress doesn’t agree to green-light them, something akin to martial law will kick in.

What will this look like? Think of a nail-bomb set in advance, designed to spray cuts to the military and Medicare if anyone makes one ill-advised move.

Basically, this part of the deal ensures that even you, the taxpayer, will be begging members of Congress to ratify every last spending cut, lest you dial 911 one day and find that nobody answers.

Hey, what’s a bill without a little blackmail?

Still, it is a sad state of affairs that the only way to get things done these days is to hold ourselves at gunpoint.

The bill is expected to be voted on today. Obama, for all his speeches, has been brutally cowed, again. Spending cuts reign supreme, while Bush-era tax cuts remain unchallenged. It is official: our president buckles like a belt.

Americans Quaver As U.S. Prepares To Go Titanic

Lifeboats for senators and bankers only.

Fidelity, which never sends emails, except to market its herd-investing strategies, has suddenly sputtered to life.

This weekend’s missive: “Debt ceiling: what you should know.”

Really. It’s a little late to be sending this now. But what have you got?

It turns out Fidelity is able to direct me to its Web site to get the most clicking, ahem, “best thinking” of its market specialists, who have penned such helpful tidbits as “Inside the U.S. debt drama” and “Fear is not a strategy.”

Fidelity, we know you don’t want us pulling all our money out of our shrinking retirement accounts and stuffing it under our mattresses because that is not good for you. But “Fear is not a strategy”? Come on. That’s pitiful.

We are going down this road no matter what we do now. We’ve heard for a long time something’s gotta’ give. It is just too bad so many people are going to get a lot worse than they deserve.

Just a few letters from the Interblogging universe, written by concerned Americans who now believe their worries will be given more consideration online than by their own congressmen and women… Continue reading Americans Quaver As U.S. Prepares To Go Titanic

The Chickens Must Eventually Roost

Too many Foghorn Leghorns?

The thing about playing chicken is that fatally high stakes are a prerequisite of the game.

And someone — not excluding, say, an entire country — is going lose.

If you believe market pundits like Jim Rogers (an American trader of some fame who chooses to teach his daughter Mandarin and now lives in Singapore) the U.S. has already lost its triple-A credit rating in all but fact.

“Everyone already knows that the U.S. has lost its ‘AAA’ status,” Rogers said (while alternately lambasting the press for taking seriously what he called the ongoing Washington “charade”).

“Anyone who knows what is going on, already knows that the U.S. is now the
biggest debtor nation in the history of the world. It’s only S&P and Moody’s [the ratings agencies] that haven’t figured out what is going on. The investment world knows that the U.S. is not ‘AAA.’”

The truth is, the ratings agencies have figured out the U.S. is not triple-A. But those entrusted with grading the U.S. debt at the ratings agencies have been on the phone frequently with Washington, which means their allegiances are subject to crushing political pressure. Continue reading The Chickens Must Eventually Roost