Monday, September 22, 2008

High Risk Means No Risk For Those at the Top

My mind is still reeling as I ponder the potential ramifications of the recent shake up in the financial markets. Not only will this bail out cost more taxpayer money than I can possibly imagine, we have effectively nationalized our financial system. While the Republicans rail against a national health care system, President Bush showed no hesitation in spending hundreds of billions of dollars to buy up a load of worthless holdings from major financial institutions which were thought to be too big to go under. Everything Mr. Bush does sends the same message: If you are rich, we will always extend a lifeline; if you are poor, suck it pal!

So what got us into this horrible mess? As with any financial mess: greed. When you couple greed with a regulatory system that is antiquated and disinclined to intervene, you have a bomb waiting to go off. Having worked for a major investment firm for many years, I know that the layers of regulation regarding financial institutions are deep and complex. But just like our complicated income tax system, there are always those who can circumvent the system if they really want to. Fortunately, I happened to work for a company that believed in running a tight ship, but I was also aware that many of the regulations we followed were created in the early 30s in response to the Stock Market Crash of 1929. A few extra precautions were put into place after the next big crash of 1987, but surprisingly little was done during the 90s when financial institutions grew by leaps and bounds.

The proliferation of employee-funded retirement plans and the feeble interests offered by bank instruments pushed millions of Americans into stocks and bonds. Investment firms grew exponentially during the 90s, not necessarily because of their investment genius, but simply from market penetration. The flood of money into the markets in turn spurred on these markets to ever greater heights. The more people wanted in, the higher the value of stocks went, which drew even more people in, which drove stock prices even higher, and so on. By the late 90s, you could invest in just about anything and it would make money over the short term. Investment firms made money by staying open, basically.

I worked as a lowly cog in one such investment firm during the 90s. While the investment managers and administrative bigwigs treated themselves to lavish raises, bonuses, and stock options, us worker drones were given annual raises barely above a cost-of-living increase and year-end bonuses that were the monetary equivalent of Chevy Chase's Jelly-of-the-Month Club bonus from National Lampoon's Christmas Vacation. Granted, I was not working the trading desk or directly effecting any influence over our investment products, but I was a part of an army who took care of the shareholders' daily needs and made sure they were happy. And in an environment where any boob could make money in the stock market, the major deciding factor for most shareholders was the service they received. But that was always discounted by the people in power. It was their brilliant financial minds that drove their success, or so they thought.

The bubble burst in 2000. The markets dropped and no amount of trading finesse could create gains. Mutual fund managers who were once given rock star treatment by the financial press were suddenly vilified by the shareholders. Some slunk away into oblivion to pursue "other opportunities." Still, those who remained continued to receive ample raises and bonuses each year while my colleagues and I either received less or were laid off. Those who suffered most were the shareholders and the middle-class employees.

With the stock market suffering, the next area of exploitation became the housing market. Home buyers had already been benefiting from a decade of low-interest-rate mortgages, but avarice created the highly risky sub-prime mortgage. Any reasonable thinking person would know that you don't talk someone of limited means into an adjustable rate mortgage. The introductory rate they receive at the beginning is probably the rate they can afford. Once the adjusting kicks in, they are priced out of their mortgage. Secondarily, because the initial rate is so low, home buyers convinced themselves they could pay more for a house than they once would simply because the low interest rate made the monthly payment reasonable. Of course, that monthly payment was the highest - not the lowest - they wanted to pay. Raise that adjustable rate a few ticks and suddenly they were on the verge of default.

The banking piranhas who pushed these loans knew all this of course. They knew these people would be sucking wind in a year or two, but every new mortgage meant a commission. They had to keep making those commissions. If the suckers were out on their ear in a year or two, that was their dumb luck. I can't really argue that point - those who don't read or care to understand the fine print should be held accountable. But when an avalanche of bad debt comes crashing down, everyone gets hit, not just the poor saps who took out the mortgages.

Of course, that's not quite true. The bigwigs who ran these financial institutions into the ground with ridiculous risk - those same bigwigs who received enormous salaries and bonuses during the run up - are now bailed out by Uncle Sam. We, the taxpayers, have to pay for the greed of those who already had too much. In return, we get a load of bad holdings that will likely never amount to anything. Lucky us.

So the risk/reward message I preached to so many shareholders for so many years, and the warnings I carefully laid out for them that high risk investments may lead to big losses, don't hold true anymore - at least for the ones at the top. They take all the risk they want and if it blows up in their face, the taxpayers bail them out. No accountability for those who finance the campaigns of Congresspeople.

It's estimated that this financial bail out may cost $1 trillion. And a national health care plan would be too expensive? Oh right, that's for the poor people. They don't count.

Monday, September 8, 2008

Where's the Love for the Ravens?

I'm becoming increasingly irritated with the national media's coverage of the NFL. They tend to treat it like a TV series where you have a handful of main characters (in this case, The Colts, The Patriots, The Cowboys, Last Year's Super Bowl Champs, and whatever team Farve is currently playing on), the semi-regular guest stars (usually The Steelers, The Eagles, The Seahawks, and maybe The Jaguars), and the bit players and extras (the remaining 23 teams). The Ravens are akin to a slab-bound crystal meth addict on an episode of CSI.

Case in point: The Ravens beat The Cincinnati Bengals 17 to 10 in their season opener Sunday in front of nearly 71,000 fans in M&T Bank Stadium. We're starting the season with a new head coach, mostly new coaching staff, a re-vamped offensive line, and a rookie quarterback who was meant to be a third-stringer until two weeks ago. And we won! So I'm watching Football Night in America, and instead of focusing on this Cinderella story, the ex-jocks in the glass cage can only rant about how poorly the Bengals played, as if they had money riding on the game or something. They literally did not mention the Ravens at all except to say "Flacco Who?" The Number 18 First Round Draft Choice, you big boobs!!!!

I realize that The Bengals are a crappy team and there's a lot more football down the road, but you can a least throw a bone to a team that struggling to rebound from a 5-11 season. Besides, no matter how well we do, the national media seems to take some sadistic glee in ignoring us or downplaying our success. Back in 2006, when we had won our first four games in a row, I was still hearing more about Tony Romo and he hadn't even taken his first snap as a starter yet. They had already elevated him to the calibre of Manning and Brady before he had done anything. Such is the nature of star-making from the likes of NBC and ESPN. The hot-and-heavy bromance that John Madden has for Tony Romo is truly distasteful!

When I was a kid, I loved to watch the Olympics on ABC because they always did those up-close-and-personal segments showing how some poor family in Podunk, Iowa hauled their kid to the skating rink at four o'clock every morning and ate Mac N' Cheese for eight years so they could afford to buy her proper skates and outfits. I loved that stuff because it showed the true sacrifice of the underdog with a dream. The overcoming of adversity to rise to the top. We don't seem to care about that anymore. We just want to see people who are automatically winners through birth or connections or dumb luck. Those struggling for greatness are viewed indifferently by the media. They'd rather play sicophants to those who are already on the top than seek out the true human drama in the up-and-comers.

The Ravens are going through a come-from-behind transition right now. I understand that former coach Brian Billick and some of the hot-headed veterans on the team created a reputation for The Ravens being the east coast version of The Raiders. But John Harbaugh is working hard to change that image, and he has a lot of rookie players who are buying into his mission. The low number of penalties in yesterday's game point to such a change. Why can't the media jump on this story as it's unfolding rather than take the wait-and-see attitude as they are prone to do? I suspect, even if we miraculously pull out enough wins to get a wild card slot in the playoffs, Bob Costas and the boys will still be wringing their hands and wasting air time over Brady's knee rather than saying anything nice about Baltimore.

Friday, September 5, 2008

And Now the Red Team's Turn...

After watching Senator McCain's speech last night, I can understand why he went with Sarah Palin as his running mate. He needed someone with a personality to breathe excitement into his campaign. While Governor Palin bowled the Convention, and much of the viewing audience, over with her dynamic, well-crafted attack on the Democrats, McCain stumbled awkwardly along, barely reaching a decibel level higher than normal conversation, and rattling off the same ol' anti-Democrat catch phrases that we've heard a million times. As McCain was shouted down by protestors, the whole event reminded me of Hubert Humphrey's acceptance speech in 1968. A simple, decent politician trying mightily to set himself apart from the current president, but constantly counterpunched by those who won't let the public forget why we want the current administration out in the first place. Given the over-the-top security measures taken at such events, I was amazed that protesters got anywhere near the hall, but I'm happy they did. Free speech is not dead yet.

I've had mixed emotions all along about John McCain. I believe he is more of a true public servant than Obama, can connect with a broader cross section of American than Obama can, and has greater life experience as preparation for the job. I was fully ready to break with my Democratic brethren and vote for him until he named Sarah Palin his running mate. I suddenly had Bush-Quayle flashbacks. For all her personality, I just can't see her running the country. Of course, after George W., I think our republic can withstand a trained monkey in the White House, but I would still worry about having the Governor of a sparsely populated state running the entire country -- not such a small consideration given McCain's age.

Another issue in the negative column for me is McCain's lack of ideas and inability to convey a clear vision for America's future. I'm so tired of hearing things like, "I will cut taxes; Senator Obama will eliminate jobs." This Republican concept that raising taxes automatically destroys job creation has never been proven. Bill Clinton raised taxes in the 90s and we saw one of the biggest economic growth spurts in our history. In fact, historically, the stock market has done better under Democratic presidents than Republican ones. It's just like that old 80s rant about how Democrats were "tax-and-spenders." Reagan proved that the Republicans were "don't-tax-but-keep-spending-anyway-and-run-up-a-ridiculous-deficiters." Finally, Clinton took the bull by the horns, raised taxes enough to pay off our debts, and then made difficult budget cuts to balance the budget. All the while, 22 million jobs were created during the Clinton Era. George W. Bush cut taxes, but how many jobs have been created during Mr. Bush's watch?

Ultimately, the Republican rhetoric is tired and doesn't hold up to scrutiny. They keep saying McCain is a maverick, and I would love to see him prove it by attacking the President and the Republican status quo outright. What the hell? You already have the nomination. But, alas, he will continue to bend himself to the will of the current policies and sound like George W. Part Two. I don't know if that's going to fly with the bulk of Americans.

The one new wrinkle which I found intriguing this week was how the Republicans out-Democrated the Democrats by embracing the working class. From the way McCain and Palin rattled on about helping ordinary folks, you'd think they had morphed into Mondale and Ferarro. Again, I think it's all smoke and mirrors. Just as President Bush has pandered to the Bible Belt Christians by wearing his born-again status on his sleeve, all the while helping big business and squeezing the very people who faithfully voted for him, McCain and Palin are trying to play against Obama's elitist persona to snatch up working class voters who are afraid Obama doesn't quite understand them. I too believe that Obama is more comfortable with the Starbuck's crowd than those at Joe's Diner, but I can't for a minute believe that a McCain/Palin administration is going to do anything substantive to help working families get decent health care or relief from high prices.

So there we are. If a Biden/McCain ticket was available, I'd have no problem voting this year. John Adams feared for our republic if we developed strong parties, but it was inevitable, and this is what we've wrought. Instead of electing the best possible candidates from both parties, we get these oddball combos that don't add up to very much. Regardless of which side wins, I'm not looking forward to the next four years.