How Wall Street Fell And How To Fix It

January 17, 2009

Do you understand the recent turmoil? I lose interest when I read about it because I don’t understand most of what I read. I want to be able to talk about it because everyone else is. I don’t want to be accusatory or misinformed so I do more listening. Where can you learn the facts without being bored or confused?

When possibility and bankers meet

What if someone wrote it as a story about people? No graphs, no jargon (or not so much that the meaning is mired in it), not too many %. As a story about human behavior, it is nothing short of fascinating and not even surprising. The more you read, the wilder the story becomes. This debacle as fiction could never have been plausible.

Some people saw it coming. In fact they took out bets that it would happen. Who were they? How did they know? What alarms did they raise and who chose to ignore them? The most easily readable obituary of the financial meltdown is the article “The End” for the December 08 issue of Portfolio magazine.

Michael Lewis

Lewis begins at the beginning of the now-wreckage. It is the buildup towards the realization that collapse had to happen. The system was obviously, clearly, incontestably doomed. There was no other possible outcome.

When the end began

Actually, the pot was simmering long before the mortgage fiasco. It began 30 years ago. In Lewis’ 1989 book, Liar’s Poker, in the same story-telling vein, he describes Wall Street of the 80s. Again funnier and more far-fetched than most fiction, this is Lewis’ own autobiography in a tale about people, greed, and permission. Addicted to the wild risk ride, seeing themselves as indestructible, these were the rulers in the game of finding every legislative loophole possible to amass indecent fortunes by risking other people’s money.

There are good reviews here and here, if you want to get the gist of it.

What they did with the money

In the January 09 New York Times article “The End Of The Financial World As We Know It”, written by Lewis and David Einhorn, you’re brought up to date with what went on, what’s going on, and what they did with the money they were given. The role that politicians played in the background is explained. It becomes obvious that what they’re doing to fix things is as idiotic and doomed to fail as the scientific neglect that got them there in the first place.

How can so many people in charge of so much be so deluded ? Who would give $700 billion to someone with a gambling addiction without changing the rules of the game? How can single individuals still have so much authority?

Understanding the financial industry is not important. You don’t need to. It ‘s just a story about people posturing, bluffing, and ultimately hiding weakness. Showdowns are the name of this game, Old West style, gun-slingers trying to protect themselves and secure their glory. Wall Street is just human nature on a grander scale.

How to really fix it

The second part of the article above is “How To Repair A Broken Financial World”.

The warnings were always there. Reasonable solutions are offered but the choice seems to be made not to heed them. There are other ways out of this than just throwing more money into the pit that sucked it all up in the first place. The system that so mismanaged itself will have to propped up artificially to maintain some sort of status quo and prevent a complete unravelling. I hope something more is happening behind the scenes.

We all have a sense of the inexcusability. Bankers moved from invincibility through denial to protection. Can this lesson tame the insatiable greed? Of course not. Humans are humans. You don’t give a bully more attention. His reward system has to be taken away.

The gears of the political and financial machines will have to grind in sync to straighten this out. The legal loopholes will have to be closed. This second article presents forward-looking means of preventing a repetition because the weaknesses of human beings are foreseen and contained. It is the only thing that will really work.

Posted by Christine Scaman | Filed Under Money