Wall Street

2008 recession is anything but ancient history

Posted on by j.giglio

If you think you have heard it all before about the 2008 financial meltdown, then you need to listen more closely. Enough is never enough when it comes to learning about what caused the crisis and the recession that followed.

This month marks the 10th anniversary of the financial crisis that devastated Wall Street and Main Street. While the autumn leaves were falling in September 2008, months of uncertainty crystallized to spark a financial panic.

The crisis, the worst financial downturn since the Great Depression, was triggered by the bursting of a housing price bubble that had been fueled by increased risk in mortgage lending. As a result, millions of Americans lost their jobs, homes, or both.

The crisis had many causes, including too much irresponsible borrowing, foolish investments, the credit bubble that resulted from loose monetary policy, the housing bubble, national housing policies and non-traditional mortgages, relaxed mortgage lending standards, credit ratings and securitization, financial institutions’ concentrated risk, leverage and liquidity risk, 30 years of deregulation, securities firms converting from partnerships to corporations and perverse compensation incentives.

Scratch the familiar refrain of greed as a cause. Greed has been a constant in human affairs for millennia. It was not a new attribute in the lead up to the crisis.

Today the economy is strong, according to official measures. The United States Bureau of Economic Analysis estimates that GDP growth reached 4.1 percent in the second quarter of 2018. Consumer confidence is high and financial markets are flirting with records. The housing market, the epicenter of the crisis, has recovered in many places. Add low unemployment and things are looking good.

Wall Street has profited every year since the recession ended in 2009. Average Wall Street compensation, consisting of salary and bonus, hit $422,000 in 2017, 13 percent higher than the previous year, according to the New York State Comptroller.

In contrast, the latest Census Bureau data shows that the median income for American employees was $59,039 in 2016. Last month the average hourly wage rose 10 cents, to $27.16, according to the Bureau of Labor Statistics. While that was the largest gain since 2009, the increase was roughly equal to inflation, which eats away at purchasing power.

The crisis strikes some people as ancient history. Others, who saw their net worth wiped out are still trying to recover. They want Old Testament justice for the financial institutions that got bailed out from their reckless behavior while ordinary people suffered and continue to tread water thanks to ongoing wage stagnation. The hope is that as it gets hard to fill jobs with the country approaching full employment, wages will go up and the average American will enjoy the recovery.

While many analysts hesitate to blame American families for contributing to the financial crisis, they did play a role, aided and abetted by bankers and mortgage brokers. To put their role in context, consider that highly risky mortgages were attractive, given that real wages in the United States had been stagnant since the early 1970s.

People came to understand the power of leverage, which had previously been available only to wealthy investors. No-down payment mortgages with adjustable rates reduced their initial costs, providing the opportunity to improve their standard of living and enjoy wealth appreciation.

The assumption was that housing prices always increase. The rising value of the house would allow them to refinance and upgrade to a fixed-rate mortgage. When the housing bubble burst, many families were ravaged.

An economy that is strong for some continues to have harmful effects on the physical and emotional health of ordinary Americans. The results are a permanent state of outraged class warfare, declining social mobility, a shrinking middle class, and widening income inequality.

There is much to be mad about and plenty of blame to go around. Wall Street was the ultimate beneficiary of the Great Recession, not Main Street.

Originally Published: September 23, 2018

Too big to jail

Posted on by j.giglio

The war on drugs is back in fashion. The Justice Department announced a tough new stance that requires prosecutors to pursue the highest charges possible, including those that carry mandatory minimum sentences, for low-level drug users and distributors as the United States continues to supersize the modern prison complex.

But you could combine every gang banger selling crack on a corner in America and they couldn’t generate as much ill-gotten cash as the bankers who engaged in the widespread malfeasance that led to the 2008 financial crisis, which triggered the worst economic crisis since the 1930s.

Despite the gravity – and depravity – of their actions, the number of top Wall Street executives who were prosecuted for fraud related to the financial meltdown is exactly zero, even though they cost millions of Americans their jobs, homes, life savings, and hopes for a decent retirement, and forced the government to hit up those very people to pay for the bailout that saved the country from a financial apocalypse of truly biblical proportions.

Hard to believe, but the truth often is. Meanwhile, the ordinary American is still dealing with the consequences of the financial meltdown; scoring, hustling and struggling to make it in America.

There are many reasons no bankers were jailed, including the complexity of the cases and lack of criminal referrals from regulatory agencies. Prosecutors didn’t want to put executives of “too big to fail” banks in prison, often because they feared that indicting the executives would drive their firms out of business, eliminating jobs and causing serious problems for financial markets and the economy.

In addition, the argument goes that investigating top executives of large firms is difficult because they insulate themselves from day-to- day decision making. In the end, the Department of Justice choked in the clutch. The ordinary American catches the joke that doing the right thing is always harder than simply doing what’s convenient. You would be right to conclude that Lady Justice is blind because she can’t stand to watch what’s happening on the ground.

Those responsible for indicting and prosecuting Wall Street executives seemed to believe that just as there are banks that are too big to fail, there are also people who are “too big to jail”. Instead of targeting individual corporate executives with trial and imprisonment, they almost exclusively settled with corporations for money. Corporate settlements were easier than identifying and prosecuting culpable top executives. Firms could pay the settlements with shareholders’ money; it’s even easier than locking up someone for dealing drugs on a street corner.

It shouldn’t be overlooked that too many in the political elite shill for the top bankers, who come bearing large campaign contributions in both hands. As Illinois Senator Richard Durbin said in 2009, “they own this place”.

More than a century ago, President Theodore Roosevelt noted that concentrated economic power tends to capture political power, which undermines democracy. After 2008, the financial crimes committed with impunity gave rise to a tsunami of anger that washed away normal inhibitions and unleashed the Tea Party and Occupy Wall Street.

Wall Street still exerts inordinate influence over the economy, inequality is near all-time highs and, for the majority of Americans, economic opportunity is close to an all-time low. We send some gangbanger from the hood to prison, but the United States appears to have reached the point where government is afraid to prosecute a Wall Street executive for stealing millions, crashing the economy and wreaking havoc upon millions of people.

A more aggressive response followed the savings and loan crisis of the 1980s and 90s, when hundreds of small banks across the country failed due to reckless real estate loans. Back then the Department of Justice prosecuted over 1,000 people, including top executives at many of the largest failed banks.

These episodes bring to mind Honoré de Balzac’s provocative and memorable line: “Behind every great fortune lies a great crime.”

Originally published: August 5, 2017

The allure of Wall Street’s lusty pleasures

Posted on by j.giglio

Many people believe that a relatively few individuals were the real villains behind the financial heart attack of 2008: Those on Wall Street; in banks and other financial institutions; on the faculties of the nation’s leading graduate business schools, writing financial jabberwocky for small-circulation journals; setting policy in the West Wing of the White House and on Alan Greenspan’s Federal Reserve Board.

It’s popular to believe they hijacked the free market ideal because they could. It was American as handguns. They then proceeded to twist it to serve personal agendas at great cost to the. American people. Enough financial violence was done to make Attila the Hun look like Mother Teresa.

Some of these hijackers could have been hopeless psychopaths whose brains were wired in such a way that they actually got more pleasure scamming $10 from widows and orphans through elaborate Times Square shell games than by honestly earning $100 selling Bibles door-to-door.

In fact, everything needed to understand them is contained in several film noir classics.

Presumably, the only defense against such psychopaths is to isolate them before they can do too much damage. But the overwhelming majority of those assumed to have turned the free market ideal into a rip­ off of the American public probably started as fundamentally decent individuals, as morally straight as church deacons.

So what turned these Boy Scouts into shameless hustlers eager to sell their mothers 10 times over for a fast buck? The answer is clear enough to anyone who’s ever been bedazzled by Billy Wilder’s corrosively breathtaking  1944 movie “Double Indemnity,” with Barbara Stanwyck’s pathologically definitive scarlet woman promising poor schnook Fred MacMurray riches and sexual ecstasies beyond his wildest dreams if he helps her with a murderous insurance scam, all while working her own angles and making her own rules. If only he would bend a few rules. Just a little. Even for a short time.

Now imagine Stanwyck is America’s free market and MacMurray  is the Wall Street schmuck who should have known better.

Money and sex are hopelessly tangled in the male consciousness. So when a scarlet woman strutting in capitalism’s strapless red gown turns her wet-lipped allure loose on them and moves in close enough to fill their lungs with her dizzying perfume, what hungry Wall Street player is strong enough to resist her? Or even care when their homes and hearths and panoply of family values go rushing down the drain?

And if worse comes to worst, they can always stand up in court and plead the equivalent of Adam’s excuse when God scolded him for having eaten the forbidden fruit.

Barbara Stanwyck’s definitive portrayals of scarlet women throughout her .long career make these performances especially relevant in helping us appreciate why so many men in our male-dominated society remain confused little boys who get sex and money all mixed up. They become ·ready prey for the allure of money and power and all too eagerly sacrifice their careers, families, and very lives for the promise of a tainted dollar.

To our good fortune, many of these classic films noir are now available on DVDs and various video ­ streaming services. So be on the lookout for “The Lady from Shanghai,” “The Maltese Falcon,” “Out of the Past,” “Touch of Evil,” “The Killers” and many others.

Nothing beats movies from the classic noir era when it comes to exploring the darker side of human nature and providing us with psychological insights into why so many Americans are driven to behave like schmucks. Or at least they offer some convenient and reassuring explanations. 

originally published: May 9, 2015

How Wall Street execs cook the books

Posted on by j.giglio

One reason no one much likes corporate America these days is executive compensation. The subject is rarely out of the headlines and serves as compost for many articles and books written in pornographic detail.

CEO compensation discussions have struck a particularly pessimistic note since the 2008 financial crisis, when the high cicerones of finance rolled the dice, pocketed their winnings and relied on taxpayers to make the markets right again.

In the 1970s and ’80s, public corporations began adding stock options to already generous CEO salaries and bonuses, with the hope of giving them an incentive to boost corporate fortunes as measured by increases in the company ‘s stock price. Instead of promoting shareholder interests, the approach has created an incentive for executives to manage corporate resources to maximize management’s wealth.

Overall executive compensation jumped from a median of $1 million in 1980 to $10.8 million in 2013 for CEOs of companies listed on the Standard & Poor’s exchange, with stock-based compensation accounting for two-thirds of median CEO compensation. The ratio of executive pay to that of average workers has grown from 29.9-to-1 in 1978 to 295.9-to-1 in 2013.

American firms spent nearly $1 trillion last year on stock buybacks and dividends that elevate a firm’s stock price to new highs and help fuel a bull market in which captains of industry flourish regardless of a company’s underlying health.

For example, several weeks ago, General Electric announced that it will return $90 billion to shareholders through a series of dividends and share buybacks. Apple pursued a $90 billion stock buyback last year, Exxon Mobil spent $13 billion on stock repurchases, and IBM has spent $108 billion on buybacks since 2000.

But there are clouds. Does this strategy make productive use of the firm’s resources and create long­ term value? Should increased CEO compensation be tied to improvements in firm performance that result from factors such as low interest rates or an expanding economy that have nothing to do with an executive’s performance?  What is the overall impact of this incentive for senior management to “manage earnings” or to artificially  inflate profits?

Here’s how it works:

“Why do you suppose professional athletes are forbidden from betting on the games they play in?” “That’s easy. So they won’t be tempted to make their bets pay off by shaving points and so on.” “And yet we allow senior executives to bet on their games.”

“By buying stock in the companies they run?”

“Sure. We even encourage that kind of betting by showering them with stock options.”

“Even as they can manipulate the final score by cooking the books to drive up the company’s stock price.”

“All in compliance with Generally Accepted Accounting Procedures. So shouldn’t we prohibit managers from buying and selling stock in their companies, just like we prohibit professional athletes from betting on the games they play in?”

“Makes sense when you put it that way. How would you pay them?”

“Give them big cash salaries, plus generous bonuses based on how profitable their companies are over a longer period like five years. In other words, they don’t get paid for making decisions; they get paid for living with the consequences of their decisions. As an incentive for them to manage their companies wisely.”

“So their bonuses would be deferred?”

“Yes. That’s what you want -to encourage them to manage for the future.” “Not to mention removing the incentive to cook the books.”

“That goes without saying.”

There may be some cause for optimism. In an effort to restore public trust, the 2010 Dodd-Frank financial legislation gives stockholders of public corporations an advisory vote on the pay packages of CEOs and senior management. This power, known as “say-on-pay,” is a baby step toward reining in excessive CEO compensation that is disguised as performance based.

Perhaps it would make sense to make this provision mandatory. Sunlight, as the saying goes, is the best disinfectant.

originally published: May 2, 2015

Greed isn’t the only game on Wall Street

Posted on by j.giglio

Anyone who has read the surfeit of books on the meltdown of the financial system will know that the burden of patience chiefly falls on the reader. The authors, whose lives were barely buffeted by the Great Recession, seem infinitely addicted to the notion that lust for short-term profits was the major contributing factor in the lead-up to the 2008 financial crisis.

The reason we know this is because they keep telling us.

Greed is always a popular scapegoat when something goes wrong. We assume it’s inherent in human nature; ubiquitous. It’s embedded far more deeply in the American capitalist system than are the benefits that flow from resisting the temptations of immediate gratification..

However inherent greed may be, lost in the frenetic discussion is the notion that it takes particular incentives to make it burst forth in full glory. These perverse incentives are an essential point that is often overlooked.

On a macro level, are government housing policies flawed for providing incentives to borrow too much to buy a home? Do U.S. tax policies promote short-term investment? Are stock option-based executive compensation schemes promoting a fixation on quarterly earnings?

Let’s consider two simple examples. Suppose you hire me to sell your line of Christmas cards door-to­ door and offer me a lucrative commission on the retail price of all the cards I sell. Do I have an incentive to push the cards that generate the highest profits for you or to push the ones that can generate the highest retail sales volume, even if they’re loss leaders?

You already know the answer to that one. Now, let’s switch places.

Suppose we work on Wall Street and I hire you to sell the glitzy derivative securities our brilliant rocket scientists have packaged up from pools of solid and not-so-solid home mortgages. And your year-end bonus -which can often be the largest part of your compensation – is based on the dollar volume of these securities you’ve sold during the year.

Is this arrangement likely to make you act responsibly, to sell high-priced derivatives backed by not-so­ solid mortgages only to savvy investors who understand the risk that accompanies their higher yields, while focusing on selling less-savvy investors the lower-price derivatives that offer modest yields but are backed by solid mortgages? Or does it reward maximizing your sales volume, pushing the high­ priced derivatives across the board by touting their “fabulous yields” without mentioning the risk?

You know the answer to that one, too.

So when judgment day comes and the value of all those risky  high-priced derivatives collapses, leaving stunned investors holding the bag, are you at fault because you gave in to your inherent greed? Or am I the culprit because I gave you an irresistible incentive to push toxic, high-priced derivatives to all and sundry, never mind the consequences?

Many of you remember Gordon Gekko’s “Greed is Good” speech from Oliver Stone’s 1987 movie, “Wall Street.” Greed is a powerful tool; only the desire for more, more, and more and to get ahead generates economic growth. But there’s a much more articulate and compelling defense of greed in Ayn Rand’s classic libertarian novel, “Atlas Shrugged” in which entrepreneur John Galt insists that greed is the only thing we can really depend on to move society forward.

Or is all this just the old story of Satan conning Faust to sell his soul?

Good intentions alone cannot constrain greed. If government and business fail to provide the right kind  of incentives to channel legitimate self-interest, capitalism is as appealing as letting a pack of rabid dogs loose on the American worker. Until the incentives are changed, the hard truth is that most of you should reach for your wallets.
 

originally published: April 25, 2015

Billions in bonuses on Wall Street at the expense of Main Street

Posted on by j.giglio

Seven years after the traumatic 2008 financial crisis, millions of Americans still have not recovered. But a few others are doing quite well, thank you. One of the first signs of the impending implosion in financial markets occurred in the summer of 2007 when two Bear Steams hedge funds with major investments in mortgage-backed securities collapsed. It was the beginning of the end for the world’s fifth largest investment bank, which, during its 90-year run, had developed a maverick reputation in the white-shoe culture of investment banking.

During the wee hours of March 24, 2008, just before Asian markets opened, the federal government forced Bear to announce its sale for a few pennies on the dollar to JPMorgan Chase, an offer that would not have been made without government assistance.

The deal was backstopped by the Federal Reserve’s commitment to buy upwards of $30 billion worth of mortgage-based securities in Bear’s portfolio that Morgan regarded as “too toxic to touch.” It was hoped that the Bear rescue would stem any fallout from spreading into the larger financial world, which many policymakers viewed as likely following the failure of a major investment bank.

Bear’s collapse was a critical event signaling the start of a great unraveling. One of the things that made Bear’s demise such a watershed event was the federal government’s direct involvement in orchestrating the deal that saved the company from having to file for bankruptcy.

Previously, the federal government would become so intimately involved only when a deposit-taking commercial or savings bank got into financial trouble.

If they screwed up and failed? Others would learn from their mistakes. That’s what was supposed to happen under capitalism. That is until the federal government got bushwhacked by Bear, a “don’t get no respect” underdog, and found itself in a jam.

So the feds had to throw out the standard game plan, even if it meant the Federal Reserve buying $30 billion worth of mortgage-backed securities from Bear that nobody else would touch as the financial tsunami of 2008 began rolling across the globe.

Bear Steams may have ceased to exist on March 24, 2008, but it continued to haunt the financial world like Marley’s ghost for months thereafter as the global meltdown continued, marked by formerly solid financial institutions turning into basket cases that could no longer survive on their own – after years of shooting up on short-term borrowings and boozing away on risky trades that blew up in their faces.

At the beginning of 2008, Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear were the five largest stand-alone investment banks in the world. By the end of the year all would be gone.

Goldman Sachs and Morgan Stanley were converted to bank holding companies while Lehman Brothers filed for bankruptcy and Merrill Lynch was acquired by Bank of America. These supposedly omnipotent institutions proved to be giants with feet of clay.

The financial crisis precipitated the worst economic downturn since the Great Depression, costing millions of Americans their jobs, homes, life savings and hopes for decent retirements. Since then, workers’ median incomes have effectively stayed unchanged while inequality between the top and bottom of the income scale has risen sharply.

Meanwhile, we recently learned from the New York State comptroller that Wall Street banks handed out $28.5 billion in bonuses in 2014. The average bonus was $172,860, more than three times the median household income of about $52,000. To say that anyone is surprised would be selling the truth below wholesale.

It’s reassuring to know that some folks have recovered very nicely from the financial crisis. But Main Street America will apparently have to learn to live with the wounds from the financial crisis.

originally published: March 28, 2015

When fiction is too much fact

Posted on by j.giglio

You know what they say about birds of a feather. So I guess it was only natural that I would meet up with Nathan Feldman after the Federal Bureau of Prisons moved us from our respective minimum security prisons to a Manhattan halfway house. We both had several months left on the sentences they hung on us for securities fraud that swept our Wall Street careers down the drain.

I knew Nathan by reputation and recognized him in the halfway house because we had actually met once years ago at a Wall Street charity function for the homeless. So at the first opportunity, I walked up to him in the cafeteria with my right hand outstretched.

“Nathan,” I said.

“I think so. At least I was when I got up this morning.”

“Hi, I don’t know if you remember me, but I’m Tony Leonardo. And everything they say about me is true.”

“Oh yeah,” said Nathan. “I remember you. But only half the things they say about me are true. The question is which half?”

“I’m glad to see prison hasn’t dulled your well-known wit,” I said.

We sat across from each other at a cafeteria table. Nathan took several folded sheets of paper from his inside pocket and laid them out before me. One was a multi-colored chart showing the tremendous growth of the financial sector in the United States, with annotations handwritten here and there in red.

“Here, take a look at this,” he said.

The chart clearly showed that in the 1950s the finance and insurance industries accounted for about 3 percent of U.S. Gross Domestic Product. By 1970 it was up to 4.2 percent. But by 2012, even after the 2008 financial apocalypse, they represented 6.6 percent.

“That’s a great chart, Nathan,” I said. “Where did you get it?”

“Put it together myself,” he said “Here take a look at this other chart Tony.”

This one showed that the finance sector had grown disproportionately more profitable. In 1950, the financial sector claimed around 8 percent of U.S. corporate profits; now, it’s about 30 percent. It has displaced manufacturing as the biggest profit center in the economy. For sure, the money made from making things pales by comparison with the amount of money made from moving paper around.

You could also reasonably assume that just as profits shifted from labor-intensive businesses, such as manufacturing to the comparatively low-employment finance sector, wealth became concentrated in fewer hands, contributing big time to the huge rise of inequality that started in the mid-1970s.

“Actually, Tony,” Nathan said, “these figures understate how much finance dominates the economy because they don’t include the nonfinancial firms that have finance businesses. For example, GE Capital at one time generated over 40 percent of General Electric’s earnings.”

“Is it any wonder,” I said, “that our former industry gets favored treatment in Washington?”

“The rich are always listened to more than the poor and that’s especially true with how the finance sector dominates the economy, government, and society,” said Nathan. “Just think about the millions the industry spends on lobbyists and how many millions they donate to political campaigns.”

“And then there are all the senior government officials who have spent most of their careers in finance,” I said. “They have a mindset that is more closely attuned to Wall Street than Main Street.”

“For sure, just think about the number of Goldman Sachs and Citigroup people who navigate the revolving door, moving in and out of high government positions.”

“Well, time’s up, Nathan,” I said. “I have to go visit with the staff psychologist to take another one of these personality tests. All part of the prison bureau’s inmate rehab program, designed to help us return to society as decent citizens, whatever that means.” I laughed. “Let’s talk again soon.”

originally published: January 31, 2015

The day Wall St. failed Main St.

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Six years ago this weekend, Wall Street was rocked by the collapse of Lehman Brothers. What began as a banking crisis morphed into something that shook the U.S. economy to its core. Only federal intervention prevented an even more catastrophic result.

How the world’s biggest economy came to the brink of depression is a question that will be debated for a long time, but one could argue that the predicament stemmed from a financial system that was “too interconnected to fail.”

On Sunday, Sept. 14, 2008, Lehman CEO Dick Fuld had run out of options to save one of Wall Street’s grandest institutions. In the early hours of Sept. 15, the company issued a press release announcing that it was seeking bankruptcy protection.

On the day of Lehman’s filing, the Dow Jones Industrial Average plummeted 500 points, its largest decline since Sept. 11, 2001. Adding to the anxiety was the Sept. 14 announcement that America’s best known securities firm, Merrill Lynch, had decided to sell itself to Bank of America for $50 billion amid fears for its own survival.

All hell broke loose within hours of the Lehman bankruptcy. Credit markets froze and banks stopped lending to one another. Lenders no longer knew which borrower was a good risk, so they treated all of them as bad risks.

The Feds made an emergency $85 billion loan to the American International Group because of AIG’s enormous exposure to sub-prime mortgages through the underwriting of credit default insurance. Unlike for Lehman, here the feds opened the checkbook because they determined that the company had to be rescued to protect the financial system and the broader economy. They then allowed Morgan Stanley and Goldman Sachs to become bank holding companies and authorized the Federal Reserve Bank of New York to extend credit to both firms.

Lehman’s downfall created widespread panic in financial markets, as investors scrambled to withdraw their money. On Sept. 16, the nation’s largest money market fund was forced to cut its per-share value below the sacred $1 level because a major portion of its portfolio, invested in short-term debt issued by Lehman, was frozen in bankruptcy court.

The announcement brought Wall Street’s problems home to Main Street by undermining the confidence of millions of small investors in money market funds as a safe place to park their savings. That prompted the Treasury to announce a temporary program to guarantee investments in participating funds.

Much has been written about the causes of the crisis and different witnesses provided conflicting accounts. But it may be that being too interconnected to fail counted even more than size.

That’s why the feds decided so many financial institutions had to be bailed out; sold off to others with government guarantees to sweeten the deal, loaned enormous sums of taxpayer money or recapitalized with government equity.

The elaborately interconnected nature of the financial industry greatly increased the speed and efficiency with which money could move through society. But all the sophisticated technology in the world ultimately depends on one sacred principle: A person keeps his or her word. Suddenly people in the financial industry stopped trusting what their counterparts said about the .value of the portfolio being offered as collateral on a loan and a whole host of other avowals.

How can you do business with a person you can’t trust? As a result, the entire financial world melted down. And the feds had to rush in with open checkbooks to stave off the apocalypse.

originally published: September 2014

The resurgence of Gatsby on Wall Street

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Gatsby mania is back with a new film adaptation of the novel, a music hall version of the book in London, last year’s off-Broadway play and several new books on the protagonist and the author. Perhaps the reason for the buzz around “The Great Gatsby” is that the book is such an accurate reflection of modem America.

Bad guys are often the most interesting fiction characters. Psychologists who claim to know about these things tell us that male readers can’t help admiring fictional bad guys because they have the minerals to go after what they want without being hung up by laws, social rules or moral constraints.

They see. They want. They take. Simple as that.

Female readers can’t help admiring bad guys either, but for different reasons. Deep down, psychologists insist, every woman is attracted to men who seem able to give them superior children. In our rarified social world, “superior” means children who can make themselves rich and celebrated.

F. Scott Fitzgerald’s Jay Gatsby is one of the classic bad guys of American fiction. He runs a successful bootlegging operation- so successful that he’s able to buy a bay-front mansion on the upscale north shore of Long Island, just east of New York City, staff it with servants and a yellow Rolls Royce, and throw enormous parties every weekend – all while circulating artfully mysterious stories about being the lone survivor of an aristocratic West Coast family.

Gatsby is different from most bootleggers. For one thing, he isn’t a standard urban-slum ethnic type like AI Capone. Instead, he grew up in a small Midwestern town and experienced the kind of semi-rural near-poverty that was the lot of so many WASPS in those days.

He burned with a desire to “improve himself’ borne of the popular copy book maxims of the day that promised upward mobility and the American Eden. He took a critical step toward achieving his goal when he became an Army officer during the First World War.

As a handsome young military officer whose down-market penury was hidden by a well-tailored uniform and Army paychecks, Gatsby found it easy to gain entry into the aristocracy’s social world in the small southern city where he was assigned for training. That’s how he met Daisy, the beautiful, callow, capricious daughter of an upscale local family who became the love of his life and personification of all his ambitions.

After Gatsby was posted to France just in time for the Armistice and found his return to the United States delayed by red tape, restless Daisy let herself be married off to the smirking son of an aristocratic Chicago family. It left Gatsby emotionally shattered and driven to make himself as rich as possible by any feasible means so he could “buy back” Daisy from what he convinced himself was a mere “marriage of convenience.”

Hence the lucrative bootlegging business, the mansion right across the bay from the one where Daisy  and her husband live and Gatsby’s made-up stories about his aristocratic background. But all to no avail. His pursuit of the American Dream fails and he is ultimately killed.

If the media is to be believed, Wall Street sharks like Ponzi schemer Bernie Madoff- one of the few who’s actually been sent to prison- are currently America’s leading bad guys. They manipulate other people’s money to serve their own ambitions, oblivious to how the resulting economic disaster has affected ordinary Americans.

Wall Street trickery helped drive America into an economic abyss from which we can’t seem to emerge, despite a Gatsby-like stock market rally. The result is disillusionment with the American dream and its promise of social and economic mobility.

“The Great Gatsby” is a reflection of our own time. The richest one percent received the preponderance of income during the Jazz Age, and the same income inequalities exist in America today. The party of the Clinton-Bush (rhymes with tush) boom years ended long ago, replaced by the Great Recession- just as the Jazz Age obsession with conspicuous consumption ended with the stock market crash in 1929.

The novel stands as an endorsement of Balzac’s comment that “behind every great fortune is a great crime.”

originally published: June 15, 2013

The tigers of Wall Street

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The Senate recently held a hearing to look into a series of trades that cost JPMorgan Chase over $6 billion last year, some of which was funded by federally insured deposits. They have come to be known as the “whale trades,” but beyond indicating the scale ofthe loss, the description is a misnomer. You see, likening whales to rogue traders is unfair to whales. A more accurate metaphor is the Siberian tiger, one of the most awesome creatures on earth.

The Siberian tiger was brilliantly engineered to be the world’s ultimate killer, far surpassing the shark, the barracuda and the piranha. Tigers kill with their fearsome combination of size, speed, strength and cleverness, not to mention razor-sharp claws and teeth.

But tigers don’t kill just to meet the Darwinian imperative of satisfying their ravenous hunger. They also kill for the sheer joy of it, preferably while inflicting the maximum amount of torture on their terrified victims. It’s just their nature.

An example of this occurred on Christmas Day 2007 at the San Francisco Zoo, when three teenage boys who had consumed too much beer thought it would be great fun to yell taunts and obscenities at Tatiana, the zoo’s 400-pound Siberian tiger, from outside her enclosure.

After the boys had tired of the game and started on their way, Tatiana sought vengeance. She leaped to the top of the 12-foot wall surrounding her enclosure, hid behind some bushes along the pathway she figured the boys would take, and leaped at them with a mighty roar as they passed.

Tatiana killed the first boy instantly with a bite to the neck . She whacked the other two into semi­ consciousness with blows from her powerful front paws. But as she set upon them, a team of zookeepers reached the scene and killed Tatiana with a shot to the head from a high-powered rifle, saving the lives of the remaining two boys.

For all their strength, intelligence and murderous instincts, Siberian tigers are in danger of becoming extinct in their natural habitats, because each adult requires roughly 400 square miles of unspoiled wilderness stocked with tasty animals to survive on its own. A burgeoning human population and development pressures are making such outsized land hunger increasingly impractical.

So the best future for Siberian tigers is in regulated environments like the Bronx Zoo’s Tiger Mountain. There they can roam large wilderness compounds that replicate their natural habitats as they are fed fresh meat daily so they no longer have to kill other animals. They are tended by skilled keepers who entice them into playing games that delight human spectators and maintain their physical fitness and fighting instincts without requiring them to indulge in the worst aspects of their serial-killer nature.

In many respects, markets are also serial killers. From a social perspective, the best future is for them to also exist in regulated environments where their survival is pretty much assured, their many benefits can be harnessed to serve the public good, and the downsides of their nature are properly restrained.

As the financial meltdown of 2008 reminded us, under-regulated markets have a long history of going on periodic murderous rampages, just like hungry tigers. They rip jobs and homes away from millions of people who depend on them, gulp down trillions of dollars in hard-earned savings, and ravage the flesh of thousands of small businesses whose bones are flung on the ash heaps of bankruptcy.

There are two possible solutions:

One is to learn how to regulate markets and their participants sensibly, to rein in their potentially murderous behavior before it gets out of hand by building a system in which the ups and downs of capitalism are sufficiently tempered to avoid destructive booms and busts.

You don’t want to know what the second solution is. But if you happen to be an immigrant from the former Soviet Union, you already know what it’s like to be subjected to absolute state authority. 

originally published: March 23, 2013