I’ve just finished reading Andrew Ross Sorkin’s account of the 2008 Economic meltdown entitled “Too Big To Fail”. Normally, books on the financial system are yawn-inducing but in this thick tome, Sorkin manages to make the chaos of those few months in 2008 come alive as though it were a pot-boiler. The book raises as many questions as it answers but the very real climate of fear and doomsday are ably painted. Little tidbits abound, like the crew who plunged AIG into deep catastrophe was amply populated by veterans of Michael Milkin’s junk bond shop. He went to jail, they moved on. Interestingly, many of the top players atop the Corporate Satrapy came from humble, even impoverished backgrounds, including Goldman Sach’s Lloyd Blankfein. One supposes they never look back.
The Treasury Secretary and the FED’s extraordinary role as merger midwife for our troubled Corporate Financiers is extensively detailed, including their calls to foreign corporations and governments on behalf of our crumbling private corporations. I never thought I’d live to see the day that our Treasury Secretary or New York FED chairman would consider their job description to include managing the mergers of private corporations out of one side of their mouths as they muttered “moral hazard” and “too big to fail” out of the other.
One telling moment is described as Wachovia and Goldman Sachs were reviewing a possible merger. Former “Goldman Man” (and there are a lot of these in and out of government) Peter Weinberg, an executive with Wachovia is followed as he decides to stroll the hallway of the Goldman Executive floor, looking at the portraits of former top executives. When he came to his grandfather’s portrait, who became partner in 1927, he looked at it for a moment and muttered ” The World really has been turned on its head”. Sorkin points out that the business that was defined by personal relationships and implicit trust was now almost wholly supplanted by leverage and complicated financial engineering. The world of Weinberg’s grandfather had been virtually obliterated in this new Millennium as private firms went public and blithely used shareholders money to make a scale of risky bets that built an enormous bubble that resulted in an unthinkable Government bailout.
It would seem however, that personal approaches are not wholly gone just yet. Time and again, the Treasury, the FED and desperate Corporate Titans made urgent calls to one old man who has had the same assistant for over 30 years and is known to have a fondness still for the old fashioned typewriter. Known as the “Omaha Oracle” , Warren Buffet would be called as a last resort to use his formidable, “value-investing” wealth to rescue the sub-prime junkies.
What this book and the ensuing 24 months have proved to me is that just as we failed to learn from the Junk bond excesses of Milken’s 1980’s or the dry run for the current crisis in the spectacular collapse of Long Term Capital Management in the 90’s, we have still not learned our lesson. Nor, even after staring into the abyss, do we take the notion of “moral hazard ” seriously. As we confront what appears to be an extended deflationary period, many of the Titans who could feel the hot breath of destruction on their necks in 2008 are still around to prime another dose of disaster with our heedless government as backstop and the taxpayer holding the bag.
Personal relationships, long-term value, limits, prudence, regard for building national health through widespread investments of tangible productivity and worth, domestic job growth, these are antiquated concepts now, unworthy of the pursuit of phenomenal wealth enjoyed by the computational technocrats of our global financial industry. For its part, our Federal Government has them on speed dial while the rest of us are on our own. This is the Isolationism we should fear more than any other. Our military is off defending Afghanistan and Iraq from themselves while our Financial Titans are rescued to live another day of utterly neglecting the welfare of the Republic.