Is it any wonder Wall
Street finds itself in a money crunch so tight the Fed had to jump in and rob a
bank, Bear Stearns, and give it to JPMorganChase at two (then 10) bucks a
share, down from $178 a year ago, with a guarantee of $30 billion to JPMC that
any residue of subprime paper the Bear was still digesting wouldn�t crap all
over Morgan�s balance sheet, which, thanks to its CEO Jamie Dimon was stable,
aside, that is, from the $65 billion in derivatives JPMC is stuck with. Even le
cr�me goes astray.
But, needless to say
after so much has been written about it, the subprime fiasco was not �the
fault� of Bear Stearns. The Bear was one of many investment banks that were overexposed
to bad debt for profit. Merrill-Lynch was in deeper and so was Morgan Stanley.
Bear was not even in their league, but Bernanke pounced on its losses and shut
the Discount Window to it, while doling out billions to JPMC and others. Well,
somebody had to suffer. Poor Bear.
But wait! What about
all the lending institutions (not investment banks) who made these lousy loans
in the first place and collateralized them upwards? Who�s been singled out,
who�s going to jail, or getting his or her wrist slapped hard? Very few if any
are hit. Let me go a step further and say that the general laissez-faire
attitude of the Bush administration and seven years of trillions in tax cuts to
the rich, plus five years of a two to three trillion dollar war represent the
essence of bad business: increasing your costs dramatically while cutting your
Any student in any
101 business class, or even your mom and dad know that. Balance your checkbook,
Herman. See if you�re spending more than you�re making. Don�t spend half your
paycheck on lottery tickets you think will make you the millionaire you are
presently spending like. In fact, the latest wave of subprime disaster, as the New
York Times recently reported, are equity loans on homes, loans on mortgaged
property that had appreciated. Now that home values are declining, now that
waves of subprime loans are signaling �can�t pay,� that second and even third
tier of home-based loans are going to leave a lot of people on the street,
including the lenders.
The consequences are
mind-boggling. But at the core is the same problem: unwise lending and
borrowing, which initially the lender and borrower were fully aware of, but chose
not to think about. But was or are George Bush, Henry Paulson (former Goldman
Sachs chief) and Ben Bernanke thinking about it? Is anyone telling Bush you
can�t keep spending more and more on two wars running while reducing taxes on
your most solvent, biggest-earner citizens. It�s hari-kari, financial suicide.
Yet no one has thrown a net over Bush/Cheney as of yet, even though the Bear
was swiped, put in a financial cage, and given away to JPMC by the Fed.
Oh, and I do
understand the spin about how you had to restore confidence and avoid a domino
fall of banks, investment banks as well as savings banks, so, kaboom, you don�t
have a nice depression. By the way, at least savings banks have some vestige of
financial control. They have to keep a certain amount of cash on total
deposits. They can�t invest all or more than all assets at any given time.
Unfortunately, investment banks have carte blanche to hock themselves up to
their armpits. They have no �credit limit� let alone regulation for a reserve
fund. This encourages the profligate to work that advantage to the endgame we
are seeing and will continue to see, unless some limits, as in a Las Vegas
casino, are put on what can be borrowed to gamble.
Now, someone tell
this to George W Bush, the reputed president of America, Incorporated. You
can�t spend yourself deeper and deeper into debt and not drown, no matter how
deaf you choose to be. Debt has a way of catching up with you and kicking you
in the head. Ask the CEO of Bear Sterns, ask the ex-CEO of Citibank, which
wrote down close to $70 billion in crappy subprime paper last year; ask Merrill
Lynch. Ask the US comptroller whose watching the national debt climb to $9
trillion and more. Sooner or later you pay the piper. You wanna dance, you
gotta pay the band. Fill in your favorite clich� here ( ). If you said, don�t
spend money you don�t have, you win a lifetime of relative financial security.
Now, that wasn�t so hard, was it?
Or is it? See, you
have to deal with a very powerful emotional component here: greed. That is,
wanting to scam something for nothing, financial engineering as opposed to real
work to produce a real product or service for profit. Even the richest among
us, who know better, are not mailing back their undeserved tax cuts. Warren
Buffett kids that he pays less taxes than his secretary. So, if Mr. Money Bags
himself thinks it�s a joke, and the president doesn�t get the punch line, the
laugh is on the American people and world economy. Bottom line, Bush�s
policies, tax cuts for the rich, trillion dollar war, is bad business for
America and is a bad example for business worldwide.
Jamie Dimon, who
graduated Harvard to be the numbers man for Sandy Weil, and worked his way up
to CEO of JPMorganChase, will tell you that. Core values are essential. Risk
and credit limits need to be set: with your credit card or your Pentagon, your
equity loans or your department of Homeland Security. You have to respect money
not worship it. You need to have power, personal or national, not abuse it, use
it to bully, coerce or corrupt. If you do the latter, what goes around will
come around to haunt you, like those market plunges, those soaring numbers of
dead and wounded troops, foreclosures, bankruptcies, financial and spiritual.
Also, a large,
previously unaccounted for cost of the war was beyond expenditure for bombs,
guns, hardware, but lives of the lost and wounded; the cost of paying $15,000
to $30,000 per annum to survivors and/or up to $400,000 in life insurance to a
single person�s survivor or a family�s survivor, for many, many years (meager
sums at that). Did anyone at White House Central ever consider that? Or did
they figure this well of humanity they were drawing from was bottomless? Or
that the claim-holders of that flesh and blood would not need recompense for
their losses? It was bad business, bad management, human, financial, and every
which way. No core values.
So if you want Wall
Street to be legit, if you want to send a message, start at the top. Reverse
the pattern of taxation to progressive. It�s only real, the more you earn
(thanks to the system), the more you repay the system, thanks. And, god forbid,
if you have to go to war, to defend yourself, as FDR did, you have some
reserves, you have a manufacturing machine that can build your defense hardware
when you need it, as in WW II, the one we won. Want to be a winner again,
America? Be legit, be smart, make an honest buck, don�t screw your neighbor.
The house you save or the roof you bring down may be your own.
Also, I think that
there should be a CEO tax surcharge fund for repayment to the US Treasury for
companies badly managed. If a guy�s making $50 million, $100 million a year or
more, to run a company and he buries himself in subprime paper, let�s take a
month of his salary as a tax surcharge for his errors. He�ll have to cancel his
vacation in the Caymans and spend the time in his miserable mansion stateside
and maybe have MacDonald�s cater one of his bashes. That�s economics from the
School of Hard Knocks. A few knocks on a few hard heads would take us a long
way. Maybe the Fed then wouldn�t have to play dealmaker and rob a bank to keep
the economy afloat.
Jerry Mazza is a freelance writer living in New York.
Reach him at email@example.com.