step right up! bailout line starts here
I wish I had more time and energy to sit down and write a well-reasoned, well-researched opinion piece on the Troubled Asset Relief Program (TARP) or, as we know it, The Bailout (cue scary music). Aside from not having the time, though, I’ll also admit I’m no expert on this and really have no business writing such a thing–although, to be clear, I do like to think I have slightly more than a John McCain-like comprehension of the economic system.
So instead of getting into the details of who deserves to be bailed out and why or why not, I want to point your attention to The End of Wall Street’s Boom by Michael Lewis on Portfolio.com. In this piece (and apparently in his book Liar’s Poker: Rising through the Wreckage on Wall Street), Lewis exposes something that amazed me when I was a college senior 11 years ago and that is: at that time, one of the most desired and lucrative jobs available to me fresh out of college (with degrees in English and history) was a position at an investment banking firm–a job path that many of my fellow graduates took.
In short, whahuh?
Now I’m certainly not blaming fresh-from-college kids on Wall Street for the economic mess, but I did find Lewis’ piece rather enlightening about the system as a whole, and I strongly encourage you to read it. It’s long and can get tedious in parts if you’re not used to all the terminology, so if you find yourself drifting, take a break, do something else, and come back to the article. Seriously. This is worth reading.
Right now, all I can muster in terms of an Op-Ed is this:
More suggested reading:
- Paul of The Clue by Four‘s Third Cluesday in November: Where Did All the Money Go?
- Obama lays out general terms for auto bailout
- Enough with those bailout lines by Joan Vennochi at The Boston Globe
- Many line up for cash but bailout plan falters by Michael J. de la Merced at The New York Times
- Pull away blanket of secrecy on federal bailout
- States want their own federal financial bailout
- Canada considers joint bailout of carmakers with US, CP says
- Obama to tweak bail-out plan
So what do *you* think about the bailout?
21 Beans of Wisdom to “step right up! bailout line starts here”
Michelle Kaminsky is an American attorney-turned-freelance writer who lived in her family's ancestral village in Calabria, Italy for 15 years. This blog is now archived.
Calabria Guidebook
Recipes
Funny how many of the kids that graduated from Middlebury College with my daughter 10 years ago became investment bankers. Was that around when investment banking became a hot way to make a lot of money?
If it wasn’t around before that, I’d have to say yes, that was definitely the way to big bucks during that time. I know a lot of my graduating class went into investment banking or “consulting” with Arthur Andersen and the like….
Hehehehe!!! LOL. Michelle, I busted out laughing at the picture of the kitty. Thanks for the laughs 🙂
Glad you enjoyed 🙂
That photo is priceless.
I’ve been reading New York Magazine and the impact this meltdown will have on America (and the world markets) is no joke. What happened with this housing market is an outrage. There is plenty of blame to go around. The lenders giving risky loans, and the people who thought it was a good idea to “buy” a house with no money down. Now many people are paying mortgages on house that are worth less than what they own the bank.
It’s like an entire generation missed the point of the movie Wall Street…they only remembered the line “Greed is Good.”
Uhm, no it’s not.
nyc/caribbean ragazza’s last blog post..Get your parks on, part II – Doria Pamphili
*That* is an excellent summary of events, NYC/Caribbean ragazza. Excellent.
My understanding of the whole issue is about on the same level as the pretty kitty in the tree…
saretta’s last blog post..Let There Be Light
Hee hee 🙂
This is one of those moments that I thank my parents for all those years of beating it into my head, how important it is to have savings and to make informed financial decisions. We still haven’t seen the worst of this economic crisis here in Italy, but it is coming and thanks to my mom and dad there will be no boogie man at my door.
joanne at frutto della passione’s last blog post..Eurochocolate revisited
You’ve were lucky to have such great guidance, and so very smart to follow it, Joanne 🙂
The bailout is going to have vast repercussions, both in the U.S. and globally. Obama has been left with the worst mess in our nation’s history. And I’m with the internetz caktz on this one.
jen of a2eatwrite’s last blog post..Wow! And thank yous…
Obama definitely has his work cut out for him; that’s for sure.
Thanks for the info! Have to go check it out when I have time and my thinking cap on.
Though I can tell you I’d rather bail out YOUR cute kitty- than the wall street *fat cats*!! Although I hear some of them are generously forgoing their bonuses this year.
Awh, how nice of them. Yeah, reaaaaal generous.
Jerkwads-
Hah, I hadn’t even meant anything by the use of a “cat” but I like where you took it 😉
Excellent article. I love the explanation of how the investment firms’ products were really fantasy football teams that could be created over and over again. Of course, the real question is: what do we do now that the worst has happened and we understand how it happened?
No answer from me, a little ‘ole English major who didn’t get a job in investment banking ‘cuz she wasn’t smart enough… or unethical enough!!
Hah, I have no answers either; glad you enjoyed the article. Hopefully someone can (come up with and then) break down the solution as well.
Next time we write about the same thing on the same day, I hope it’s… you know… cooler than this.
paul of the clue-by-four’s last blog post..Third Cluesday in November: Where’d all the money go?
Agreed.
What was good about the article is that it broke down complicated concepts really well — granted, some of the subtleties in the repackaging of loans into CDOS and then repacking the swaps into more synthetics got lost (not that i understand them, mind you, but I have read a lot on this, and there are other elements) – but the basic points were good. He writes well and got his point across persuasively – namely that people got greedy and stopped caring about understanding what they were doing and its impacts and, worse yet, none of the risks models were actually true risk models as they did not incorporate the possibility of things going truly wrong. I do wish, however, that he had not quite sensationalized it as much, nor focused on just that set of characters. On the other hand, he broke down the concepts so well I am willing to deal with the slants and sensationalization.
City Girl’s last blog post..Beauty Monday
I imagine that the author actually set out to tell “his” story (and publicize his book and possible rebirth of it!) as opposed to writing just a breakdown of what happened–the fact that the breakdown is in there is probably just bonus for us. In any event, I do appreciate your point, and I agree with you that although some subtleties are lost, it’s still a great overview (if the subtleties were in there, he may have lost me really quickly!) 😉
So right on I had to FB share it. And I’m off to the library today to get Liar’s Poker.
I got caught by the .com debacle in 1999, and almost lost my home then, having leveraged everything in my greed on the advice of my father, an investment banker. Losing everything and having your bedrock beliefs that shaken (my own dad?) is a good way to learn, not a good way to live. Have not had $1 in the market since then. Lesson learned, right? Unfortunately we now live in an environment where you need to be an expert in all things that touch your life or you are giving up control to, well, basically, thieves. I wish I had been smart enough to understand how real estate was being packaged by Wall Street because now everything I have is in real estate……mostlly in California. Ooops.
Can you spell “negative cash flow”?
I guess the truth is, whatever you think might pay off has already been re-packaged and stolen by somebody with way more money and method and far less scruples than you have. The lesson may be that the only safe place for your money is in your mattress and the only way to build and (hang on to) real wealth is to make a deal with the devil. Passive income is not for the ethical. If you swim with sharks, you will get eaten.
Sad isn’t it? Apparently we (the peans) learned nothing from the crash of 1929 and the Great Depression.
Wow, Anna, thanks so much for sharing your story and your opinions here. I’ve always been skittish about investing, and all of this certainly doesn’t inspire me. In fact, it makes me think of a line from Sex and the City when Carrie said she likes to keep her money where she can see it…in her closet 😉
Please do let me know what you think of Liar’s Poker; I’m putting it on my wishlist as well. Sounds fascinating.
Michelle — definitely a great overview. As for the subtleties, they break my head, though the NYT has had some good accessible articles on the subject lately — and I am thankful their writers have taken the time to break down some of those subtleties. One great point that they brought up recently, and of course I can’t find the article right now, is that the team that invented synthetic CDOs in 1997 were *very* aware of their potential risks. It was a team at JP Morgan incidentally, and the article talked about how keeping too many of those on any balance sheet was a very risky proposition, especially because the risk models were not equipped to reflect the true risk of a synthetic. As a result, JP Morgan never kept as many of those on its balance sheets as, say, Lehman or Merrill. The article also talked about the useful elements of CDOs because, when used for the purpose for which they were created (i.e. spreading risk) they are not terrible things when not abused and turned into the repackaging nightmare they have become. At the end of the day, it’s hard to remember that CDOs were not inherently an evil concept BUT that it was how they were used to abuse the system that makes them truly frightening in their impact. (sorry for the re-comment btw — I can get long-winded on the subject).
Anna — it is SO true that investment bankers can only see leverage. I am sorry about what happened to you — and you are right, information is the only way to protect yourself. I also agree with you that there are few safe places for money — I am not quite at the mattress point yet, but won’t consider anything beyond CDs or money market savings accounts, no matter how low their return may be.
City Girl’s last blog post..Beauty Monday
Please don’t apologize for commenting again! That’s what the comments are here for 🙂
That’s very interesting about the CDOs, particularly that JP Morgan was better positioned to use them, perhaps, more appropriately. If you do find that article, please pass it along (posting it here would be great since then others could read it too).
I’m still loving Anna’s comment about passive income….
I am the kitty, the kitty is me. This *is* my understanding of the bailout…and I feel guilty for not knowing, or understanding more.
ro’s last blog post..Makeup, Dave Navarro & Law School
There are a lot of intelligent people with the understanding of the kitty in this thing…and I’m afraid some of them are at the highest levels of our government. *They* should feel guilty!
Aha, I found the article — it’s an article on Merrill but on page two of the article, the NYT quotes Blythe Danner, who was on the JP Morgan team that invented synthetics. http://www.nytimes.com/2008/11/09/business/09magic.html?pagewanted=1&_r=1&em. I read her comments elsewhere too that said something about risk models not always reflecting CDO risks, but have not found that either yet. Still this is the main NYT article I was thinking of.
Anna is dead right. Agreed!
City Girl’s last blog post..Beauty Monday
Thank you! *Very* interesting read. I knew that JP Morgan was getting through all this pretty well, but I had no idea why….
It’s hard for me to express this in nice English (or Italian.) We are proposing to go in and rescue the ____ of a generation who have grown up presuming that there will always be someone to save their ____. They weren’t around for the savings and loan rout. Depression you take a pill for and recession is widely treated with hair growth formulas. They own apartments and houses that cost them millions, and as they would say, “the nut” was just manageable when they were doing their best ever, propped up by credit cards and hopes for big bonuses the rest of the time.
Should it be done? Maybe. They’re going to take us down with them even if we have lived like monks. But I think anyone who gets helped owes us the money and interest. It’s theater and this time the international audience didn’t buy it. We bid 700 billion and the answer was no. How much more can we scrape up?
I know a fair number of those kids with the McMansions and the Humvees etc. They got obscene bonuses not for increasing value, but for creating the illusion of increased value. It ll not hurt my feelings if those ugly too big houses now become boarding houses. I must have an ugly heart.
I think you have a heart that cries for justice and equality, Judith. If only more people had one.
Don’t forget the head english major in our government, our Secretary of the Treasury, Mr. Paulson. Yep, that’s just what we want running our treasury department, a graduate in english with an MBA. Let’s see… seems to me there is someone else who has an MBA running our government? Oh that’s right, GW Bush! His big selling point in his first presidential campaign was that he was the one with experience in running a company! I think that the MBA program has to be seriously thought of as the biggest joke/ripoff ever invented by educational institutions and frankly, quite worthless based on those two gentlemen.
Well if I wasn’t skeptical about the MBA before….
Michelle, I want to know when my family and I get bail-out help. Our own economic crisis hasn’t seen a silver lining yet with all the mula that went out to the financial institutions. Now with the pessing from the auto industry for some help, the dark clouds are getting thicker with no immediate help in site. If we, as citizens of the US are expected to budget our money and live within our means despite the continuing increase in the cost of living, why can’t industry be told the same thing?
Teresa’s last blog post..Tamales – Part 2
I’m totally with you, Teresa, and this in a time when Congress passed (and wants to pass more) stricter personal bankruptcy laws. I was always rather offended by the fact that millionaires and billionaires could file for bankruptcy protection through their companies, mostly (thinking Donald Trump) and really nothing ever changed in their lifestyles, etc., and then they turn around and make it harder for everyday working Americans to do the same.
But now this is even a step beyond that since the government is actually giving these companies money. Mah.
the problem with the bail-out of the financial institutions (aside from the frivolous spending at corporate retreats and bonuses for CEOs that are driving their companies into the ground…. I thought bonuses were for doing a good job.) is that these institutions are taking the bail-out money and instead of using it to issue loans and get it back into the system, they are holding on to it because they are worried about the economy ????? the whole point of giving them money was to inject it back into the economy and get things rolling!! But what do you expect when you don’t lay out the rules when saving someone’s arse. I do feel sorry for the non-management employees of GM, Ford and Chrysler but as far a bail out for them….. they should have been making affordable, quality cars with GREAT gas mileage (not 30-40 mpg… but 100) instead of spending all their money lobbying in Washington for politicians to not pass laws increasing mpg requirements and sleeping with the oil companies for all these years. On a lighter note: Hi Michele! I feel much better now:)
joe@italyville’s last blog post..Caffe’ alla Nonna
Hee hee…glad you feel better Joe. Sometimes we really just do need to vent about these things; like you, I feel bad for the underlings (you know, the *real* workers) in the car companies, but yeah, if the higher-ups would’ve OK’d making good cars for the past several years….
Ugh. Che casino.
Thanks for the recommendation. I am off to improve my McCainesque comprehension!
I couldn’t resist one last jab at McCain….
I love that picture!! And I’ve been wondering about my bailout. I guess I’ll have to keep wondering.
Anali’s last blog post..The Psychology of Posting
Oh I’m sure the check’s in the mail, Anali 😉
Michelle,
I too am questioning where my bailout is…. Does the government want to bail me out of my school loans? Really, it brings into question of why they are being so caring to people who were greedy and wanting more than they could afford. It’s not fair to those who play by the rules…… I particularly love how some business are using the money to have their yearly bonuses.
Well it seems at least the economy is starting to look up and the big banks have paid back most of what *we* gave them…now for some real reform of the system!