The Education of A Speculator

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The Book of the Week is “The Education of A Speculator” by Victor Niederhoffer, published in 1997.

Born in 1943 in Brooklyn in New York City, the author sorted “market advisers and investment newsletter writers” into eight different categories, providing a brief description of their behaviors or personality traits. He classified himself as “The Other World Person” because he ignored the overpaid noisemakers and distractions of conventional media outlets that purported to convey information on which securities to buy, sell, or avoid.

The author’s two data sources for his commodities, currency trading and investing ideas consisted of the National Enquirer and his research results from testing all kinds of variables in statistics-calculations of past securities-market data using software. No other sources.

The mid-1990’s saw great advances in statistics software modeling that could process scads and scads of data; hence, market players could erroneously use past performance of investment vehicles faster than ever before for predictive purposes to help themselves and others lose their money faster than ever before. And those advances might have played a part in the scandals and financial crashes that have occurred with alarmingly increasing frequency in the last thirty years. Big Tech’s and Big Media’s incestuous oligopolies (fraught with political donations) just keep getting more hegemonic, so that power and money keep feeding on themselves ad infinitum. Globalization is yet another wrench in the works.

At the book’s writing, global trade had been maturing for decades, but capitalism was still in its infancy in many territories of the world; particularly in ones that were becoming politically democratic again, or for the first time in their histories. Many European countries were in the process of adopting cooperation rather than competition in their financial and economic dealings. A large proportion of them even voted to use one currency among them. The United States kept to itself, but more and more people around the world were starting to trade or invest in foreign securities, currencies and governmental financial entities, so chain reactions occurred more and more.

The Federal Reserve (aka Fed) has always been a major influence on America’s financial markets. The author contended that the Fed was just as clueless as the rest of the country about what effects its making of rate-adjustments would have on the nation’s economy. It is currently just as clueless. But its announcements are made with such confidence and arrogance, that a large number of their listeners are brainwashed into believing they are receiving valuable information.

The incumbents– known names pre-Internet–became the most influential voices in the financial sphere. The wiliest ones use propaganda techniques to paper over their wrong predictions. They never apologize for the losses stemming from their pronouncements. The walls of the author’s business office were lined with portraits of ones who had disastrous losses.

To be fair, the author himself told various anecdotes of his own failures. In 1992, he bought IBM stock for his own kids. That was an embarrassing mistake. He learned to cut his losses at a certain level of the total money he reinvested. And, he didn’t let his greed get out of control when he was winning.

The author was a champion squash player. One similarity between squash and speculating is externalities–opponents’ actions determine players’ actions in the game. So, for instance, in ten-pin bowling, there are no externalities. In squash, there are. In one college finals-match, the author moved his body in a way that tricked his opponent into thinking the ball was going to go in a certain direction, but it went the opposite way. Traders and investors play similar tricks in their communications in the financial markets. Conditions change rapidly so even the market propagandists’ winning streaks don’t last long.

The reason is:

First, independent thinkers make observations or find obscure data that works in making them money. Then software detects their trading tricks. So word gets around, and everyone else jumps on the bandwagon so that the advantage is lost.

Human beings want so badly— to believe they can predict the future, and love to fantasize about getting rich quick– that they tend to look for patterns and order where none exist. The author did provide one vast generalization that might be valuable, though. His statistical analysis between the years 1870 and 1995 inclusive showed that years ending in the digit 5 were good years, and those ending in 7 were bad, for the American stock markets. He didn’t speculate as to why.

However, politics is one major mover of markets, and the collective mood of the United States specifically, might be a bit more upbeat in years when political uncertainty is at a minimum. Presidents and other politicians begin or continue their terms during years ending in 5. The public might be unclear about their future policy directions, or weary of them by the years that end in 7.

Anyway, read the book to learn a boatload more about the author’s philosophy, his trials, tribulations and triumphs in the markets, his research results and comparisons between financial markets and: ecology, games and sports.

The Six Days of Yad-Mordechai – BONUS POST

The Bonus Book of the Week is “The Six Days of Yad-Mordechai” by M. Larkin, originally published in 1965.

Passionate, mostly Polish Holocaust survivors who were able to make their way to the Gaza Strip in Palestine in late 1943 worked tirelessly to establish a new kibbutz called Yad-Mordechai. The socialistic ideal of their farm collective was this: “Since economic dependence upon the father was what gave him power, such dependence was abolished in their society.”

Still, the community fell short of total gender equality, as the males did the hard manual labor on the infrastructure; an all-male militia except for one female fought against attacking Egyptians, and females did all the food preparation and childcare.

In November 1947, a majority of United Nations (UN) members voted in favor of partitioning Palestine between an Arab state and a Jewish state. The situation was to become official in mid-May 1948, when the British were to withdraw its officials from Palestine. Arab countries broadcast propaganda that gave their fellow tribesmen the impression they were only temporarily evacuating their homes by that same deadline, and would eventually conquer the Jews and return to take over the entire strip of land that was slightly larger than the state of New Jersey.

The Yad Mordechai kibbutz just happened to be located in the Arab state. The Arabs refused to recognize the UN vote, and decided to fight the Jews for the entire territory. The villains of WWII– ex-Nazis and Italian Fascists, plus Lebanese, Egyptians, Syrians and Trans-Jordanians fought on behalf of the Arabs. The Jews had poorly equipped militias and intelligence cells called the Hagana, Palmach, Irgun and the Stern group.

Nevertheless, as of this writing, Wikipedia says this kibbutz still exists today, and its population is 737. It might be recalled that pure socialism thrived for a short time when the State of Israel was born. That was an extremely special exception, for the following major reasons; the kibbutzniks:

  • were forced to work together in order to survive in the desert, geographically surrounded by enemies;
  • were like-minded– oppressed for their religion– seeking a safe place in the world;
  • had a common goal bigger than themselves– building a country for themselves from the ground up– creating the political, social and cultural systems and infrastructure when everything was simple and their population was low;
  • had in common the shared, traumatic experience of WWII and/or the Holocaust; and
  • had substantial financial and military help from the United States.

Lo and behold, Yad Mordechai has since turned to capitalism to survive, selling certain brands of foods. However, the dangers of capitalism become apparent when financial scandals and crashes plague the nation due to EXCESSIVE DEREGULATION.

As is well known, there was consolidation through the 1980’s and 1990’s of the corporate auditing industry, and “Big Six” became the “Big Four” eventually, prompting businesses across the country to become even more incestuous (corrupt) in their relationships with their auditors.

In 1994, the big-name auditor Ernst & Young fired their in-house legal department and hired outside legal counsel. They must have been hiring employees from the competition, who brought a certain corporate culture to their legal department. In 2002, the Enron / Arthur Andersen scandal broke.

Certain wise folks can see a scandal coming. Like Ernst & Young. They don’t know exactly when it will hit the fan, but they know they don’t want to be there when it happens. James Baker of the Reagan administration was one of those sharp individuals. He switched positions with Donald Regan so that he would be far away when the Iran-Contra scandal became publicized.

In 2019, BB&T, a government bond broker, merged with Sun Trust Banks. Excessive deregulation can do wonders for the bottom lines (when they go hog-wild) of any profit-making organizations in the short term. BUT– it seems as though as the decades pass, financial-industry-players gain more and more experience in preventing lawsuits brought against them from their customers and clients by:

having the latter sign legal documents they never had to sign before, and placing disclaimers galore on all of their communications. The latest disturbing trend is for (previously low-risk) government-bond(!) brokers to do this.

Anyway, read the book to learn of the spirited beginnings, independence-warfare death toll and traumas suffered by the Yad Mordechai kibbutzniks, and their eventual fate. [And stay tuned for more traumas in the government bond market.]

Pity the Billionaire

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“It is as though the frightening news of recent years has driven them into a defensiveness so extreme that they feel they must either deify the system that failed or lose it altogether.”

No, not the Republican Party in connection with Donald Trump.

The Republican Party in connection with Republican voters’ gullibility in believing the Right’s propaganda machine that rationalized away Wall Street’s unmitigated hubris and unconscionable greed amid the subprime mortgage crisis of 2008-2009. As is well known, the rich were made richer and poor, poorer in the second half of the single-digit 2000’s. The GOP’s clever aftermath-messaging led to big wins for them in the 2010 midterm elections.

The Book of the Week is “Pity the Billionaire, The Hard-Times Swindle and the Unlikely Comeback of the Right” by Thomas Frank, published in 2012. This short volume described how the political group called the Tea Party (“TP”), a subset of the GOP, whipped an alarmingly high number of Republican voters into a hysterical rage against the Obama administration’s handling of bailouts of financial institutions and foreclosed-upon ex-homeowners.

It appeared to be counterintuitive, that the TP raged against bailouts for bankers, brokers and lenders. After all, taxpayers were forced to reward these greedy perpetrators of the economic disaster. Through flawed reasoning, though, the TP propagandized that capitalism should be free of any and all economic intervention from the government, whether in the form of regulation or assistance. They pretended to be an enemy of big business, screaming “Socialism!!!” at the government’s every move. They did this because the resulting continued excessive deregulation would make Republicans wealthier and more powerful, and each trait would feed on the other ad infinitum. As ought to be well known– politics cannot be divorced from economics.

The TP was really pushing for 100% pure, capitalistic Libertarianism. Under the “you have two cows” scenario (look this up on the Web): you can do with the cows whatever you wish, whenever, wherever. Also, remove: ALL regulation from all aspects of American life, taxation and social safety nets. And to make the situation truly American, throw firearms into the mix and see what happens. Absent rule-of-law, sanity and civility, the resulting ruthlessness would evolve into (judging from the federal-level administrations’ gyrations of the most recent thirty years) a dictatorial kleptocracy (sort of like Zaire (aka Congo) in the 1980’s), and then anarchy, not unlike… Somalia (?)

Fortunately, a sufficient number of Americans– despite most politicians’ cronyism with big-money donors– clung to the country’s democratic underpinnings (reasonable regulation, taxation with representation, and social safety nets) to weather the storm. The author harshly criticized Obama and his Democratic party for not punishing the morally bankrupt financiers and enforcing the law in helping the bankrupted borrowers. It is possible the president felt it was worth selling his soul to those big-money donors; he wouldn’t have been reelected otherwise and wouldn’t have been able to accomplish more of his agenda. His Democratic party, too, was too nice to get down in the gutter and use the GOP’s sleazy propaganda techniques.

Anyway, read the book to learn of how the pronouncements of the TP and Glen Beck and the contents of Ayn Rand’s novel Atlas Shrugged influenced numerous voters in 2010, and other reasons the nation’s political history unfolded the way it did in the early 2000’s.

How I Cracked the Alpha Code – BONUS POST

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“The new guys were preoccupied with being reelected, the demands of which were not well served by ridiculous fantasies like fiscal discipline.”

American politics? Rogers was actually referring to the money managers of the euro in the early 2000’s. He was cautiously optimistic about the euro when it was first launched. Oh, well.

The Bonus Book of the Week is “How I Cracked the Alpha Code” by Jim Rogers, published in 2013. This was a partially autobiographical, extended essay that gave tips on how to gauge economic prosperity and prospects in different places. At all times, Rogers is on the lookout everywhere for investment opportunities. He made his (take this job and shove it) money and retired from investment banking at 37 years old.

Born in 1942, Rogers and his wife and young children tried living in Shanghai and Hong Kong (where there was horrible air pollution) beginning in 2005, before deciding to move to Singapore from New York City.

Singapore requires no security at public events, so it is safe for children. He claimed that the education and healthcare systems are excellent. It has entitlement programs in those areas and in home ownership that are roughly equivalent to health savings accounts and 529 plans in the U.S. with contribution-matching through employers, but administered by the government. The public schools require parents to volunteer to help in various capacities. Medical treatment is a great value compared to that in the U.S. No surprise there. It also has the equivalent of America’s E-ZPass system on toll roads and for parking, too.

However, Rogers merely listed the positive aspects of Singaporeans’ lifestyle. He listed no negatives, except for potential, general economic threats that could affect any nation. Another glaring omission of inconvenient information was cryptocurrencies. But he did reveal his basic philosophy: one’s real worth is what one would be worth if one lost all of his or her money. And let financial entities fail so as to encourage creative destruction. Do not bail them out.

Rogers listed some of the kinds of policies and practices that bring a country down economically: wars, litigation, and incompetent leadership. This blogger would add one more: excessive deregulation. He gave tips on what a nation should do to try to reverse its serious financial position: reform the tax system so as to encourage savings and investment, not consumption; “change the education system” and reform healthcare and litigation.

Read the book to learn more cherry-picked information that bolstered the author’s too brief, too pat pronouncements.

Exorbitant Privilege

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The Book of the Week is “Exorbitant Privilege, The Rise and Fall of the Dollar and the Future of the International Monetary System” by Barry Eichengreen, published in 2011.

“Often these individuals had little professional training, there being no meaningful federal or in some cases, even state licensing requirements.”

No, the above refers to neither tax preparers nor life coaches.

The author was referring to the bandwagon-jumpers who worked for lenders taking advantage of the excessive deregulation that resulted in the 2008 subprime mortgage crisis in America.

The author listed some factors favoring, and some disfavoring the American dollar’s ability to maintain its global power as a currency and store of value. However, one major factor the author completely neglected to mention (a glaring omission) was that of cryptocurrencies.

Anyway, Brooksley Born, head of the Commodities Futures Trading Commission, raised the alarm in the late 1990’s on the excessive deregulation that was to lead to the subprime crisis. She deserves more of a historical footnote than she has since received, because sadly, greedy alpha males are better propagandists than prescient, conscientious public-officials such as she.

The author contended that one major reason the American dollar will continue to maintain its dominance in the world, is that other industrialized nations can’t agree on what financial instrument should replace the American dollar as a stabilizer of the world’s other currencies. The greenback has compiled a longer history of trustworthiness, value-consistency, related liquidity-maintenance, and other benefits, in connection with transactions and international trade balances, more than any other instrument. China’s policy of keeping its central banks’ foreign-reserves balance a secret, reduces China’s currency’s trustworthiness.

The powerful U.S. government backs up its currency through treasury bonds and bills, while a (sometimes contentious) collective of European countries (not one government) must agree on how to act when a monetary crisis rears its ugly head. It stands to reason that disagreement or indecision leads to uncertainty, which leads to instability, and a possible worsening or hastening of, the collapse of modern civilization.

The aforementioned are just a few reasons why 54 countries pegged their currency’s values to the American dollar, while 27 pegged theirs to the euro, as of 2009. As is well known, the George W. Bush administration did a number on the U.S. economy, as “… tax cuts and unfunded spending increases [on two extremely expensive wars and a Medicare drug benefit] pushed the budget from surplus in 2000 to a structural deficit of 4 percent of GDP in 2007-2008.” The next two years saw the American government’s debt explosion at its worst.

The author outlined several possible (yet raucously controversial) ways to keep the American dollar globally powerful, through cost-cutting:

  • In a period of non-war– less defense-spending;
  • Reforming healthcare;
  • Raising the retirement age– less pension spending;
  • Liberalizing immigration policy — helps fund Social Security going forward; and
  • Increasing taxes of all kinds.

Read the book to learn a lot more about how the American dollar has fallen in stature in recent decades, and about other geopolitical international: monetary, financial and economic issues; explained for laypeople.

Boomerang

The Book of the Week is “Boomerang, Travels in the New Third World” by Michael Lewis, published in 2011. As the effects of the early 2000’s financial shenanigans began to be felt around the world, the author traveled to newly impoverished countries (Iceland, Greece, Ireland, Germany and the United States) to try to understand their situations, economically, politically and culturally. Human nature is such that very few people see the big picture before it’s too late. Besides that, it takes a long time for the victims to learn who really instigated and funded insidious propaganda campaigns or nefarious activities, if they ever do learn.

Kyle Bass, investment banker from Dallas, raised the alarm prior to the 2008 subprime mortgage crisis, but was shouted down by greedy alpha males with hubris syndrome. So he bet against the sheep and made a killing. But he believed the lowest-risk alternative to the securities market was physical gold, and nickels.

Iceland saw the U.S. in the 1980’s enjoying its material wealth, and wanted a piece of that. Iceland’s prime minister David Oddsson ushered in tax cuts and privatization, and greased the wheels of trade. In this way, the government was enticed into the vortex of excessive-deregulation-induced capitalistic greed. Around 2000, fishing industry regulations produced a maximally efficient, maximally profitable oligopoly that prompted Icelanders who weren’t in the fishing industry, to engage in aluminum smelting, and other economically rewarding careers.

The internet has facilitated the forming of relationships between hegemonic financial entities and overseas suckers. Beginning in 2003, young adults in Iceland found that speculative trading in stocks and currency was much more lucrative than fishing.

Ironically, Iceland– whose economy was based on fishing– was ready to take the bait, and become the fish. The former fishermen thought they’d succeed in the financial-services industry because fishing and money-management both involve risk-taking. However, the former requires specific physical and survival skills; the latter, knowledge and experience in the securities markets, business, economics and politics. Icelanders had none of the latter.

Unsurprisingly, when the money started rolling in, the newly rich started to buy houses and cars they couldn’t afford. Human nature is also such that, when people move numbers around on a screen, they don’t feel like they’re moving real money. The bankers and traders in Iceland were borrowing tens of billions from foreigners in the short term, “…then re-lending the money to themselves and their friends to…” overpay for a large financial stake in other banks, sports teams, and other assets. Astute sellers saw the writing on the wall, and left Iceland holding the bag.

European regulators were asleep at the switch. If U.S. financial institutions had been the targets, or had been engaging in such activity, there would have been more early awareness and safeguards in place, in fending off hostile takeovers.

The Americans have their lawyers, directors and officers, and consultants as the first line of defense. Their financial institutions didn’t play the fool the same way major banks in Iceland did. They were largely the lenders and sellers, not the borrowers. But they still got in trouble (!), and also needed adult supervision going forward to bail themselves out.

Incidentally, the SPAC affiliated with former U.S. president Donald Trump needs to continue to find foreign entities (like those that Iceland’s became) with whom he shares the same ethics (or lack thereof), to establish his new media empire. Here’s a little ditty about the situation thus far:

FUN, FUN, FUN

sung to the tune of “Fun, Fun, Fun” with apologies to the Beach Boys.

Well, he’s got his base’s-money
and he’s cruising to his next train WRECK now.

Seems like he forgot all-about
the REAsons he was banned from Big TECH now.

And with the hate-speech blasting
with over-whelming noise full of DRECK now.

And he’ll have fun, fun, fun
till the hackers take his network away.

(Fun, fun, fun till the hackers take his network away.)

Well, the Dems can’t stand him
’cause he’s STILL hogging media space now.

(He’s still hogging space now, he’s still hogging space.)

He gives American politics
a persistent Nix-onian face now.

(He’s still hogging space now, he’s still hogging space.)

A lotta critics try to nail him
but he spins a propaganda chase now.

(He’s still hogging space now, he’s still hogging space.)

And he’ll have fun, fun, fun
till the hackers take his network away.

(Fun, fun, fun till the hackers take his network away.)

Well, he knew all along
that his foes were getting wise to HIM now.

(He needs a new crew now, he needs a new crew.)

And since his stunts are getting old,
they’ve been wishing that his fun is all through now.

(He needs a new crew now, he needs a new crew.)

And things are coming to a head
and his lawyers got a lot to do now.

(He needs a new crew now, he needs a new crew.)

And he’ll have fun, fun, fun
till the hackers take his network away.

(Fun, fun, fun till the hackers take his network away.)

And he’ll have fun, fun, fun
till the hackers take his network away.

(Fun, fun, fun till the hackers take his network away.)

wo wo wo wo woo woo

(Fun, fun, fun till the hackers take his network away.)
(Fun, fun, fun till the hackers take his network away.)
(Fun, fun, fun till the hackers take his network away.)
(Fun, fun, fun till the hackers take his network away.)
(Fun, fun, fun till the hackers take his network away.)
(Fun, fun, fun till the hackers take his network away.)

Anyway, in October 2008, the party was over for Iceland. Lots of fire insurance was bought, and lots of Range Rovers were set on fire. Finally, in February 2009, the aforementioned Oddsson was ousted as head of the central bank.

The story in Greece was that the government was corrupt, overpaid and overstaffed. No tax collection took place because 2009 was an election year. Corporate employees only (not the self-employed) were the only workers who paid income taxes. All three hundred Parliament members evaded real-property taxes through dishonesty. Cash transactions with no paper trail facilitated the evasion of sales taxes throughout the country. There was wilful ignorance (unbelievably sloppy accounting) that masked just how serious the financial crisis was.

Read the book to learn much more about other aspects of the crisis– the alarm-raisers in Iceland, Ireland and the United States, the one protestor in Ireland, the German mentality, and the responses of a few local American politicians.

The Death of Money / Dealings – BONUS POST

The first Bonus Book of the Week is “The Death of Money, The Coming Collapse of the International Monetary System” by James Rickards, published in 2014. This was an all-over-the-map hodgepodge of generalizations on global financial trends, economic theory and what the author claimed was the devastation those trends could lead to, as of the book’s writing.

Prior to 9/11, the CIA possessed no expertise in the nefarious goings-on in the securities industry that could presage the occurrence of a terrorist attack. America’s law enforcement and security agencies had plenty of data, but inter-agency rivalry inhibited information-sharing and creativity– that would have allowed them to “connect the dots” in getting more specific information.

Prior to 9/11, American intelligence did detect irregular trading patterns in the stocks of the two airlines whose planes were targeted in the attacks. A tiny percentage of those trades were illegal because they were made by insiders– by the terrorists who knew those airlines’ share prices would soon plummet; the remaining percentage of anomalous trading was done by those who noticed the unusual activity (but not the reason for it) and jumped on the bandwagon.

After the attacks, threat-detection software was created for monitoring not just stock trading, but also currency and precious metals trading. The author wrote that a recently trendy means for bringing down an enemy-nation is: doing serious economic and financial harm rather than physical harm. Assaults on a nation’s technology and infrastructure such as the money-handling parts of cyberspace, aviation, dams and utilities, instead of targeting a country’s military and weapons or people of a specific ethnic group, is becoming the new normal.

The author remarked that China’s institutions are actually at risk for attacks, because the country’s government, economically, owns a large chunk of the means of production and arguably, labor; not to mention, capital. Wealthy Chinese business owners and executives have a co-dependent relationship with (corrupt) government officials. Besides, there are: “cross ownership, family ties, front companies, and straw man stockholders.”

The author warned the reader that a global financial crisis is likely in the offing due to prevailing circumstances in the economic heavy hitters of the world (like, the United States and China); among those circumstances: misallocation of investment funds; employers’ power to minimize benefits and compensation; red ink and the ever-widening, (allegedly alarming) gap between rich and poor. Financial panic is correlated with social unrest. That can lead to revolution.

The magnitude and accelerating frequency of financial bailouts of the last twenty-five years just shows how fragile the economic systems of the world are. In the United States, excessive deregulation fueled out-of-control greed, etc., etc., etc. In Europe, the group of nations that agreed to adopt one currency (the euro) thought the other nations would help mitigate their own economic problems, when in reality– they were putting all their eggs in one basket. In effect, they had to get permission from the others to make significant changes to their economic policies; they were forced into unhealthy co-dependent relationships.

Read the book to get the lowdown on: all the different groups of nations which were trying to diminish the U.S. dollar’s hegemony (hint: BRICS, BELL, GIIPS, SCO, GCC) at the book’s writing; the United States’ economic system explained for laypeople (via a Venn diagram, along with how the author defined “money” and “death”– both buried in the middle of the book); and everything you ever wanted to know about the value of gold, among other factors in the American dollar’s declining power in the world.

The second Bonus Book of the Week is “Dealings, A Political and Financial Life” by Felix Rohatyn, published in 2010. This bragfest described the life of the typical alpha male who rode a fabulous career in the securities industry, starting in the 1950’s.

The aforementioned first Bonus Book described the trends indicative of a dire future global financial situation. Many such untoward events have already occurred in the last couple of centuries (!), and keep happening. Every time, the seeds of financial disaster are sown decades prior to when it hits the fan.

The selective memory and cherry-picking of data of participants and victims (not to mention propagandists!) cause readers to perceive that those kinds of events are unprecedented, or are becoming more frequent. Excuse the cliche, THERE IS NOTHING NEW UNDER THE SUN (For more info, see this blog’s posts: Serpent on the Rock, A Fighting Chance, Since Yesterday, Why I Left Goldman Sachs, The Zeroes and Dot Bomb).

Rohatyn described a few major stressful economic near-disasters that he was asked to help remedy. One situation was early 1970’s Wall Street, which was a house of cards about to collapse. Another was the near-bankruptcy of New York City in the mid-1970’s.

The late 1950’s saw the city becoming a bloated, bureaucratic civil-service gravy train, due to the increasing power of unions. The costs of generous contracts (along with other sociological factors) was eroding the city’s tax base. Local politicians stayed in power by staying friendly with the unions. One hand washed the other.

At the dawn of the 1970’s, the city needed more and more short-term loans from banks. Creative accounting allowed the debt explosion to continue. The city got subsidies from the state and federal governments, but only at the end of its fiscal year, so its deficit ballooned annually before then. The city got generous borrowing terms because it was in the state’s and fed’s best interest (excuse the pun) to deregulate the lending banks, as they were political patrons, too. Eventually, push came to shove.

In June 1975, Rohatyn was appointed to a bipartisan (truly bipartisan!) committee to help New York State governor Hugh Carey draft a bailout plan for the city, three weeks before the date on which the city would be forced into bankruptcy. Fortunately, Carey possessed the right temperament for saving the world.

Read the book to learn more about how the author helped impose some adult supervision in various, serious economic episodes in his career, and more about his career itself.

Serpent on the Rock

The Book of the Week is “Serpent on the Rock” by Kurt Eichenwald, published in 1995.

This volume contained an egregious error. It appeared in an anecdote about a member of the Belzberg family, Canadian Orthodox-Jews. In the late 1970’s, Belzberg was acquiring a large quantity of stock of the retail brokerage named Bache, so one of Bache’s executives met with him, to find out his intentions.

As the meeting ended, the author wrote that Belzberg shook hands with the Bache executive. That was obviously a fictionalized detail of the story, because Orthodox Jews do not shake hands with, or touch others, except for close family members.

Anyway, in the second half of the 1970’s, tax shelters became trendy in the securities industry. In the 1980’s, Bache (with a shady reputation in the first place) sold tax shelters in the form of limited partnerships of various kinds (oil and real estate were the most common) and reaped fat fees of as much as 8%. On a bunch of them, printed marketing communications illegally contained material omissions and misstatements.

Bache’s clients were clearly unsophisticated, because anyone with a minimal knowledge of finance should have seen that the objectives of the investment were contradictory: “income, growth and safety” (!)

Brokers dispensed with the printed prospectuses (which contained disclaimers required by law), and focused on verbally selling the money-losing financial instruments to their clients. They lied about the projected financial returns (14 to 15%, when they were pretty sure there would actually be disastrous losses). They called the investments “safe”– a word that should NEVER be used on Wall Street. The proper lingo should be “low-risk” and only when that’s the truth. The limited partnerships were “high-risk.”

One man, Jim Darr, became particularly powerful in the Direct Investment Group, and engaged in a boatload of excessively greedy, unethical activities and white-collar crimes that made him fabulously wealthy. In 1983, he flew all the way to a small thrift bank in Arkansas to get a home loan of $1.8 million to purchase a mansion in Connecticut. At that time, there were plenty of local lenders he could have approached.

Another sleazy character, Clifton Harrison, after pulling his last act of unbelievable thievery, gave the excuse, “I’ve just been borrowing some money against future fees.” Read the book to learn more about the various individuals who shaped Bache’s history, and what became of them.

ENDNOTE: The above shenanigans happens every few years in the United States. The line from the movie “That Thing You Do” describes it perfectly: A very common tale, boys, a very common tale. Here is a brief elaboration of the last forty years:

Steps of the American Politico-Economic Cycle

  1. An extremely pro-business president comes to power.
  2. Excessive deregulation ensues.
  3. Shady financial instruments and money-making vehicles spike in popularity (tax shelters, savings and loan associations, goodwill valuations, junk bonds, derivatives, dot-com stocks, stock-options-repricing, subprime mortgages, payday lenders, for-profit colleges, the PACE program, etc., etc., etc.)
  4. Out-of-control greed ensues.
  5. Profiteers of all political persuasions dispense with ethical behavior.
  6. The bubble bursts. A financial crash ensues.
  7. Lawsuit time!
  8. The impoverishment rate accelerates for the middle class and the poor.
  9. Election time. “It’s the economy, stupid.” Whether true or not (usually not!), campaign-propaganda convinces voters that the president is solely responsible for their personal financial situations.
  10. The reelected president, or one from the same party, continues some of the same hog-wild policies, or the new president reverses what he can. Re-regulation ensues.
  11. Time for another round of Survival Roulette (See this blog’s post, “Blind Ambition”).
  12. Opposition-propagandists pull strings to reverse what the new president reversed. They make voters impatient for improvement, even though undoing the damage takes years and years.
  13. Election time. Repeat steps 1-12.

Our Leaders Are Like Teens

OUR LEADERS ARE LIKE TEENS
sung to the tune of “Only In My Dreams” with apologies to Debbie Gibson.

The powers-that-be are keeping secrets.
We need to end their gravy train.
We’re losing our democracy,
in shrill-whining-Debbie-Gibson pain.

We must return to basic civics,
and regulate again.
Bring back laws on guns and Wall Street,
and cut how much we spend.

Yes, our leaders are like teens
with their social schemes.
They manipulate the scenes.

We need a lot more governing.
Not more polls. Not more Tweets.
Now we see our world come tumbling down.
Now all they see are Party seats.

Congress has to get the tough votes,
and go back to how it used to be:
The good bills got enough votes.
We’ll know again how it feels to be free.

Yes, our leaders are like teens
with their social schemes.
They manipulate the scenes.

Yes, yes, yes, yes our leaders are like teens
with their social schemes.
They manipulate the scenes.

Yes, our leaders are like teens
with their social schemes.
They manipulate the scenes.

Yes, yes, yes, yes our leaders are like teens
with their social schemes.
They manipulate the scenes.

Yes, yes, yes…