Since the recession has pretty much settled in (can someone please tell me why it took the
government a year to officially declare that we have been in a recession?) I guess we might as well get used to the fact we are probably going to be in this for some time. It is hard to know what to think, precious few called this before it hit so why are we to believe that the prognosticators have it right now?
Anyway, if you haven’t already, now would be a good time to dig in and get a better understanding of what actually happened. I saw two great articles that really helped me in my understanding.
The first was in Portfolio, entitled simply The End (inactive link), by Michael Lewis, star author of Liar’s Poker and Moneyball.
He picks up where he left off in the book Liar’s Poker, an excellent read about a newbie’s experience (namely his own) at Salomon Bros. on Wall Street in the late 80s. That definitely was a time and place where gambling with money was common, unlike nowadays where there are certified websites to gamble on (learn more here), it will definitely be an interesting read for those who want to see ‘behind the curtain’.
In that book he predicted the demise of Wall Street, and positions recent developments as the logical book end to earlier crises. In short, Wall Street’s way of doing business – of producing nothing of actual value and vastly overpaying its people – is now really, finally done and over with. The accompanying picture, shown here is pretty wrenching and depressing (I know a lot of people who spent their careers on the Street).
Lewis is a great story teller and he makes this all actually very interesting and edge-of-the-seat gripping, as well as understandable. He relates the experiences of some of those who saw this coming, and describes the roles of the instigators. I won’t give away too much of the ending, except to say that there is a climactic showdown in which ex-Salomon Bros. head John Gutfreund – the Wall Street Lion whose career Lewis effectively destroyed with Liar’s Poker – agrees to sit down and have lunch with Lewis.
The second article, Debt Watchdogs: Tamed or Caught Napping, ran in the NY Times last week. It answered a big question for me. Namely, the investment banks’ (and now, auto manufacturers’) efforts to get government help have thrust them into the klieg lights. Meanwhile, quietly skulking in the shadows has been the credit rating agencies. Where were they in all this? Wasn’t it their ethical and legal obligation to send up a flare about the toxic debt that they rated? This is why understanding your debt is so important in this day and age. If we don’t know what is going on these kinds of issues can crop up and you can get caught up in these situations, many already have. The Times article takes an in-depth look at the role of these companies in the mess, and in particular drills down on the conflicts of interest and drive to profitability that no doubt were a factor.
