Friday, March 14, 2008

Would you Schadenfreude up!

...for the one-time peasant her newfound status as a Manhattan socialite was quite an adjustment. It is some 7,000 miles from Tajikistan to America but even that understates how far she had come. Who would have thought that a crude act of village dentistry some forty years earlier would leave her with a mouth that was now worth over $170 million? Then again who would have thought gold would go up as much as it did?

Olga, the mysterious benefactor of the Tajik-only Horse Feed Dispensary (formerly known as the Guggenheim)

The preceding was a dramatization but was meant as an illustration of the extremes brought about by unrestrained financial speculation. As you will learn from reading on the possibility of such ridiculousness may have just increased. This is not good news.

***

Watching the floor of the New York Stock Exchange erupt into joyous applause brings back memories of capitalism's great victories. The re-opening of the markets after 9/11 and the Dow hitting 10,000 are two ready examples. Earlier this week we saw and heard the trading floor go wild with exuberance once again. Why, you ask, aren't the stock markets going to Hell? With gold hitting $1,000 an ounce and Bear Stearns on the brink of extinction you're certainly right to think that the markets, as a whole, have few reasons to celebrate. The cheers from the pits were in fact driven by something that had nothing to do with stock prices. Arms were raised and happy cries were heard because news broke that New York Governor Eliot Spitzer had admitted that he cheated on his wife with an escort. Hizzah rang the chorus from the Wall Streeters!

Every day cheating husbands are forced to come clean to their families about their lascivious ways. Usually its kinda bad news, hardly the cause of such hootin' and hollerin'. This was however not just your average John. Much of what elevated Eliot Spitzer from his role as relatively unknown civil servant to Governor of the Union's third largest state was his work as Wall Street's Top Cop. After the Internet Bubble popped at the beginning of this century then-Attorney General Spitzer went to work zealously prosecuting the Wall Street enablers and unwarranted beneficiaries of the preceding excesses. Perhaps the term "zealously" requires a prefix there but as the old saying goes "you need to break a few eggs to punish the jackasses that made millions convincing poor schmucks to blow their life savings on eToys.com stock". He was by all accounts a ruthless prosecutor who may have, on a few occasions, crossed the line in making his cases too personal. The results, however, were impressive. Fines were levied, previously unassailable crooks were perp walked and, eventually, confidence was restored in the integrity of the financial markets. Spitzer and others joining his fight restored law and order to an industry that had become desperate lacking of both. Was self-aggrandizement a driving force behind what he did? Sure, but who cares. Most successful prosecutors rely as much on their ability to grandstand as their ability to interpret case law. Besides, these weren't the Sisters of the Poor he was going after here. These were grown men and women who had benefited from their excessive greed often at the expense of those who didn't know any better.

Now, flash back to the traders slapping high-fives and promising "drinks on me tonight"! Is there not something imminently distasteful about the joy they're getting out of this? Is this not akin to a bunch of high school kids celebrating the fact that Jimmy's parents just left for the weekend and left the liquor cabinet unlocked? This is not just some concerned New York citizens reacting to the fact that they will be getting another shot at electing a governor. This is a bunch of cowboys ready to turn the town upside down because someone just shot the sheriff. The cat is away and its time for the mouse to play...and, trust me, they won't play nice.

This is probably a good time to reveal a bit about myself so you don't infer any false biases (I have plenty of biases, just not this one). I work in the investment industry and have for 10 years now. On a purely selfish basis the reforms Spitzer and his ilk put forth probably cost me a few bucks. I was around for the idiocy of the Internet era, the subsequent implosion, recovery and now whatever you call this period. I like to think of myself as reasonably successful and, as such, am (for the most part) free of envy for what others in my field achieve. As much as I can tell, this is not being written out of any jadedness. Hopefully this is just an honest account of what I have witnessed. In my experience, a sadly large percentage of my fellow financial professionals need someone watching over them. I don't believe this is because they are particularly less ethical than those in other fields its simply that the temptation is that much larger. I'm not referring to large-scale fraud of the Enron variety or rampant pilfering like we saw at Tyco. Even a slight twist of the rules or an overlooked conflict of interest can result in a substantially lucrative benefit to the perpetrator. That being said, there must be a reason that the CFA curriculum (the industry standard designation for most categories of financial professionals) teaches ethics in each of its three exams. Ethics strikes me as something more innate than that. Maybe there is something inherently wrong with many of those attracted to the money game. Regardless of whether its is nature or nurture, history has shown us that left to their own devices far too may of those that do "what I do" with invariably find a way to screw you. Now, there's much less between them and said devices.

Eliot Spitzer is a shitty Dad and an even worse husband. There are, in fact, a whole lot of things wrong with him personally. He was, however, someone that kept the worst element of Wall Street at bay. For anyone with a couple of bucks in the stock market this is an important thing to keep in mind. This isn't the vanquishing of just another hypocritical politician or, as the media is lazily referring to it as, Schadenfreude. As flawed as he is and regardless of what his motivations were, he was on our side and his absence will be felt.

1 comment:

Dominic Bugatto said...

I'd have to agree , nicely put.