Thursday, October 16, 2008
The cool guys were just drunks
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John Freivalds
Freivalds runs a communications firm in Lexington.
It would be nice to be able to point a finger at the leaders of Wall Street financial firms and say, "You made this mess happen," have trials, find them guilty, take way the money they "earned," and throw them in jail. And, yes, tar and feather them and parade them naked through the streets. We did that with the Enron crowd.
However, in this case, we are all guilty.
I liken it to the dram shop laws. If a drunken driver causes an accident, not only is he guilty of drunken driving, but so is the tavern that kept giving him drinks. This is what happened on Wall Street -- and to us.
The drunks in this case were the people who worked at AIG, Lehman Brothers, Bear Sterns and others. They crashed into our livelihood and caused a lot of damage. But we have to look to see who caused it. I would like to say we will learn from this mistake, but I doubt that will happen.
We had previous bubbles like this: the Great Depression, the savings and loan scandal, junk bonds, you name it. This will happen more frequently in the future because the news cycle gets shorter and shorter. What becomes old news is not what happened 20 years ago, but what happened 10 minutes ago.
Back to the metaphor. The bartender in this case was Alan Greenspan, who kept pouring drinks and approving whatever the drinkers wanted (low interest rates, easier-to-get loans) even though they were clearly over the limit (debt to asset ratio).
Then we had a score of politicians who said, "Invite people to the bar to take a drink even though they don't have money to pay for it. Let them run a tab, they will figure out a way to pay for it" (subprime loans).
And the cops we had to keep people from getting drunk (the Securities and Exchange Commission) said, "They are just having a good time. What danger is there with a drink or two -- or three of four? Heck, the drinks are on us. Besides, it feels good to get high. The hangover is tomorrow anyway."
And the rest of us watched, elected a turkey to run the bar, and got high trading the bar tabs back and forth. As long as we thought the bar tabs (collaterized debt obligations) were worth something, we felt good. Pour another drink, Alan!
Then, of course, there were teetotalling poops like Warren Buffett who kept coming in and saying you have drunk too much. Be careful. The response from the guys in the bar was, "What does he know? He lives in Omaha. Isn't that someplace west of New Jersey?"
We thought that the guys getting drunk were cool. They drove nice cars, went for neat vacations to Barbados, bought fancy wristwatches, had their teeth whitened, wore tuxedos to charity balls and had trophy wives. The epitome of American success. They all left the bar and the first one crashed on U.S. 220; then one on Interstate 81, and many more followed.
A lot of people were hurt, but the drunks proclaimed their innocence by saying it was our fault for keeping the drinks coming and that we, not they, should pay for the damages. Worse, we now assume everyone leaving the bar is a drunk and we can't trust anyone who says they leave the bar sober. And the bar tabs -- they are worthless, but the bar owner is out the drinks and wants us to pay for the drinks he poured.
Many of us feel helpless and don't complain when we see this happening. But this mess is what happens when we believe that the guys drinking in the bar are smarter and more sober than we are. We are all guilty.
