The further to the left or the right you move, the more your lens on life distorts.

Wednesday, December 17, 2008


In the week following the Bernard Madoff revelations, Tom Friedman tells of a western businessman who approached him at a conference in Hong Kong and asked: “So, just how corrupt is America?”

Three months ago, I would have answered that it’s far less corrupt than virtually any developing country and even looks pretty good when compared to most modern Western countries. Now, I’m beginning to wonder. The ”black swan” event that is now know as the “Collapse of ‘08” has shaken my faith in the fiduciary responsibility of bankers, regulators, and the politicians who oversee them. I never doubted that greed drives many individuals, but I had hoped (naively, it turns out) that people who manage billions would act like grown-ups. They haven’t, and all of us who did act like grown-up have been badlly hurt as a consequence.

Friedman comments on corruption in our financial markets:
I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated.

The “Collapse of ‘08” is infuriating to those of us who never took on heavy debt, who lived well within our means, and who viewed ourselves as “conservative” investors. Madoff’s Ponzi scheme may become a tipping point, shaking our confidence in an economic system that should have a built-in immune system that attacks and kills greed and corruption before they infect then entire economic body.

And how do our existing (and new) leaders in Washington plan to cure the infection? Buy flooding the body (our economy) indiscriminately with antibiotics (money that is really nothing more than debt). The prognosis—inflation, a stagnant economy, continuing private sector unemployment, and enormous government waste that benefits far fewer people that you might think.

The real cure? The frightening thing is that even Wall Street's masters of the Universe and Washington's best and brightest don’t seem to have a clue.