We spent last week away, in far New England, in a place where it is always 1954. No tweeting, blogging, prose composition. Just sun,water, mountains, friends. This was the week that saw both Teddy Kennedy and Dominick Dunne shuffle off this mortal coil, so it was a good place - away from the noisy, and the froward and the vain (Dickens) - to reflect on two lives that mark, for me, the passing of an era.
The last time I spoke with Dominick, with whom I had an unevenly textured friendship going back almost forty years, was in June, perhaps nine weeks before he died. My publisher was pressing me to seek a blurb from Dominick, despite my admonitions that he was very sick, was in fact in Germany receiving treatment for his cancer, and I reluctantly sent him bound galleys. That would have been in May. I came home one day and Dominick - I never called him "Nick" any more than he would have called me "Mike" - was on my voicemail. He sounded worse than terrible. He couldn't do the blurb, just didn't have the strength, in fact, he said, "I think this may be it." I called him back immediately and got his voicemail. I left a message saying for God's sakes, all that matters is for you to get better, you must use every scintilla of energy for yourself. He called back a few minutes later; we chatted briefly; I told him I was praying for him.
The way we met was funny. It would have been around 1968-69, and I and a friend were on our way to Los Angeles for a weekend of fun and frolic. To make the flight pass more slowly, we had ingested some cookies baked in an upstate ashram that had a high cannabis content. By the time our flight was abeam Pittsburgh, we really no longer had need of an airplane. A bit later, it was suggested that he top off our exhilaration with a toke in the loo (we were upstairs in a 747.) The restroom door was locked when we got there, but a minute later it clicked open, and in a scene reminiscent of the Wizard of Oz, there was an enormous gust of marijuana snoke with a small figure in the middle. It was Dominick. We urged him to try what we had, and the three of us squeezed back into the small cabine and enjoyed a jolly puff.
As I say, ours was an uneven relationship. There was a bit of professional envy mixed in there, probably - make that certainly - more on my side than his. I didn't think much of his novels, and the world he wrote about for Vanity Fair didn't interest me. But I was also happy for him: he got the life and recognition that he craved, and he won the devoted admiration of thousands of fans and the deference of headwaiters. I think that when someone gets what they want, and get it more or less honestly, it's cause for a round of applause, even though it might not be what you want. It was a life that deserved a better ending.
Sunday, August 30, 2009
Thursday, August 20, 2009
August 20,2009/1
Everyone agrees that what is taking place in "town halls" and elsewhere, most notably in connection with health-care reform, is proof positive of Americans' mistrust of government. On the basis of second- and third-hand observation, I'm inclined to agree, with this rider: if I had to guess, I'd say that Americans are deeply fed up with this government, which they see - as I do - as essentially functioning as a delivery system for the money interests: Wall Street, Big Pharma, Insurance etc. And I include the White House in this indictment. Back in November, I hardly thought I was voting for the Enabler-in-Chief.
I'm in my ninth year as Medicare user, and I have nothing but satisfaction to show for it. I'm not alone. Even louder than the anti-government babble is the theme, "But don't touch my Medicare!" I've had two knees replaced on Medicare, and various other procedures. It works, and I have no sense that my doctors are gaming the system, even those who don't take Medicare but will do and submit the paperwork (not the same as those who've opted out of the system.) I can't understand why the principal thrust of health-care reform, which as it's now being argued looks to me like an absolutely unresolvable Gordian knot, with the interests of the impecunious being notionally served by the bought-off, hasn't focused on extending Medicare to the uninsured, possibly working backward by age groups (extend the program to people over 55, then 45-55 and so on.)
(Added later): The head of the Mayo Clinic checks in here.
And in counterpoint, this.
I'm in my ninth year as Medicare user, and I have nothing but satisfaction to show for it. I'm not alone. Even louder than the anti-government babble is the theme, "But don't touch my Medicare!" I've had two knees replaced on Medicare, and various other procedures. It works, and I have no sense that my doctors are gaming the system, even those who don't take Medicare but will do and submit the paperwork (not the same as those who've opted out of the system.) I can't understand why the principal thrust of health-care reform, which as it's now being argued looks to me like an absolutely unresolvable Gordian knot, with the interests of the impecunious being notionally served by the bought-off, hasn't focused on extending Medicare to the uninsured, possibly working backward by age groups (extend the program to people over 55, then 45-55 and so on.)
(Added later): The head of the Mayo Clinic checks in here.
And in counterpoint, this.
Wednesday, August 19, 2009
August 19,2009/1
Today's WSJ lead headline says it all "Reluctant Shoppers Hold Back Recovery." It's all our fault, you see. We should be out there spending money we don't have and will never see. It really is us against them. Meanwhile, profit margins are being helped by "productivity," which is output enhanced by squeezing extra hours out of workers afraid of being laid off. I have been saying and writing for years, based on my adventurous wanderings among the world's executive class and the world's wealthy, that Marx might get another bite at the apple.
Tuesday, August 18, 2009
August 18,2009/3
This bears thinking about. I think a huge psychological shift has taken place. People of moderate means, even those - like myself - theoretically in a high quintile of that economic sector, no longer buy the Reagan-Bush-Clinton-Bush myth that the ordinary unconnected citizen, who borrows money at retail, can get rich. Nor do we believe that the best-off will (a) do anything for us and (b) will cease to grab all they can using the immensely powerful financial and political levers at their disposal. We need to circle our creaky financial wagons as best we can, try to get by in a World According to Goldman Sachs and wait for some kind of messianic political eruption.
August 18,2009/2
Just listened to an absolutely pointless colloquy between Kurt Andersen and Leonard Lopate on the latter's WNYC gabfest. Kurt has written what sounds like a straw man of a book called "Reset," but being as deft a media politician as there is, he's garnered a good deal of underserved ink and attention. The thesis of the book is - apparently - that the mess we're going through will make us stronger and braver. Amazingly, Kurt claimed authorship of the use of the modifier "casino" with respect to aspects of our culture, saying he happened upon it a couple of years ago, while I think in fact Felix Rohatyn popularized the term 'casino capitalism" some twenty-plus years ago. What bothers me is that at a time when, at least in my lifetime, there has never been a greater need for clear, insightful, original thinking and clear, insightful, original speaking, the gatekeepers of the media, like Leonard Lopate, reserve access to a practiced and thus dependable troupe of blahblahblahbarians.
Monday, August 17, 2009
August 17,2009/2
One does wonder sometimes. Take a look at this page from the NYT website about the present director of the Toledo Museum becoming the new director of Alice Walton's new museum of American art that is under construction in Bentonville, AK. Ms. Walton, it will be recalled, bought the famous Asher B. Durand painting "Kindred Spirits" from the New York Public Library in a transaction decried by this writer among others (Kimmelman as usual waited until the barn door was closed, locked and horse in the next county before raising a tentative admonitory finger). You can read all about it here. I hate the word "iconic," but if there is one painting that deserves the appelation in a New York context, it was this. The gilded board of NYPL, which could have passed the hat with no meaningful effect on its collective or individual net worth and kept the painting in the city, sat on its hands. What amuses me about the NYT's account of the new appointment is that it lists a number of the great American artists whose work Ms.Walton has acquired, and prints links references to each in its archive, but somehow skips a link to Durand. I seem to recall that that GREAT newspaperman, Arthur Sulzberger the whatever aka "Pinch" is on the NYPL board. The way society protects its own validates Michael Gross's charge that his interesting study of the people who've run the Met's boardroom, Rogue's Gallery, has been embargoed. All I can do is reiterate my late father's definition of "the upper crust": a bunch of crumbs held together by dough.
August 16,2009/1
Catching up after a long delightful weekend with friends who, despite considerable comparative advantage, have zero pretensions. So while I crank up,, read this, which explains my feeling that cash dividends, not share buybacks, are what managements should do with their "excess" cash.
Thursday, August 13, 2009
August 13,2009/3
Here's a typical NPR-style discussion (on 7/16 - just caught up with) with Bove clearly hoping someone at Goldman is listening, Taibbi staying away from the numbers. The real issue is whether Goldman's access to government/Fed/taxpayer funds and guarantees was to prop up business as usual. Goldman not having been a bank as any normal human being would define "bank" until practically the day before it reached into the TARP etc. honeypot did not have the "as usual" business real banks did. My own take is that Goldman saw an opportunity, figured out how to qualify, and took it.
August 13,2009/2
Read and weep:
For comparison, consider an illustrative family of three in which the father earns $30,000 as an independent contractor for a small plumbing company and the mother earns $25,000 from a small retailer. Neither small business provides health benefits. The couple has a daughter in second grade at the local public school and pays $100 a week for child care after school and during the summer. The family lives in a modest home and pays $1,000 a month in rent and $250 in utilities. It owes $2,312 in federal income taxes, $6,502 in Social Security and Medicare taxes, and $1,350 in state income taxes. It has two cars with payments of $300 a month each, and pays $2,000 a year in car insurance and $1,000 a year for gasoline. It spends $150 a week on groceries. The couple has avoided accruing any credit card debt, but they have no saving for retirement and no life insurance…
Right now, the federal government pays $14,777 to provide health insurance for each of Goldman Sachs’s managing directors and pays nothing to provide health insurance for this middle-income family. The Administration and Congress face a clear choice: can we modestly reduce the extremely generous government subsidies provided to the Goldman bankers and others similarly situated to help pay for a subsidy worth a fraction of that amount to families of modest means?
From the Center on Budget and Policy Priorities
August 13,2009/1
I feel like an idiot. I completely missed this market run - which for most people won't go long term until Sept-Oct-Nov. My 22-year-old son is mad at me for convincing him to hold 20% of his funds in cash. People I don't consider very smart are jangling coin and dancing in the aisles; people I consider perceptive are like me, staring gloomily from the sidelines, unable to believe that issues like toxic assets and unemployment have either vanished or no longer matter. It would appear that all that counts are corporate "profits" based on getting rid of people and squeezing suppliers. The good news from Europe comes from France & Germany, nations of savers. It's all about mood-momentum. And the fact that Goldman has gotten away with gaming the bailout the way it has makes me nauseous. Help me, someone, in my moment of agony!
And I like this.
And I like this.
Wednesday, August 12, 2009
August 12,2009/1
A smart quote from Dorothy Rabinowitz of the WSJ:
"The president has a problem. For, despite a great election victory, Mr. Obama, it becomes ever clearer, knows little about Americans. He knows the crowds—he is at home with those. He is a stranger to the country’s heart and character."
And this strikes me as insightful and important.
And what have some of us been arguing all along, especially with regard to Lehman?
"The president has a problem. For, despite a great election victory, Mr. Obama, it becomes ever clearer, knows little about Americans. He knows the crowds—he is at home with those. He is a stranger to the country’s heart and character."
And this strikes me as insightful and important.
And what have some of us been arguing all along, especially with regard to Lehman?
Tuesday, August 11, 2009
August 11, 2009/1
Starting a new novel, so may be brief here until I get routine and momentum. An interesting column by John Crudele in this morning's NY Post. In this morning's WSJ, there's a piece that should only be read in the vomitorium, about how "B-list" firms, in this case a former employee of the bucket-shop Blinder Robinson, are coining it.
This is also excellent.
Running through some notes, I find this statement by the President to Jim Lehrer (July 21,2009):
This is also excellent.
Running through some notes, I find this statement by the President to Jim Lehrer (July 21,2009):
And so our job is to -- with the resources that we've got -- try to maximize the help that we're getting to Main Street and to try to pressure Wall Street to do its part in making sure that credit is available so that businesses can start picking up again.
As my young texting friends would write: hahaha
Monday, August 10, 2009
August 10,2009/1
We spent the weekend in upstate New York where, through the generosity of friends, we saw/heard as good a La Traviata as can be imagined at Glimmerglass, and were well fed and entertained. We also visited the Baseball Hall of Fame, which is probably the only museum in the world in which the average American tourist has some idea of what's going on.
Among my wiser friends, the consensus is that the credit crisis, if not strictly speaking over, is at least contained. I agree, much as I hate the fact that the containment has been accomplished with a methodolgy that allowed Goldman Sachs to game the program in way both contemptible and contemptuous. And I have this caveat: if the credit crisis has meaningfully abated, it is on the buy side only, on the wholesale, or lending, side of the equation. On the sales end, where people borrow, a combination of shock and avarice still holds sway. Foreclosures continue. credit card horror stories abound.
Apart from the bottom line, which I suppose is all that counts, it has not been a good fortnight for Goldman. First, Blankfein's memo to the troops, in which he sounds like Polonius ("rich, but not gaudy..."), is leaked. Then Mrs. Blankfein behaved as such people inevitably do, completely ignoring her husband's admonitions - the pressures brought on by wealth can be psychologically as irresistible as the exactions of poverty - and threw her gilded weight around at a Hamptons charity do. Next, GS president Gary Cohn publicly asserts that the frm was never in real danger, and holds fast to that point even as damage control rages all about him. This raises the interesting question as to what exactly was GS's position last fall? What exactly was represented to Paulson, Bernanke, Geithner etc. ? Was the decision to become a bank, take TARP money and gain access to the discount/guarantee funding pool, largely opportunistic, as I suspect, or a function of desperate need? what about the AIG contracts? Were they hedged, as Goldman now says, or were they not? if the former, why were they paid off by the taxpayer? I think we need to know; I think we can know. There has to be a paper trail. And, by the way, what is Goldman now? How long can it be a bank, when its banking functions are purely ceremonial? With TARP repaid, and Federal guarantees off the table, is it still finding ways to avail itself of low-cost taxpayer money? What about its "excess reserves"?
Finally, there's Sunday's uproar over Paulson's communications with his old firm, which has the conspiracy-theory beagles in full cry. This will need looking into.
Character, they say, is destiny. Where there's smoke, there's fire. I think Goldman was, is now and ever will be a firm of liars. That is to say, a firm that regards truth as fungible and flexible. I except a brief "Camelot" period when the firm was presided over by John Weinberg, but even then, behind the scrim of Weinberg's probity, the moral descendants of Gus Levy were busy laying the groundwork for the great future to come, a future only realizable if Goldman could achieve what it palpably has: topput in place a web of connections, overt and under the table, policy inputs and information sources that permit it to be on all sides of every deal, every regulatory initiative, every subsidy. When I imagine GS's "public face," I see a hydra-like creature whose multiple brainstems support faces whose features are a combination of Janus, the two-faced deity, and Alfred E. Newman, of "What, me worry?" fame. Nice work if you can get it.
Among my wiser friends, the consensus is that the credit crisis, if not strictly speaking over, is at least contained. I agree, much as I hate the fact that the containment has been accomplished with a methodolgy that allowed Goldman Sachs to game the program in way both contemptible and contemptuous. And I have this caveat: if the credit crisis has meaningfully abated, it is on the buy side only, on the wholesale, or lending, side of the equation. On the sales end, where people borrow, a combination of shock and avarice still holds sway. Foreclosures continue. credit card horror stories abound.
Apart from the bottom line, which I suppose is all that counts, it has not been a good fortnight for Goldman. First, Blankfein's memo to the troops, in which he sounds like Polonius ("rich, but not gaudy..."), is leaked. Then Mrs. Blankfein behaved as such people inevitably do, completely ignoring her husband's admonitions - the pressures brought on by wealth can be psychologically as irresistible as the exactions of poverty - and threw her gilded weight around at a Hamptons charity do. Next, GS president Gary Cohn publicly asserts that the frm was never in real danger, and holds fast to that point even as damage control rages all about him. This raises the interesting question as to what exactly was GS's position last fall? What exactly was represented to Paulson, Bernanke, Geithner etc. ? Was the decision to become a bank, take TARP money and gain access to the discount/guarantee funding pool, largely opportunistic, as I suspect, or a function of desperate need? what about the AIG contracts? Were they hedged, as Goldman now says, or were they not? if the former, why were they paid off by the taxpayer? I think we need to know; I think we can know. There has to be a paper trail. And, by the way, what is Goldman now? How long can it be a bank, when its banking functions are purely ceremonial? With TARP repaid, and Federal guarantees off the table, is it still finding ways to avail itself of low-cost taxpayer money? What about its "excess reserves"?
Finally, there's Sunday's uproar over Paulson's communications with his old firm, which has the conspiracy-theory beagles in full cry. This will need looking into.
Character, they say, is destiny. Where there's smoke, there's fire. I think Goldman was, is now and ever will be a firm of liars. That is to say, a firm that regards truth as fungible and flexible. I except a brief "Camelot" period when the firm was presided over by John Weinberg, but even then, behind the scrim of Weinberg's probity, the moral descendants of Gus Levy were busy laying the groundwork for the great future to come, a future only realizable if Goldman could achieve what it palpably has: topput in place a web of connections, overt and under the table, policy inputs and information sources that permit it to be on all sides of every deal, every regulatory initiative, every subsidy. When I imagine GS's "public face," I see a hydra-like creature whose multiple brainstems support faces whose features are a combination of Janus, the two-faced deity, and Alfred E. Newman, of "What, me worry?" fame. Nice work if you can get it.
Friday, August 7, 2009
August 7, 2009/2
This should be taken into account. Between the way the markets are run today and the good news from Washington, I smell a bull trap. Of course, I've only been 3000 Dow points wrong so far.
August 7,2009/2
A grim thought. Watching a YouTube of mobs disrupting a "Town Hall" in Florida, I wonder: do you have to be my age to recognize how these scenes resemble those enacted in Germany in the 1930s. Apart from small differences in attire and the language of preference, I can discern little to choose between them.
August 7,2009/1
It's no fun to feel old and out-of-date. I had lunch yesterday with a very smart younger friend, a writer. She extolled the virtues of Chris Anderson's Free, the book on the future economy that's drawn a lot of ink. Enough to make me decide to read it. Then she got on to the subject of Twitter. I tweet occasionally myself - to promote my novel or make my few "followers" aware of something I've written or posted somewhere. The funny thing about both these phenomena is, they seem to forbid rational explanation: they just are and ever will be, world without end. Yesterday, while we were lunching, Twitter went down, succumbing to one of those hacker attacks. Judging from the report in today's Wall Street Journal, Tweeters the world over would have sooner given up their left arms. Twitter I just don't get, I admit it. It seems to me to be an updated version of what we saw when teenagers first got cellphones; you'd seem them crossing a street, saying "I'm on 53rd St.," "I'm crossing the street now...." Anyway, as a writer in search of a readership, I won't give up. I'm going to try to figure out how to use Twitter to make people aware of my work. At my age, what else is there?
On another subject, another friend, the Vanity Fair writer Vicky Ward, has a post on her Facebook page (when I write a phrase like that, I feel like that old Flanders and Swann song that went something like "We're ever so very contemporary at number 7B") that reads like a preemptive strike. Vicky's writing a book on Lehman, and reading between the lines on her comments on what others have written and published, I think she'll be giving us the Paulson Version. I've advised her to tread carefully.
On another subject, another friend, the Vanity Fair writer Vicky Ward, has a post on her Facebook page (when I write a phrase like that, I feel like that old Flanders and Swann song that went something like "We're ever so very contemporary at number 7B") that reads like a preemptive strike. Vicky's writing a book on Lehman, and reading between the lines on her comments on what others have written and published, I think she'll be giving us the Paulson Version. I've advised her to tread carefully.
Thursday, August 6, 2009
August 6, 2009/2
Speaking of Buffett, this is interesting. I had lunch with an old friend, our friendship dating back almost 50 years now, to Lehman Brothers. We discussed the possibility of a truly punitive populist/regulatory backlash against the Street. My guess is that this will only happen if someone appears on the scene who can put across to the electorate exactly how much economic unfairness has been subsidized with the taxpayers' money. Who might that be? Not the President; he's in the tank.
August 6,2009/1
Now, inevitably, comes the argument as to how badly off Goldman Sachs was last fall when it converted to bank status and took TARP funds. You can read one view here.
The other side of the debate is articulated by Heidi N.Moore on Twitter passim. (@moorehn).
The odd part is that the "wasn't in straits" argument is based on statements coming from within GS. So was TARP forced on them or not? Knowing something of Goldman's moral history and traditions, and the firm's almost supernatural ability to plumb for and cost out regulatory loopholes and preferences, my money's on the "not in trouble" side. Taking TARP money opened up the discount window without obliging GS to undertake bothersome conventional banking practices. If you factor in what appear to be celestial returns on capital since last fall, the blended cost of TARP plus Fed/FDIC "free money" looks quite bearable. Same for the Buffett deal, which also put America's beloved financier, even if the largest stockholder of one of the principal enablers of "financial weapons of mass destruction" (Moody's), in the GS camp. It'll be interesting to see how WB deals with the GS investment in his next letter to stockholders. In the last one, he barely mentioned Moody's.
Since highly-placed people at GS now deny the firm was "near death" (see here) the government agencies involved with GS at the time will presumably come forward to confirm or deny "the Goldman Version." This should be a centerpiece of any investigation of the bailout. Paulson should be subpoenaed.
The other side of the debate is articulated by Heidi N.Moore on Twitter passim. (@moorehn).
The odd part is that the "wasn't in straits" argument is based on statements coming from within GS. So was TARP forced on them or not? Knowing something of Goldman's moral history and traditions, and the firm's almost supernatural ability to plumb for and cost out regulatory loopholes and preferences, my money's on the "not in trouble" side. Taking TARP money opened up the discount window without obliging GS to undertake bothersome conventional banking practices. If you factor in what appear to be celestial returns on capital since last fall, the blended cost of TARP plus Fed/FDIC "free money" looks quite bearable. Same for the Buffett deal, which also put America's beloved financier, even if the largest stockholder of one of the principal enablers of "financial weapons of mass destruction" (Moody's), in the GS camp. It'll be interesting to see how WB deals with the GS investment in his next letter to stockholders. In the last one, he barely mentioned Moody's.
Since highly-placed people at GS now deny the firm was "near death" (see here) the government agencies involved with GS at the time will presumably come forward to confirm or deny "the Goldman Version." This should be a centerpiece of any investigation of the bailout. Paulson should be subpoenaed.
Wednesday, August 5, 2009
August 4,2009/2
When I first went to work on Wall Street, in 1961, I found the work tremendously exciting - in the sense that I fancied we were raising capital to fuel the growth, innovation and refurbishment of American commerce. At Lehman Brothers, our poster boy was Litton Industries, a company that was dedicated to the proposition that super-managers, armed with the latest in management technique and theory, could manage the hell out of any business. My father had been a key figure in Litton's early financing, a feat that had enormously magnified his reputation as a "wonder banker."
Litton spawned what in the 1960s became "the conglomerate craze." The Litton model bred a host of followers and imitators. Inevitably, everyone started to reach, and high prices began to be paid for businesses in intractable markets or with intractable production or services problems. On Wall Street, we loved it. The money to be made was unreal: fees for "expertising" a takeover, fees for followup underwritings and debt placements etc. etc. A prize example was Walter Kidde Co.'s acquisition of United States Lines, a marriage made in hell since the moment it was suggested to me in the dormy house at Pine Valley. A rubric "intercontinental intermodal transportation" - meaning containers - was coined and away we went. What mattered, and only mattered, was that a deal could somehow be done. The fee was the sole object. Wall Street and America had, so to speak, parted ways. Or perhaps Wall Street was now in touch with an aspect of the American character, if there is such a thing, that had been suppressed by the patriotic, one-for-all fervor unleashed by World War II and its Korean stepchild.
By the end of the decade, the deals were getting crazier and crazier, and were being financed mainly by debt - to the extent that the Fed finally came up to the Street, called in the hot-shot bankers and decreed "game over!" Banks were to stop making "non-productive loans," and to get the point across on the corporate side, interest on such loans, mainly for takeovers, would no longer be deductible for tax purposes.
At about that time, say 1970, I committed the sin that I think finished my career at Lehman Brothers as much as any other, including the quarrel with Daryll F. Zanuck that got me kicked off the board of Twentieth Century-Fox. I got a call from a banking client, the CEO of an old-line, profitable New Orleans shipping company called Lykes Brothers. He had been talked by a woman in New York (the less said about her the better) into considering a bid for Jones & Laughlin, the famous steelmaker then going slowly and steadily broke in Pennsylvania and Ohio. He had investigated the situation and convinced himself that there commercial and financial virtues hidden in J&L that he alone saw and that he alone could trade on to revuild the steelmaker into a glowing temple on the hill. He wanted to make a bid. Would we handle it for him? I said I'd like to think it over and call him back.
I thought it over, and I called him back - to tell him that, much as we cherished his business, this was one we would sit out. I could see only bankruptcy, the disemployment of thousands, the ruin of communities: disgrace (a little-regarded outcome in American business and non-existent n Wall Street) for all concerned. I had no wish to involve my firm in such a situation.
You guess the result. He went to another partner; Lehman did the deal and earned a bunch of nice fees, and in short order all the dire outcomes I had predicted came to pass. J&L and Lykes went bust. The demographic carnage in the Rust Belt was something to see. I fell into disfavor at One William Street. And so it goes.
Wall Street cares nothing for the economic state of the nation at large. The recent rally and the profits in the banks tell us that. Still, it was a terrible lesson for an idealistic young man to have had to digest just at the cusp of middle-age, as I was in 1970.
Litton spawned what in the 1960s became "the conglomerate craze." The Litton model bred a host of followers and imitators. Inevitably, everyone started to reach, and high prices began to be paid for businesses in intractable markets or with intractable production or services problems. On Wall Street, we loved it. The money to be made was unreal: fees for "expertising" a takeover, fees for followup underwritings and debt placements etc. etc. A prize example was Walter Kidde Co.'s acquisition of United States Lines, a marriage made in hell since the moment it was suggested to me in the dormy house at Pine Valley. A rubric "intercontinental intermodal transportation" - meaning containers - was coined and away we went. What mattered, and only mattered, was that a deal could somehow be done. The fee was the sole object. Wall Street and America had, so to speak, parted ways. Or perhaps Wall Street was now in touch with an aspect of the American character, if there is such a thing, that had been suppressed by the patriotic, one-for-all fervor unleashed by World War II and its Korean stepchild.
By the end of the decade, the deals were getting crazier and crazier, and were being financed mainly by debt - to the extent that the Fed finally came up to the Street, called in the hot-shot bankers and decreed "game over!" Banks were to stop making "non-productive loans," and to get the point across on the corporate side, interest on such loans, mainly for takeovers, would no longer be deductible for tax purposes.
At about that time, say 1970, I committed the sin that I think finished my career at Lehman Brothers as much as any other, including the quarrel with Daryll F. Zanuck that got me kicked off the board of Twentieth Century-Fox. I got a call from a banking client, the CEO of an old-line, profitable New Orleans shipping company called Lykes Brothers. He had been talked by a woman in New York (the less said about her the better) into considering a bid for Jones & Laughlin, the famous steelmaker then going slowly and steadily broke in Pennsylvania and Ohio. He had investigated the situation and convinced himself that there commercial and financial virtues hidden in J&L that he alone saw and that he alone could trade on to revuild the steelmaker into a glowing temple on the hill. He wanted to make a bid. Would we handle it for him? I said I'd like to think it over and call him back.
I thought it over, and I called him back - to tell him that, much as we cherished his business, this was one we would sit out. I could see only bankruptcy, the disemployment of thousands, the ruin of communities: disgrace (a little-regarded outcome in American business and non-existent n Wall Street) for all concerned. I had no wish to involve my firm in such a situation.
You guess the result. He went to another partner; Lehman did the deal and earned a bunch of nice fees, and in short order all the dire outcomes I had predicted came to pass. J&L and Lykes went bust. The demographic carnage in the Rust Belt was something to see. I fell into disfavor at One William Street. And so it goes.
Wall Street cares nothing for the economic state of the nation at large. The recent rally and the profits in the banks tell us that. Still, it was a terrible lesson for an idealistic young man to have had to digest just at the cusp of middle-age, as I was in 1970.
August 5, 2009/1
If there's anyone that reads this blog (from the absence of comment, I doubt it), I wouldn't want them to miss this. It requires no further comment.
Tuesday, August 4, 2009
August 4, 2009/3
I consider this one of the most brilliant and insightful analyses I have read - and am likely ever to read - of the mess that has been made up and down, right through the American economy. Its author's spiritual journey from neocon to new dealer is fascinating.
Incidentally: some years ago, in a talk at some club, I predicted that the curse of the computerization of Wall Street would be the enabling of profitable trading of ridiculously small fractions of money. "Flash trading"? "Dark Pools?" It has come to pass.
Incidentally: some years ago, in a talk at some club, I predicted that the curse of the computerization of Wall Street would be the enabling of profitable trading of ridiculously small fractions of money. "Flash trading"? "Dark Pools?" It has come to pass.
August 4, 2009/2
It will be interesting to see which arrives sooner in my existence: death or taxes. My money's on the latter. How the taxes necessary to restore some of our eroded position are formulated may be Washington's (and the voters') last chance to make good use of the crisis. Here are some thoughts.
What about a national sales tax, say 2%, on online purchases? It makes no sense that if I buy a classical CD from Arkiv, I pay NY sales tax, whereas if I buy the exact same disc from Amazon, I don't. Makes no sense - and offends my sense of equity. Half the tax collected could be ratably rebated to the states.
Corporate dividend payments should be deductible at the source. This would encourage distributions, keep the heat on managers and to some extent offset the cost of taxing benefit contributions.
Individual taxes, both on income (of any type) and capital gains, need to be indexed to reality. Or, as my mantra puts it, only tax AS rich what IS rich, on a sliding scale that begins low - at, say, $50,000 and moves upward in increments to a top bracket of, say, 50% on income in excess of $5 million and gains in excess of $50,000,000.
What about a national sales tax, say 2%, on online purchases? It makes no sense that if I buy a classical CD from Arkiv, I pay NY sales tax, whereas if I buy the exact same disc from Amazon, I don't. Makes no sense - and offends my sense of equity. Half the tax collected could be ratably rebated to the states.
Corporate dividend payments should be deductible at the source. This would encourage distributions, keep the heat on managers and to some extent offset the cost of taxing benefit contributions.
Individual taxes, both on income (of any type) and capital gains, need to be indexed to reality. Or, as my mantra puts it, only tax AS rich what IS rich, on a sliding scale that begins low - at, say, $50,000 and moves upward in increments to a top bracket of, say, 50% on income in excess of $5 million and gains in excess of $50,000,000.
August 4, 2009/1
News reports today suggest that the strain is starting to tell on Geithner. It's understandable: the evolving regulatory structure will inevitably involve a lot of turf-protecting and a lot of turf-building. Personally, I think the notion of a single, uber-regulator is ludicrous. I am opposed to anything that makes lobbyists' work easier, and this will effectively permit one-stop shopping for K-Street. Here again, why is history being ignored? When banking and investment banking (for lack of a better word) were separated and kept separate (1933-99) by Glass-Steagall, and the two sides were separately regulated, Wall Street's ability to plunge the nation into systemic disaster was limited: the dot-com bubble was about as bad as it got. This economy runs on two energy sources: fossil fuel and credit. The pricing of the latter has been outside our control since 1973, when we failed to take steps to counter OPEC, and the repeal of Glass-Steagall effectively terminated our control of the latter. In both sectors, the principal agents of waste, the auto companies with their SUVs, and Wall Street with its securitizations and derivatives, ran wild and here we are. Why not go back to where we were?
Monday, August 3, 2009
August 3,2009/4
I wrote some months ago, either on Forbes.com or in NYO, that no experienced private-sector financier would do a deal on the giveaway terms that Uncle Sam was negotiating on the taxpayers' behalf with the TARP suckfish. The disparity in returns earned by Buffett vs. the taxpayer appears to substantiate that assertion. For a more eloquent analysis, by Roger Ehrenburg, go here.
August 3, 2009/3
Reading about how successful the "cash for clunkers" program appears to have been brings to mind a column I wrote some months back for NYO in which I argued that the best way to stimulate the economy would be to send every taxpayer (roughly 100,000,000 of us) a check for $25,000. That would add up to $2.5 trillion, cheap compared to the money the Great Geithner Giveaway has shoveled at Wall Street. Most of that money would get spent, I believe, and would move through the economy much more usefully - and rapidly - than via Wall Street computer trading. I stand by my argument.
August 3,2009/2
I defer to no one in my high regard for Joe Nocera as a financial writer, except for one quirk: now and then he'll strut his sympathy for Wall Street, he'll show that he feels the pain of Goldman Sachs and others for the terrible things people are saying about them. This past Saturday's column was a good example. Goldman and the rest have merely been doing what they do, he argued, and to call them greedheads or fraudsters - words that I happen to think apply - for not having behaved otherwise in the months since the October credit freezeup is wrongheaded. I disagree. I do not think that TARP and other taxpayer-funded facilities were designed to fund business-as-usual for Goldman, JPMC and the other survivors. I do not think these taxpayer programs were put in place to subsidize the overpricing of risk inevitable if 50% of the historical competition is swept off the board and an oligopoly brought into being in the name of "bailout." I do nor think that discount window "free money" was intended to finance computer-driven trading programs of whatever frequency. Given the speed of its profit reversal, I seriously doubt that Goldman was in anywhere near as bad shape as it must have represented itself as being in last fall, or that its exposure to AIG was truly critical. I have my doubts as to Buffett's investment in Goldman. It's not that I quarrel with Berkshire-Hathaway earning twice the rate of return on an investment a fraction of the size of the taxpayers' assumption of risk. I just wonder whether that deal may not have been window-dressing.
I like the way a team of writers recently put it in Der Spiegel:
I like the way a team of writers recently put it in Der Spiegel:
"The taxpayer is paying for the chips in the casino," the head of the German operations of an international investment bank says quite openly, but anonymously nevertheless. "It doesn't get any better." The government, he says, provided guarantees for banks like Munich's Hypo Real Estate, whose securities are now being traded on the market at a huge discount. Investment banks, for their part, have bought the securities with money they borrowed from central banks at ridiculously low rates.
"The biggest beneficiary of the crisis has been US investment bank Goldman Sachs, which posted record earnings of $13.8 billion (€9.7 billion) in the second quarter. Its traders used money from the US government and the Federal Reserve Bank to speculate, behaving as if the bank were a gigantic hedge fund. Profits from proprietary trading almost doubled over the previous year, while earnings rose by a whopping 186 percent in the bank's bond, commodities and foreign currency speculation businesses. And Goldman CEO Lloyd Blankfein's appetite for risk is still growing. Value at risk (VaR), a measure of the risk of loss on a single day of trading, rose to $245 million -- the highest VaR in the bank's history."
To me, this kind of behavior with respect to measures designed to open up the credit spigots is inexcusable.
August 3, 2009/1
Took me longer to get back to town than expected. Getting head together after three hours on LI highways. Will write later today.
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