Archive for November, 2008

In old world banking circles personal conduct was regulated by a moral code whereby honor and self-interest were joined at the hip. To put client capital at risk was a cardinal sin punishable by dishonor and disgrace and therefore unthinkable.

That was a century ago. Where Wall Street erred in judgment was when the giants hired physicists and mathematicians to construct  new financial instruments. These new guys were not steeped in the 100’s year old “Bankers Codes of Conduct”, nor was their family honor at stake. The financial instruments they designed were so complicated analysts were unable to evaluate them properly or assess their risk. Or, possibly, they didn‘t care

But when people are making money, and bankers are no exception, they don’t ask why. They just smile, act smart and bank the money. Effectively the morals clause implicit in traditional banking constructs no longer applied to these side bets. Since the banks, their shareholders, traders and brokerage houses were all making “bank” everybody was winning and the future was blindingly bright. That was only 2 years ago.

So we have all learned a valuable lesson again (for the third time). The notion that anything to do with money, actually gigantic money, could be self-regulating and the people involved trusted to do the “right thing” is a concept which has outlived its usefulness. Money corrupts – big Money corrupts completely. And forgetting the lessons of the past is suicidal.

I was listening to a fellow engineer (ancient like me)  on C-Span who became aware of a 4 bbl carburettor which delivered over 30 mpg…. back in 1966. He maintained the patent was purchased and the technology never utilized. The reason, he claimed, is the oil companies were in bed with the automakers and conspired to fleece the public with gas guzzlers. That greedy attitude prevailed until the CEO’s of the big three sank their companies. And now they want the people they exploited for 40 years to bail them out.

Same with the banking elite. The chiefs of our nation’s largest banks approved practices which, on paper, swelled those institutions earnings. They generated hundreds of billions of dollars of down-the-road false promise IOU’s and promptly converted that trash into real cash in their pockets. Now they are taking the gov’t bailout money and using it to pay themselves “deferred” bonuses based on those long gone phony profits. As a parting gift to the greediest pigs in the nation the leaders of that parade, the lame duck’s Bush and cronies, are making sure that happens.

What the unfortunate part of all this exploitation amounts to is the transfer of trillions of public dollars, which could be used for the public good and the health of our nation, to an extremely small portion of our population. Is this smart?