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Saturday, December 10, 2011

The Speculating Fever

In a word, the great speculating fever which breaks out every now and then in the country, had raged to an alarming degree, and every body was dreaming of making sudden fortunes from nothing. As usual the fever had subsided; the dream had gone off, and the imaginary fortunes with it; the patients were left in doleful plight, and the whole country resounded with the consequent cry of "hard times."

The Devil and Tom Walker (Washington Irving) 1824

Did Washington Irving foreshadow our present financial ills and plight? Or was he simply an astute observer of human frailty? There is no doubt that "the fever has subsided." We are swimming in debt, we are at the mercy of heartless lenders, we are manifesting our anger in the crowded streets, we are losing our homes, our dignity, our hope, our jobs, and our faith in our rulers.  Tom Walker is probably the best representative of all the corrupt brokers, greedy bankers, and incompetent politicians. Did they, as he did, sign a pact with the Devil in exchange for untold riches, at whatever the cost and at whatever the suffering they might cause?

"The great speculating fever which breaks out every now and then" says Irving. We want something for nothing; we believe the promises of an El Dorado by investing in shady instruments; we give in to the demon of greed present in every human soul and heart... and we pay the price. So yes, we are in part guilty of listening to the false prophets, of wanting wealth without working hard at it. What did the financial crisis of the last 3 years say about us? Will we learn from the bitter experience? Or, as Irving emphasizes, will the speculation fever reappear? Soon?

Wall Street has often been compared to a giant casino, except that in Vegas you already know that you are there to lose and have fun, while investing in hedge funds and the like is much more of a gamble; we, the small fish in the financial pond, are an appetizing dish for those who speculate and thus manipulate the ups and downs of the market. Financial gurus come and go, and the end result is always the same: "This financial advice is given with the understanding that you may suffer a loss."

Strange isn't it that the loss is usually for the small investor and not for the one giving the advice. Do you remember the case of a giant brokerage house betting AGAINST its own clients? Talk about the right hand not knowing what the left is doing! Did any of these big shots end up in jail? No, of course not. They take the easy way out: paying a fine. Again, notice the disclaimer: ..without admitting any guilt in the operation. Now, how can you, the accused company, pay the amount set by the government and pretend that you didn't do anything wrong? You destroyed families, wiped out pensions, caused massive lay offs, and even suicides; and all you do is pay a fine??

Bloomberg Businessweek (Oct 24-30 edition) says that Citi agreed "to pay $285 million to settle SEC claims that it marketed to investors a mortgage security that it also bet AGAINST."  Then came the classic statement "It neither admitted nor denied wrongdoing." They must think that we are stupid! You pay a fine and then state that you don't admit committing a crime? Because that's what it is, a crime against American families who trusted you to offer a decent investment. I can just imagine one of my students caught cheating during a test saying:"I don't admit or deny I did wrong." What kind of message do we send to the next generation? That's it's OK to cheat and lie?

64, emblem, money icon

The OWS (Occupy Wall Street) movement is the result of so much anger and frustration at bankers and brokers getting away, literally, with murder. It's not a bunch of hippies, Mr. Gingrich, smoking pot and preaching free love. It's a multitude of families clamoring for justice! Of course, none of the republican candidates will admit that financial crimes were committed, simply because Wall Street is paying for their campaigns or hiring them as highly paid consultants; right again, Mr. Gingrich?

The author of  the very successful book The Black Swan, Nassim Taleb, offers a strange analysis of the financial crisis; he says that our economic system is not capitalism or socialism, but rather "bankerism". The banks, instead of serving us, are demanding that WE serve them. This statement comes from a man who has been a hedge fund manager, a financial mathematician, and a professor of economics. Banks do us a favor by allowing us to be their customers and once our accounts are in their claws, they happily pile up fees upon fees, some of which most of us aren't aware of. Will some courageous politician from the right of the left rise and advocate putting banks back where they belong? Taking care of our hard-earned dollars and giving us a fair interest?

I know I should stop dreaming and fantasizing; as long as Congress is allowed to consort with financiers and corporations, the fate of the 99% is in the hands of the 1%. What we can we do?

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