They’ve Pulled Back the Curtain on Our Financial Wizards of OZ
So here we all sit with our diminished “fortunes” and estates to leave for our children. Congress spent last week grilling the very men we were led to believe were our “Financial Wizards” with solutions to all our problems. There they were before the once complicit Finance Committee investigating the Great Recession trying to discern what went wrong. There was Alan Greenspan, former Federal Reserve Chairman to several presidents of both parties. This is not the same Mr. Greenspan who for years imbued us with conviction that he had his finger on the pulse of the economy even as he muttered gibberish in his Congressional testimony. This is not the same man CNBC assigned a theme song of “Mr. Big Stuff” as they would show him arriving to testify at Congress. He seems frail now as he admits he got things right 70% of the time. It’s too bad for us about the other 30%. Nobody else saw what was coming so why should he have known? However, in his 2002 Berkshire Hathaway annual letter to shareholders, Warren Buffett knew what lay ahead. “In my view,” he said, “derivatives
are financial weapons of mass destruction.”
I think that Greenspan and his acolytes at the Fed never considered how the game changes when the guy who lends you the money sells off the loan at the first possible opportunity. If the bank makes a loan and expects the borrower to pay it back over time, it does business with one attitude. You keep an eye on the payments, your mind your relationship with the borrower, and how well he is maintaining the property. On the other hand, when you make a loan that you slice and dice into various packages to sell off to others, you could care less if the borrower ever pays back the loan. You’ve gotten your money out of the loan nad the loan origination fees. If he can’t afford the home, the taxes, or maintenance payments and heads eventually to foreclosure, the problem belongs to someone else. I think it might have been fair to expect our financial wizards to understand this most basic principle of banking when they were running the banking system for the United States of America.
And then came Robert Rubin. He was a star at Goldman Sachs who had already become rich before he became what was perceived as a very successful Treasury Secretary for Bill Clinton. Who knew that what he was really doing in D.C. was helping to dismantle all the controls that kept bankers to the most fundamental rule of the banking road. Play a responsible role and lend money to those who might actually pay you back. Does it seem odd or business as usual that his big $100 million payoff came in the guise of a job as Vice Chairman of Citicorp, at the very same time Citi was losing $45 billion that required rescue from the taxpayers? The supposed math wizard was testifying last week that he really didn’t “get it” either. Not sorry. Not contrite. No remorse. No apologies. Admissions like those might lead to law suits, I guess.
In the end, Congress has simply pulled back the curtain on the Wizards of our Financial System. And just like the ones in Oz, it is revealed that they are all smoke and no substance. I hope Dorothy wasn’t counting on these dudes for her retirement. And remember, Mr. Rubin was Mr. Geithner’s biggest mentor. You remember Geithner, the one who doesn’t pay his taxes and gets away with it who is Treasury Secretary now. Apparently he got the job because he is deemed to be the one who knows how to best work the smoke and mirrors machine now that the others have been sent to the showers.