21. Financial Nihilism

When bankers say that it’s not about the money, it may even be true. Ron Beller, a Goldman Sachs partner, was one of a group of bankers who had more than £4 million stolen from them by Joyti De-Laurey, their secretary. The bankers made so much money that they did not notice the theft of large amounts for many years.

Ceasing to be ordinary—anyone with a net worth less than $100 million—elite bankers discovered that they actually had always been art experts, public intellectuals, men or women of letters, or all of these. Their ambition rivaled that of Salvador Dali: “At the age of six I wanted to be a cook. At seven I wanted to be Napoleon. And my ambition has been growing steadily ever since.”¹ As poet T.S. Eliot knew: “Most of the trouble in the world is caused by people wanting to be important.”

The financial elite is narrow and limited, too smart, too fast, wanting too much, lacking any sense of history, and reinforcing each other’s opinion. In agriculture, monocultures are inherently dangerous—increasing production but with a lack of diversity that makes crops less resilient to parasites and disease. In the 1840s, potato crops in Ireland became blighted, causing famine. Collapses in the French wine industry and U.S. corn production highlighted the risk of focusing on a single strain. The monocultural financial elites ignored this lesson of history.

Cosmetic Consumption

Rich bankers sought to convert their earnings into something approximating satisfaction, happiness, or social respectability. Keen to promote his wife Lori’s writing ambitions, the ordinarily frugal Michael Milken offered to buy her a publishing company. A keen bird watcher and naturalist, Hank Paulson bought up swathes of endangered wetlands. Michael Steinhardt, a hedge fund manager, wanted to collect every duck and swan variety in the world to populate his estate. Some traded up partners to fit corporate exigencies, ambitions, and evolving tastes. Attractive women found bankers irresistible, as research showed that a “woman’s orgasm frequency increases with the income of their partner.”²

In 2008, hedge fund manager Steve Cohen applied to add 1,145 square feet (106 square meters) to an existing 35,085-square-foot (3,263-square-meter) residence on 14 acres (5.5 hectares) in Greenwich, Connecticut. The $14 million Xanadu on Crown Lane featured a basketball court, an indoor pool, and a Zamboni machine to smooth out a 6,734-square-foot (626-square-meter) ice rink. Cohen also owned a 6,000-square-foot (559-square-meter) pied-à-terre in Manhattan and a 19,000-square-foot (1,767-square-meter) bungalow in Delray Beach, Florida. A neighbor, Valery Kogan, another hedge fund manager, proposed a new 54,000-square-foot (5,022-square-meter) house with a 12-car garage, a Finnish spa, a dog-grooming salon, and no less than 26 toilets.

Transport was private jets, helicopters, European marque cars, or SUVs. Based on the Ferrari 599 GTB, a flying car, the Autovolanter, was on the drawing board. Costing £500,000, the Autovolantor was designed to travel at 100 mph on the ground and 150 mph in the air at altitudes of up to 5,000 feet (465 meters). The vehicle targeted businessmen and financiers, allowing occupants to avoid traffic.

Holiday homes in exotic locations, vacations in seven-star resorts, boats, clothes, and every possible electronic gadget supported by an array of private staff were also part of the appearance. As American media personality Tyra Banks put it: “I love the confidence that make-up gives me.”

A minority succumbed to drugs and depravity. In 2007, the death of Seth Tobias, a hedge manager, became a steamy soap opera of cocaine abuse and sex with gay prostitutes, especially a male go-go dancer known as Tiger and a one-time California psychic claiming to be the deceased’s former assistant.

Warren Buffett, worth about $60 billion, famously continued to live in his home in Omaha, Nebraska, purchased in 1958 for $31,500. He drove a modest 2006 Cadillac DTS, having traded in his 6-year-old Lincoln Town Car (with the personalized registration THRIFTY). He favored hamburgers and soft drinks. Buffet bought his second wife’s wedding ring from Borsheim’s Fine Jewelry in Omaha, owned by Buffett’s Berkshire Hathaway, asking for and receiving a staff discount. Rupert Murdoch’s third wife, Wendy Deng, told a woman’s magazine that her husband, worth more than $8 billion, wore $9 shirts bought at U.S. discount store Wal-Mart. But Buffett and Murdoch also owned top-of-the-line business jets to ease the rigors of frequent business travel.

The Physical Impossibility of Spending the Amount Earned by Someone Living

Life imitated fiction as wealthy bankers mirrored Wall Street’s fictitious, art collecting villain—Gordon Gekko.

Art was an alibi for networking, providing natural opportunities to meet members of the financial elite and identify deals.

Hedge fund manager Steve Cohen was typical of new buyers who increasingly drove the market for high-end art. His $700 million art collection included Damien Hirst’s The Physical Impossibility of Death in the Mind of Someone Living. Given a net worth of $8 billion and an annual income of $500 million, the work cost a few days’ income: “after you have a fourth home and a [Gulfstream] G5 jet, what else is there?”³

Finance and art share an abstract nature as well as constant debates about value and significance. Art was an expensive meta-object unrelated to anything else. It was self-referential, using itself as the point of departure and benchmark—it was the fact that it was an artist’s work that made it art. Modern money, too, was a meta-concept, capable of infinite expansion, circular and entirely trapped in its own ambiguous reality. Damien Hirst recognized the parallel: “art is a more powerful currency than money.... But you start to have this sneaking feeling that money is more powerful.”⁴

Art was an investment with “liquidity” that “diversified your portfolio.” Like emerging markets, collectors spoke of “emergent art.” Art prices paralleled finance: “in the long run, economic and cultural values correlate...[but] in the short term, you get fictional markets.” There was the language of derivatives: “collectors are effectively buying futures option on a work’s cultural significance...people coming into my private mausoleum/museum are going to be thrilled by the painting.”⁵

Sotheby’s and Christie’s were the centerpiece of modern art:

Auctions are a bizarre combination of slave market, trading floor, theater and brothel...rarefied entertainments where speculation, spin, and trophy hunting merge as an insular caste enacts a highly structured ritual in which the codes of consumption and peerage are manipulated in plain sight.⁶

For the alpha males of banking, buying and selling art approximates trading: “They study the form, they read the magazine, they listen to the word on the street, they have hunches.” Art dealers talk of “making markets in art works” and “pulling the trigger on a trade.”⁷

Like financial assets, critic Robert Hughes thought that prices for artworks “are determined by the meeting of real or induced scarcity with pure irrational desire, and nothing is more manipulable than desire...a fair price is the highest one a collector can be induced to pay.”⁸ Mimicking the behavior of financial markets, herds chase works by a handful of fashionable painters.

Previous generations of bankers collected Old Masters, like the Impressionists. Newer generations favored modern art, which expressed the artist’s angst at the discovery of their inability to draw or paint at all. Distillation of suffering exorcising the guilt of wealth did well. Charles Saatchi famously profited from Marc Quinn’s Self—a cast of the artist’s head made from his frozen blood.

Art confirming the self-image of financiers attracted especially high prices. Inspired by Hokusai’s famous nineteenth-century woodblock print The Great Wave of Kanagawa, the Japanese artist Takashi Murakami’s 727 paintings showed Mr. DOB, a post nuclear Mickey Mouse character, as a god riding on a cloud or a shark surfing on a wave. The first 727 is owned by New York’s Museum of Modern Art, the second by Steve Cohen. With its jaws gaping, poised to swallow its prey, The Physical Impossibility of Death in the Mind of Someone Living mirrored the killer instincts of hedge funds—feared predators in financial markets. Cohen “liked the whole fear factor.”⁹

Celebrity Finance

Financiers, especially celebrity financiers, increasingly wielded significant political power, shaping economic and sometimes social agendas.

Since the late nineteenth century, idolization of speculators and financiers alternated with occasional calls for their scalps. J.P. Morgan, known as “Financial Titan,” “Finance’s Napoleon”, or simply “Zeus” or “Jupiter,” exemplified the banker’s influence. Life magazine clarified his powers: “God made the world in 4004 BC and it was reorganized...by J.P. Morgan.”¹⁰ When Morgan said, “America is good enough for me,” the politician William Jennings Bryan retorted: “Whenever he doesn’t like it, he can give it back.”¹¹ In the July 2010 issue of Vanity Fair, hedge-fund billionaire Steve Cohen told correspondent Bryan Burrough that even he might be ready to walk away from trading. Burrough, awestruck, wrote that it’s “a little like saying that God is ready to walk away from Earth.”¹²

Popular media portrayed glamorous, corporate predators, junk bond kings, securitization virtuosos, and derivative wizards. The idea of energetic, inventive, and cunning financiers operating at the edge of morality and legality, taking on governments, was heroic. The media celebrated George Soros’ 1992 attack on the pound sterling as victory over an inept and poor government.

Bankers joined industrialists and celebrities as Davos men and women.¹³ At the Davos World Economic Forum, the Boao Forum in Asia and the IMF/World Bank annual meetings, the financial elite meets to exchange views, coordinate strategies, and shape policy, captured by the paparazzi.

The events are open to people whose adoring and uncritical media profiles promote their purported business genius and ability to walk on water. Believing that they are special, they associate only with special others who understand them. At Davos the diverse mix is confusing—celebrities wanting to be intellectuals, intellectuals wanting to be celebrities, and bankers wanting to be both celebrities and intellectuals. Perspectives are self-serving, promoting views beneficial to their business and financial interests.

In 2006, using his network, Stephen Schwarzman arranged to meet with Chancellor Angela Merkel to counter German hostility toward private equity locusts. Eight weeks later, Blackstone (Schwarzman’s firm) purchased a stake in Deutsche Telekom.¹⁴ In 2010, facing proposals to tax private equity executives at higher income tax rates, Schwarzman compared President Obama’s administration’s war against business to Hitler’s invasion of Poland in 1939.¹⁵

The avuncular Warren Buffett freely dispenses finely crafted financial homilies. Criticism of derivative weapons of mass destruction contrasts with Berkshire Hathaway’s extensive use of derivatives and investments in Salomon Brothers and General Reinsurance, both participants in derivative markets.

During the crisis, Buffett, a significant investor in Moody’s, was silent about the problems surrounding rating agencies. Having uncharacteristically declined an invitation to appear, in June 2010 Buffett testified before the Financial Crisis Inquiry Commission under subpoena. Buffett emphasized that he knew little about the rating process other than its profit margins. He had never visited Moody’s offices, not even knowing where they were located.

Buffett defended Moody’s:

They made a mistake that virtually everybody in the country made. There was the greatest bubble I’ve ever seen in my life.... Very, very few people could appreciate the bubble.... Rising prices are a narcotic that affect the reasoning power up and down the line.¹⁶

He did not acknowledge any failure or complicity of the agencies in creating the bubble.

When Goldman Sachs was indicted for alleged violations in structuring and selling CDOs, Buffett, a major investor in Goldman, defended the firm, its actions and its CEO.

In 2011, David Sokol, the CEO of Netjets, a company in which Buffett had a significant shareholding, resigned. Sokol had been a candidate for succeeding Buffett at Berkshire Hathaway. Sokol’s resignation came after disclosure of his purchase of Lubrizol shares before Berkshire bought the chemicals company, netting him a $3 million personal profit. Buffett initially defended Sokol’s actions arguing that the purchases were not unlawful. Buffett also initially did not comment on the ethical issues or conflicts of interst. Similar personal trading in the shares would be unambiguously barred at banks, themeselves hardly paragons of virtue.

Whatever his record as an investor, the Sokol episode drew attention to the differences between Buffett’s pronouncements about the standard of conduct he required of others and that followed at Berkshire Hathaway. Critics pointed out anomalies in the firm’s corporate practices. Berkshire Hathaway’s dual class share arrangement gives Buffett voting control, whilst owning 34 percent of the equity. Until a decade ago, Berkshire Hathaway’s seven person board of directors consisted of mainly insiders such as Buffett’s son. The new “independent” directors include Bill Gates, a close friend of Buffett and his regular bridge partner as well as co-investor in the Gates Foundation. Critics also pointed to the fact that Buffett’s partner Charlie Munger’s family owned a 3 percent stake in BYD, the Chinese electric battery maker, before Bershire bought a stake in 2008.

Nothing anaesthetizes, it seems, better than financial self-interest. Ambrose Bierce, the American writer, described hypocrisy as “prejudice with a halo.”

Elite bankers also sought to influence social policy, through generous donations to charities. Their model was Richard Gere: “Hi, I’m Richard Gere and I’m speaking for the entire world.”¹⁷ Bear Stearn’s Ace Greenburg donated $1 million to a hospital so that homeless men had access to free Viagra.¹⁸ George Soros supported free markets and democratic initiatives in Eastern Europe. Of course, hedge funds were beneficiaries from the opening up of these economies.

Veteran campaigner Ralph Nader’s book, Only the Super Rich Can Save Us, urged billionaires to use their wealth to clean up America in a form of practical utopianism. Warren Buffett has indicated that he will leave 85 percent of his multibillion-dollar fortune to charity to be managed by his friend Bill Gates. One blogger urged everybody to go and get rich, so they could help more people. Others saw the contradiction: “The uber-rich try to do good once they have done their damage.... I admire Gates and Buffett for their generosity...but...loathe the system that put them at the top of the food chain.”¹⁹

Arthur Hugh Clough in Spectator ab Extra captured the dichotomy:²⁰

I sit at my table en grand signeur

And when I have done, throw a crust to the poor;

Not only the pleasure of good living,

But also the pleasure of now and then giving:

So pleasant it is to have money, heigh ho!

The philanthropy of the financial elite was really an exercise in damage control against any backlash from increasing inequality.

Manqué Not Monkey

Some financier’s creative tendencies manifested themselves in billionaire drivel.²¹ Ray Dalio, founder of fund manager Bridgewater, sent out an 83-page management “manifesto” setting out 296 principles.²² Highlights included banning gossip, “personalizing mistakes” to humiliate staff, and managing employees as baseball cards. Meetings were recorded and distributed, and there were firm-wide emails of recordings of individuals being mercilessly shredded.²³ Bridgewater’s pursuit of truth and honesty was Orwellian.

In a memo to his “gang” while on “yacht time” after “an agonizingly tough couple of weeks,” Tom Barrack, CEO of Colony Capital, wrote of discovering his daughter’s copy of Twilight, a series of adolescent vampire-romance novels: “I don’t get it...but I feel it. Taking the agenda-less time to absorb a point of view that I had ignored while loved ones around me relished it was an oasis for my soul.” Barrack experienced an epiphany: “It is hard for us to dream...it is time for all of us...to spend more time outside the strict arithmetic cadence of our business...we must really find the ‘moment.’”²⁴

George Soros craves acceptance as a thought leader. Appearing before the U.S. Congress, Soros brought along a copy of his latest book to promote it. For Soros, a man of letters and a hedge fund manager were identical career choices:

The main difference between me and other people who have amassed this kind of money is that I am primarily interested in ideas, and I don’t have much personal use for money. But I hate to think what would have happened if I hadn’t made money: My ideas would not have gotten much play. I wish I could write a book that will be read for as long as our civilization lasts.... I would value it much more highly than any business success.²⁵

The centerpiece of Soros’ philosophy is the idea of reflexivity. Markets do not tend toward equilibrium but feed on their own misconceptions to produce exaggerated price changes until they reach an inflection point when it changes. Soros suggests following the trend, selling as it reaches the peak.

Soros thinks of himself as a financial philosopher, even a philosopher manqué—past participle of the French verb manquer, “to miss,” and means unfulfilled or potential, generally with reference to a profession. It is the philosophy of Gene Simmons, bass player of the rock band KISS: “Life is too short to have anything but delusional notions about yourself.”

In December 1998, The Economist reviewed Soros’ The Crisis of Global Capitalism:

Because of who he is there will always be buyers for his books, publishers for his books, and cash-strapped academics to say flattering things about his books. None of this alters the fact that his books are no good.... A remarkable thing happens to money when it passes through Mr. Soros; it emerges multiplied, but otherwise unchanged. With other inputs the results are more disappointing—to be blunt, more in line with biology. Mr. Soros gorged on chopped philosophy, mashed economics, and facts and figures swimming in grease. It was too much. Before he knew what was happening out rushed this book.²⁶

During the Asian financial crisis of 1997/8, Mahathir Mohammed, prime minister of Malaysia, also a less benign view of Soros: “All these countries [in East Asia] have spent 40 years trying to build up their economies and a moron like Soros comes along with a lot of money to speculate and ruin things.”²⁷ The Prime Minister made no mention of his own Pharaonic projects funded by borrowings from foreigners. Slovenian philosopher Slavoj Žižek captured the essence of Soros: “Half the day he engages in the most ruthless financial exploitations, ruining the lives of hundreds of thousands, even millions. The other half [of the day] he just gives part of it back.”²⁸

Wizard and Muggles

In J.K. Rowling’s Harry Potter fantasies, muggle, derived from “mug” or someone gullible, refers to people lacking magical ability. Foolish, befuddled muggles are contrasted to wizards born into the magical world. If muggles happen to observe the working of the wizard’s magic, then Obliviators, sent by the Ministry of Magic, cast memory charms, causing them to forget the event. Wizards, the financial elite, used sorcery to rule over the muggles of the world, exploiting what John Kenneth Galbraith called the “inordinate desire to get rich quickly with a minimum of physical effort.”

Bankers and extreme money brought about sociologist Georg Simmel’s vapidity of life, a loosening of beneficial and human connections between the worlds of real industry and money, allowing each to develop independently of the other. Following the Great Depression, Wall Street became irrelevant to the wider economy. Now the wider economy was irrelevant to Wall Street.

Only elite bankers knew how to get things done: “We’ve made everyone smarter. We know much more...we’re the grease that makes things turn more efficiently.”²⁹ Jeffery Skilling, the character in Enron, sees the banker’s role in driving growth as heroic:

There’s your mirror. Every dip, every crash, every bubble that’s burst, that’s you. Your brilliant stupidity. This one gave us railroads. This one the Internet. This one the slave trade. And if you wanna do anything about saving the environment or reaching other worlds, you’ll need a bubble for that, too.³⁰

None was more delusional than Angelo R. Mozilo, former CEO of Countrywide Financial, a mortgage lender that profited from the subprime lending debacle. He told the U.S. Financial Crisis Inquiry Commission that Countrywide had “prevented social unrest” by providing loans to 25 million borrowers, many from minority groups: “Countrywide was one of the greatest companies in the history of this country and probably made more difference to society, to the integrity of our society, than any company in the history of America.”³¹

In a 2010 essay, Malcolm Gladwell, the author, saw John Paulson, the hedge fund manager who profited from the collapse in subprime mortgages, as an archetypal entrepreneur.³² Paulson was an opportunistic speculator who enriched himself and his investors, taking advantage of the housing disasters and resultant problems of the global financial system. Rather than heroic, their actions were parasitical, taking advantage of human misery. They did not create jobs, wealth nor produce or leave behind anything except money.³³ As the journalist H.L. Mencken knew: “The most common of all follies is to believe passionately in the palpably not true. It is the chief occupation of mankind.”

In the Midnight Hour

While the money flowed, everything was fine. Chuck Prince told the Financial Times on July 10,2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Warren Buffett foresaw the end:

Nothing sedates rationality like large doses of effortless money...normally sensible people drift into behavior akin to that of Cinderella at the ball...they...hate to miss a single minute of what is one helluva party...the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.³⁴

In 2007, the clock turned to midnight and the music stopped. The subprime collapse set off a chain reaction that decimated financial markets and economies. Psychiatrist Elizabeth Kübler-Ross identified five stages of grieving—denial, anger, bargaining, depression, and acceptance.³⁵ As losses mounted and they were fired, bankers found it difficult to move beyond denial and anger.

When an investment manager’s quantitative stock selection model underperformed, they had been undone by the “dash for cash” as markets fell. When markets recovered, they lost because of the “dash for trash.” The market sentiment model found no sympathy, the quality-based model proved to be of low quality and the valuation model’s ability was overvalued. It wasn’t the manager’s fault or a faulty model, but the fact that the risk trade was back on.

Lehman Brothers’ CFO (thought by some now to stand for “conspicuous female officer”) Erin Callan was pictured in Condé Nast Portfolio in a coquettish pose, dressed in a short dress and heels, stepping out of a limousine. As the firm battled to survive, she told The Wall Street Journal of her personal shopper at Bergdorf Goodman, an up-market fashion store.

The successor to Stan O’Neal at Merrill Lynch, John Thain optimistically spent $1.2 million redecorating his office while Merrill slipped closer to insolvency. After the U.S. Treasury arranged a shotgun marriage with Bank of America (BA) to save the firm, John Boy, now president of the Merrill Lynch Division, allegedly sought a $30–40 million bonus for “his good work.” Rebuffed, he enquired whether a smaller bonus was available.³⁶ On The Daily Show, Jon Stewart showed a clip of Thain defending bonuses as a way to keep “your best people.” An angry Stewart was unimpressed: “You don’t have ‘best people’! You lost $27 billion! Do you live in Bizarro World?”

The sense of entitlement remained to the end. A group of traders at a bar learned that one had had his employment terminated. Upon his return to the office, he was asked to return his corporate credit card. He was unable to comply. The card was behind the bar paying the tab for his colleagues carousing.

In 2008, Andrew Lahde, a hedge fund manager who made the highest percentage profits (870 percent) in a single year from the subprime collapse, filed a memorable resignation letter in the Financial Times. Lahde was generous in his praise for those who helped in his success:

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies...all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

He was refreshingly honest about his motivations: “I was in this game for the money.” Lahde was satisfied to leave with his winnings:

Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their BlackBerries.

He was retiring to:

...repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life—where I had to compete for spaces in universities and graduate schools, jobs and assets under management—with those who had all the advantages (rich parents) that I did not.³⁷

But Lahde too benefited from the economic catastrophe that the Masters of the Universe unleashed. He was like author Kurt Vonnegut, Jr., who had profited from the fire bombing of Dresden and loss of 25,000 lives, the subject of his book Slaughterhouse-Five.³⁸

In 2010 an email pinging around financial institutions summarized bankers’ reaction to being considered “overpaid a***holes” by average Joes:³⁹

We are Wall Street. It’s our job to make money. Whether it’s a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn’t matter. We would trade baseball cards if it were profitable. I didn’t hear America complaining when the market was roaring to 14,000 and everyone’s 401k doubled every 3 years. Just like gambling, it’s not a problem until you lose. I’ve never heard of anyone going to Gamblers Anonymous because they won too much in Vegas.

Well now the market crapped out, & even though it has come back somewhat, the government and the average Joes are still looking for a scapegoat. God knows there has to be one for everything. Well, here we are.

Go ahead and continue to take us down, but you’re only going to hurt yourselves. What’s going to happen when we can’t find jobs on the Street anymore? Guess what: We’re going to take yours. We get up at 5 a.m. & work till 10 p.m. or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we’ll eat that.

For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We’re going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I’ll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much.

So now that we’re going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we’re going to stop buying the new 80k car, we aren’t going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We’re going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.

The difference is, you lived off of it, we rejoiced in it....We aren’t dinosaurs. We are smarter and more vicious than that, and we are going to survive.

In The Power of Yes, a female journalist, resembling the Financial Times’ Gillian Tett, tells playwright David Hare that the bankers don’t believe that they are guilty of anything. This is because they make so much more money than anybody else. They equate their pay with being smarter than anyone else. They actually believe that they are Masters of the Universe.⁴⁰

Last Rites

The world that the financiers helped create was one where exploitation was deeply ingrained, justified by financial fundamentalism. It would end badly for the financiers, but much worse for ordinary citizens who had placed such faith in the financiers’ powers of alchemy.

As the crisis intensified, early one morning in Canary Wharf a young man was wandering around in distress, sobbing hysterically: “I have lost everything I had. Every last f***ing cent.” In 1929, after the Great Crash, ruined stockbrokers committed suicide, often jumping to their death from high-rise offices. Will Rogers joked that in New York hotels the desk clerks asked bankers: “You wanna room for sleeping or jumping?”

As financial institutions suffered near-fatal losses, they cut staff and pay. Employees awash with debt could not bring themselves to tell their partners. Check-book marriages held together by the glue of wealth floundered.

Bankers commenced divorce proceedings using the downturn to reduce the settlements, or returned to court to renegotiate terms, pleading difficult financial circumstances.

Some bankers downsized to smaller houses, expressing relief at not having to live in an art gallery. Gilded lifestyles were pared back. Some flew “commercial” rather than take a private jet to vacation destinations. The line “we are starting a family” fell flat. Bloomberg’s marketplace had dozens of Land Rovers, Porsche Cayennes, and even a Bentley for sale at a fraction of its retail price. Those with jobs spoke of not being in it for money, but assisting clients with interesting and challenging problems.

Safe As

In Hong Kong, tens of billions of dollars of structured products based on exotic derivatives on stocks and credit risk had been sold to ordinary investors. Investors in Germany bought €130 billion of more than 300,000 different products, reassuringly called Zertifikate, certificate. The structures were rated investment grade by the rating agencies, or 100 percent capital guaranteed by major institutions, like Lehman Brothers.

Bankers aggressively enticed customers to switch from bank deposits to these products in return for higher rates. Where the return was dependent upon events, like a stock’s price changes, the salesperson sold the products as “a sure thing.” Bankers received large up-front commissions, up to 5 percent. To encourage investment, one Hong Kong bank gave away supermarket coupons worth $20. Bankers even used pyramid-selling techniques, recruiting members of families to sell to other relatives and rewarding them with a cash bonus.

Banks claimed that the risks were set out in thick prospectuses, but these were barely comprehensible even to experts. Questioned by regulators, bankers readily confessed that they did not understand how the products worked. Investors with limited education and limited financial literacy never understood the structures. Misled by bankers or tempted by their own greed, ordinary men and women lost all or a substantial part of their life savings when Lehman Brothers filed for bankruptcy protection in September 2008.

Some investors committed suicide from despair. In Hong Kong other investors kept a vigil outside the I.M. Pei-designed Bank of China building that dominates the skyline. They banged drums, keeping up a loud cacophony to draw attention to their cause. Megaphones connected to an iPod chanted: “Rotten deal—money back.” One protestor wore a sign in Chinese characters: “The Bank of China is a hooker. Give me back my money earned with blood and sweat.”

Poor subprime bank lending resulted in over 30,000 foreclosures in the U.S. city of Baltimore alone, reversing efforts to arrest decades of urban decline and regenerate the city. David Simons, creator of the HBO series The Wire, set in Baltimore, noted:

[The show] is a meditation on the death of work and the betrayal of the American working class...it is a deliberate argument that unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many.⁴¹

The city sued Wells Fargo, the fourth largest bank in the United States, for lost property taxes, the cost of boarding up vacant properties and policing attendant crime.

In the recession, as millions were thrown out of work, individuals experienced severe hardship. In her blog (www.theboxcarkids.com), Jayne Reid, a pseudonym, wrote poignantly of her family’s experience living in a trailer. Her tale was of an older single mother with four adopted children, including one with a serious illness, and sundry pets. It was of lives destroyed by the crisis, day-to-day survival without wealthy friends, retirement accounts, or silver linings. It was about losing a grip on a precarious middle-class existence and becoming marginalized. It was about life on unemployment benefits for five human beings in 207 square feet (19 square meters), including a bed, sofa, kitchen diner, and bathroom. For the victims of the Masters of the Universe, it was all about uncertainty, loss, and constant struggle.

Snuff Movies

In 2006, food and oil prices rose sharply: Wheat rose by 80 percent, maize by 90 percent, rice by 320 percent, and oil prices doubled. The rise in prices meant that the poor could not afford basic foodstuffs or fuel for cooking, triggering riots in countries like Bangladesh and Haiti. The UN’s Jean Ziegler called it “silent mass murder.”⁴²

Explanations focused on increased demand from emerging countries like China and India, lower supply, including growing demand for bio-fuels, trade protectionism, subsidies, and low productivity. But according to the International Grain Council, global wheat production increased and demand for grain fell during the period.⁴³ The rises were due, in part, to the financialization of the commodity market and speculation.

In the late 1980s, as commodities became a class of investment, traders bet on volatile commodity prices. Banks produced research reports, developed trading strategies and set up specialist funds to invest in food, energy, agriculture, and water. Rather than real investment in commodities, derivatives were used to bet on commodity prices. Banks and traditional commodity traders gained unprecedented ability to control markets or manipulate prices through operations spanning the entire supply chain—land ownership, production, trading physical commodities, storing, transportation, refining, sales, and trading derivatives.

In 2008, Michael Masters, a hedge fund manager, testified before the U.S. Congress that the price of oil (then $130 a barrel) was double what it would be in the absence of speculation.⁴⁴ On regulated U.S. exchanges speculators held 64 percent of all open wheat contracts. In July 2010, Armajaro, a London-based hedge fund, purchased 7 percent of the world’s annual cocoa-bean production (240,100 tonnes) for $1 billion, promoting complaints of market manipulation. Anthony Ward, the head of Armanjo, was dubbed “Chocfinger.”⁴⁵

As the U.S. real estate bubble burst, investors, and traders moved into agricultural commodities and energy, betting that people would still need to eat and get around. The price rises triggered greater buying as investors who tracked specific indices had to purchase more. Higher prices encouraged producers and traders of the actual commodity to hoard, betting on further price rises, creating supply shortages with potentially catastrophic human consequences.

In 2008, the CFTC dismissed the role of speculators in price rises, relying on a narrow definition of speculation.⁴⁶ But prices of commodities not traded on derivatives markets, including millet, cassava, and potatoes, had not risen as much as commodities traded in derivative markets.⁴⁷ Financial investment and speculative activity rather than traditional forces of supply and demand increasingly determined food prices.

After falling from their high levels, food prices surged again in late 2010. The reasons for the rise were similar to those during the earlier episode of higher prices. An added influence now was the policies of the U.S. government and the U.S. Federal Reserve. By flooding the financial system with money, in an attempt to restore growth, they reduced the value of the U.S. dollar. As most commodities are priced and traded in dollars, the lower value drove sellers to increase prices to maintain the purchasing power of their commodities. The weaker U.S. dollar and the actions of central banks in the USA, UK, Europe, and Japan also reduced the faith of investors in paper money, driving increased investment in hard commodities with real value and ready use.

Snuff movies are motion pictures that depict the real death or killing of a person for entertainment. Investors and traders routinely pursue actions to make money, which could cause hardship and suffering to fellow human beings. Speculators trading necessities effectively bet on human life and suffering in the market casinos. In a reversal of the dictum of TV personal finance adviser Suze Orman, money and profits were placed before people, especially poor people.

Silent Mass Murder

In a famous series of experiments delivering electric shocks to people, Stanley Milgram found that:

Ordinary people can become agents in a terrible destructive process.... Even when the destructive effects of their work becomes patently clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority.⁴⁸

Bankers became willing agents in a highly destructive process, even when they were aware of the consequences of their actions. It was as Marcel Proust wrote in À la recherche du temps perdu: “indifference to the sufferings one causes, an indifference which whatever other names one may give to it is the permanent form of cruelty.”⁴⁹

Money was the game but also the prize. In the end, financial nihilism was not moral, it did not create anything lasting. Exploiting the trust they enjoyed and relying on the fake legitimacy of dubious science, financiers, governments, and societies fooled each other with the promise of universal prosperity built on a system of speculation and debt. In the end, everyone fooled themselves.