Wall Street Presents… It’s a Wonderful Life with a Twist

By: Matthew Arndt, CFA, CPA, CFP | December 14, 2009 | The Politicians, Wall Street Ethics

One company’s existence can have more impact on things around it than anyone might realize. The year is 2008; AIG appears to be the picture perfect company: strong earnings, exceptional growth, the quintessential symbol of capitalism, and smart management (okay, maybe not so smart). However, on the Eve of the subprime crisis, AIG encounters severe business difficulties in its credit default swap trading operations. Consequently, AIG misplaces the money it owes Goldman Sachs (formerly run by Treasury Secretary Hank Paulson). This forces AIG into desperation as it contemplates financial suicide (i.e. bankruptcy). At the last moment, AIG is saved by the appearance of its guardian angels, Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson, from the evil clutches of the crippled old man in a wheel chair, Mr. Capitalism And Free-Markets.

Chairman Bernanke and Secretary Paulson show AIG how much its survival means to Goldman Sachs and other financial institutions by showing it how much money Goldman and others would lose without AIG in this world. It’s not pretty; Goldman executives would no longer stand to receive lucrative bonuses and would lose untold sums due to the decline in value of their company stock (CEO Lloyd Blankfein alone owns $500 million worth of Goldman Stock but insists he’s just “a blue-collar guy”); their lives would be dreary and impoverished like the common folk on Main Street. Not able to stomach the sight of indigent bankers and hapless executives (come on these guys are suppose to be rich and wear expensive suits), AIG is bailed out by Chairman Bernanke and Secretary Paulson returning it to the world as if nothing had happened. AIG reemerges from insolvency to find the entire financial community wallowing at a trough filled with taxpayer bailout money.

Even Mr. Geithner donates money to the cause. Unable to bear watching the horrible injustice done to banks even though they brought this misfortune on themselves, he decides to continue the same flawed government policies of his predecessor, Mr. Paulson, which rewarded reckless behavior at failing financial institutions. Who could blame Secretary Geithner for wanting to help, with Goldman’s Blankfein proclaiming he’s just a banker “doing God’s work” and Goldman’s international vice chairman Brian Griffiths describing giant paychecks for bankers as an economic necessity, saying, “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.” Ah, the noble calling of banking, that’s so nice!

Near the end, AIG finds that all its friends in Washington have collected huge amounts of money to rescue it and its bungling management. The movie concludes in early 2010 with the executives at the large financial institutions that received taxpayer support, being paid large lucrative bonuses (Goldman alone is on course to set aside $20 billion for 2009 salaries and bonuses). Even FDIC Chairwoman Sheila Bair feels political pressure to tear up an order to take AIG into receivership. Bernanke and Paulson finally achieved their purpose, freeing AIG from the confines of free-markets and obtaining adulation from private interest groups representing failing banks. In the final scene, we find the bankers giddy and full of glee, sipping bubbly and looking back on another successful year on Wall Street and realizing they truly do have wonderful lives thanks to hamstrung taxpayers. It’s one of the more heartwarming and touching scenes.

The End

A Final Note:

The Scrooge-like, villainous Mr. Capitalism And Free-markets, despite shamefully trying to humble reckless financial companies and helping to cause AIG’s suicide attempt, remained unapologetic and brazen. The inclusion of this would have diluted the message – that one institution’s existence touches so many others. It would also have weakened the sentimental ending as the community of bankers celebrated despite Capitalism’s unpunished trickery and spiritual bankruptcy.

3 Responses to “Wall Street Presents… It’s a Wonderful Life with a Twist”

Aunt Bonnie

December 15th, 2009 at 7:01 am

Matt – How can some one as nice as you write something so sarcastic? I know the answer to that – you are clever and correct. Very good writing – maybe I will see you published in a weekly column in a newspaper sometime, but, unfortunatelty, most of the newspapers wouldn’t publish something this damning in true.

TJR

December 15th, 2009 at 10:49 am

A very good posting. Thank you for it. I am not very well versed on these matters but this makes sense to even me.

Let’s see, lost jobs, lost homes, destroyed savings, devastated retirements… and the clowns who caused all this are taken home record bonuses. Okay?! Someone pleas explain this to me. There’s no way to justify it. We can’t shame them into given back the bonuses because these guys have no shame. People like Blankfein could care less if the world burned as long as they could benefit monetarily from it. I would like to see people like him fall of the face of the earth.

I’ve not read anything like this from mainstream media. That’s a shame. It’s as though they are afraid to say anything. There was a time in this country where the press acted as watchdogs for the citizens. Now, it’s a popularity contest.

I just hope there are many people out there as fed up with this as we are. All we can do is make our votes count and get sweeping change in this country.

Matthew Arndt, CFA, CPA, CFP

December 15th, 2009 at 2:16 pm

We have arrived at the current state of things because sadly too many of our elected officials are part of the problem and not part of the solution. We have been sold out by these people. If you read one of my former posts,”The Top Ten,” it outlines the amounts that politicians in both parties receive from lobbyists that represent private interests. The totals are staggering. Consequently, the current financial regulatory legislation that is being proposed is a slap on the hand; It lacks teeth; and it does not address the systemic risk that institutions deemed “Too Big To Fail” pose to the stability of the financial system. It is not a question of “If” but more a matter of “When” will the next crisis will occur. Our banking system is composed of large bureaucratic banks that all resemble one another in their risk management. If we do not address this problem now, we will see another financial crisis and I shudder at the thought of the next one. We may have gotten off lucky this time.

Don’t mistake me; I am all for bonuses… to those who deserve them. These folks do NOT deserve them. Paying back TARP is a start, but TARP is a small component of the total bailout dollars. Before any bonuses are paid out, the banks should have to buy back the trillions of dollars worth of Asset-Backed Securities at the same price the Federal Reserve paid for them to get these toxic assets off their balance sheets as the crisis was unfolding. Also, the banks should have to purchase back the trillions of dollars in preferred stock the U.S. Treasury bought from them to infuse them with capital. Only until every last penny is given back from every program and source used to bailout these guys, then and only then do they deserve bonuses if they are even able to make a profit without taxpayer support. What is taking place right now is a far cry from capitalism!