“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Roubini is one of the few people who were right about the severity of the current crisis.  Why is the government not acknowledging that our banking system is insolvent?

The dirty secret since what was then called the subprime crisis began (those quaint days when our fearless leaders informed us that the crisis was contained to evil poor people defaulting and not mass idiocy by the nation’s bankers) is that our banking system is insolvent.  The occasional nationalization here and there (welcome to the fold, Fannie and Freddie!) and the drabs of money given out in the TARP program (which has generally been squandered on things like paying dividends to shareholders and one last round of bonuses) have done nothing to change the fact that the banking system in the US is, by and large, insolvent.

A quick glance at the Balance Sheets of companies like Bank of America, Citibank, or Morgan Stanley reveal a startling fact: these companies have trillions of dollars in assets.  Many of those assets were acquired during the boom using a lot of leverage.  A review of the value of your house or stock portfolio will give you a general idea as to how much those assets should be written down.  I trust Roubini to do the math on this one and he says $1.8 trillion in losses (half of $3.6 trillion) vs. $1.4 trillion in capital.  Since banks need a capital base to lend against, one should probably assume that the entire $1.8 trillion is needed just to get us back to a functioning and solvent banking industry.

Why don’t we require the banking industry to write down the value of their assets to true market values followed by an orderly liquidation of insolvent banks?  Is this not precicesly what the FDIC is set up to do?  Is it not possible for stock and bond holders to take a little bit of responsibility for bad investment decisions? 

It appears that the government believes that zombie banks and stagnation is better than the, gasp, idea of a few more banks failures.  The government must believe that the American people are not adult enough to calmly handle a mass restructuring of the banking system and instead would riot in the streets.  Either that or there are too many well connected bankers who have conned Washington into believing that the banking system must be protected at all costs. 

Certainly the banks are not being saved to maintain a functioning banking system.  The one thing most parties agree on right now is that the banking system is not functioning.  If that is the case, why keep this set of banks around?  The market today continued to wonder the same thing.    

We have reached the inevitable outcome of Richard Nixon’s, and later the rest of the world’s, decision to ditch the gold standard in favor of, well, hope that your counterparty is honorable.  The venerable Bank of England who, through the South Sea Bubble, the rise and fall of Napolean and Hitler, revolution in America and numerous other wars and recessions, had never reduced its benchmark rate below 2.0% finally blinked and reduced its rate to 1.5%.  The era of currency brinksmanship rages on. 

In their attempt to dig themselves out of the mess they created, the Japanese were the first to employ this weapon in our brave, new hope based world.  Their thinking, I guess, was that if they could cheapen their currency they could export their way out of their pending economic collapse and avoid the painful restructuring that their economy needed to go through after the bursting of their stock and real estate bubbles.  Implementing this theory has resulted in nearly two decades of Japanese economic stagnation and has had the side benefit of helping to destroy the American auto industry (while US management incompetence is surely the primary reason a cheap yen didn’t help).  For some reason, no one in America seemed to care about this blatant currency manipulation through 0% Japanese interest rates and let it go on.  The Chinese saw something that seemed great and decided to follow suit.  Why not grow your manufacturing sector through a cheap currency if the Americans are willing to sacrifice their own manufacturing sector and allow it? 

Unfortunately, all good things must come to an end and the credit induced boom where the Japanese and Chinese allowed the US to run up bigger and bigger deficits while those two countries maintained a weak currency and absorbed large portions of the world’s manufacturing capacity has come to an end.  Blame sub-prime borrowers, inept politicians, greedy bankers, or whoever else you would like, but, whatever the catalyst, the boom is over.

So, what are poor Ben Bernanke and Henry Paulson to do?  God forbid they allow the US economy to painfully restructure, let bankrupt companies fail and let the free market do its work.  No, they have chosen the path of bailouts and that distinctly Japanese weapon: currency manipulation.

You shall not crucify mankind upon this cross of gold, indeed.  Why pay your debts back when you can simply inflate them away?  It is so easy.  You just turn on the printing presses a little at a time and, voila, at some point your debts have become manageable.  Nothing could be easier. 

The problem with the inflate away your debts philosophy, besides being a dishonorable and shameless thing to do, is that at some point the suckers in the game, foreign holders of your debt and currency, realize what you are doing and are forced to react.  They can react the way people have done throughout time, refusing payments in your currency and demanding gold, or they can engage you in your game of brinksmanship and crank up the printing presses in their own countries.  The later seems to be the path du jour.

What happens when every country in the world prints money with reckless abandon in an attempt to maintain the value of their dollar holdings in terms of their local currencies while at the same time avoiding a rapid strengthening of their own currencies and the resulting havoc in their manufacturing sectors?  Who knows?  This is one big experiment and now that even Mervyn King has bowed to the pressure and the Bank of England has joined the game in earnest, I guess the world will find out.

EXT: SIDEWALK NEW YORK CITY

Ground floor view looking up at a skyscraper. 

The building is grey, gothic and mammoth.  An ornate sign over the entrance gives us the name of the owner of this building: JPMorgan Chase.

A date flashes at the bottom of the screen: March 13, 2008

INT: OFFICE LOBBY

Two men stand uncomfortably in front of a beautiful, red headed woman, BRONWYN HENDRICKS, who sits at a receptionist’s desk.  One man is bearded and bald.  The other is thin and boyish looking with floppy brown hair.  Each wears a cheap, ill fitting suit with shoes that don’t match.  These men are BEN BERNANKE and TIMOTHY GEITHNER.   

BRONWYN: Is Mr. Dimon expecting you?

TIMOTHY: Well, not exactly, you see…

BEN (cutting TIMOTHY off, somewhat franticly): We have to see him!

TIMOTHY: Just tell him it’s ol’ Timmy Geithner.

BEN (even wider-eyed and more frantic than before): We have to see him!

 BRONWYN (dubiously): Geetner and

BEN: Bernanke!

BRONWYN: OK, I’ll see.  Please sit over there while I check in with Mr. Dimon.

TIMOTHY: Remember to tell him it’s Timmy Geithner.

BEN: We have to see him!

TIMOTHY: Don’t worry, Ben. (Grabbing Ben by the shoulders and moving him to the waiting area.)  You see me and Jamie go way back.  Yes we do.  Jamie told me if I ever got into a fix I should call him up and he would take care of it.

BEN (Calming slightly):  He did? 

TIMOTHY: Now, you let me do all the talkin’, Ben.  I know these Wall St types.  They real tough.  Tough as nails, but I know how to speak their language.  

Out of the doorway of the office walks a tall, fit, good looking man.  He is impeccably dressed and groomed.  He stands straight, walks with confidence and oozes success.  He flashes a big, bright smile as he exits his office door and enters the reception area.  This is JAMIE DIMON.

JAMIE: Little Timmy Geithner.  What are you doing in these parts?  (looking at Bronwyn reproachfully) Bronwyn, how could you keep Timmy Geithner waiting?  Timmy’s an important man.

TIMOTHY: Ah gee, Jamie…

JAMIE: And what do we have here?  Is that Ben Bernanke?

BEN: We’re in a heck of a mess, Jamie!

TIMOTHY: Shush, Ben!  Yes, this is Ben.  Say hi, Ben.

BEN (embarrassed and downcast): Hi, Jamie.

JAMIE: A mess, huh?

TIMOTHY: No, no, Jamie.  Not a mess.  More like, um, we have a great opportunity for you.

 JAMIE: A great opportunity for me?  Come on in and tell me all about this great opportunity.  Bronwyn, get these boys a glass of Noah’s Mill.  Ice or neat, boys?

BEN: Is that alcohol?  I dunno if we should be drinking right now.

TIMOTHY (furiously to Ben): Ben!  Quiet! This is the way you do it on Wall St!  Yes, of course we would love some Noah’s Ark.  Neat is just fine.

JAMIE: Great.  Come right in.  Bronwyn, some Noah’s Mill for the boys and me.

BRONWYN: Yes, Mr. Dimon.

INT: JAMIE DIMON’S OFFICE.

Jamie walks in and sits behind a massive oak desk.  The office has expansive views of the New York skyline.   Ben walks in with mouth opened awe.

BEN: Wow.

Timothy and Ben sit in the guest chairs.

JAMIE: They say Mr. JP Morgan himself used this desk.  Really something, isn’t it?  Now, what is this about an (beat) opportunity?

BEN: It’s Bear, Jamie.  They can’t pay their bills…

TIMOTHY: Ben!

Bronwyn interrupts to drop off the drinks

TIMOTHY: Thanks.

Timothy takes a big sip of courage before restarting.

TIMOTHY:  It’s Bear, Jamie.  Jimmy Cayne, he’s got himself in a whole heap of trouble.

JAMIE: Jimmy? My mother was at a bridge tournament recently and saw him there.  She said he looked great.  Has something happened?

TIMOTHY: Oh, it’s this whole subprime mortgage thing, Jamie.  I guess, Jimmy, he got himself a little too deep in that stuff and now he needs some help gettin’ out.

JAMIE: Subprime?  I’m not sure I’m the right man for that.  I’m a simple commercial banker. 

BEN (animatedly): You have to help!

 TIMOTHY: Quiet, Ben.  Let me do the talking.  See the thing is Jamie, Bear is having some, um, short term cash flow needs and they need a little money, just for a little while mind you, or they may go (leans in and whispers) out of business. 

JAMIE: Short term cash flow needs?

TIMOTHY: Yes, exactly.  See, Ben and I here we was hopin’ that maybe you can help Bear out with a little loan. 

JAMIE: Golly, boys.  You know how much I would love to help, but I don’t think there is anything I can do.  I’m so busy right now.  (Gestures at the two files sitting on his desk) My wife is badgering me about re-doing the kitchen at our Hamptons place.  Bronwyn keeps pestering me to look at some plans for renovating the building lobby.  I’m burning the midnight oil around these parts.

BEN: Man, oh, man.  That is a lot of stuff.

TIMOTHY: (Losing his cool) Jamie, you have to… (Immediately calming himself down)   I mean, couldn’t you even check it out, Jamie?  It would mean the world to us.

JAMIE: I tell you what I’ll do.  Now, I’m going to get in trouble with Bronwyn over this, so you owe me big time, but maybe I can put that dang lobby renovation on hold and take Bear off your hands.

BEN: (Excitedly) You would do that for us?     

TIMOTHY: That’s great, Jamie.  And what are you thinking of paying for Bear?

JAMIE: Paying?

TIMOTHY: You know, what are you willing to pay for Bear to, uh, take them off our hands?

JAMIE: (Rubbing his chin) Well, I guess if you guys take, I don’t know, let’s say $30 billion of the worst assets off their books then it is one done deal.       

 BEN (Dumbfounded): $30 billion?

TIMOTHY: (Wiping sweat off his brow) $30 billion?  That’s a lot of money.   Well, I guess maybe we can do that.  Yeah, yeah, we can do that.  OK, how much will you pay then?

JD (Confused): Pay?

TG: For all the rest of the assets and liabilities?

JD: (Shaking his head) I’m sorry, guys.  I thought I had explained about the lobby renovation.  That is a big sacrifice.  Then there is also all the work of bringing the Bear guys over and teaching them the JPMorgan corporate song.  It takes a lot of work to get that song right.  I’m not sure you guys appreciate…

TG: Oh, no, Jamie.  It ain’t like that.  We totally understand.  Don’t we, Ben?

BEN (Nodding furiously):  We understand!

TIMOTHY: It’s just the taxpayer, Jamie.  Sometimes they don’t understand all this high finance and e-co-nomics talk.  Some reporter tells them that we gave Bear to JPMorgan while taking on $30 billion dollars in potential losses and they think we ain’t doin’ our jobs.  Ain’t that right, Ben.

BEN: The taxpayer, Jamie.  He just don’t understand all this finance and economics.

JAMIE: Hmm.  I guess that is a problem.  I know what a great job you all are doing and I would hate for some know nothing from the NY Times to get this all mixed up.  (beat)  I tell you what I will do boys. (Pounding his desk)  I will take on the first $1B in losses on that $30B portfolio.  How can anyone complain then?

TIMOTHY: Great.  OK, ok, and the shares?  How much will you pay for those?

JAMIE:  Man, you boys drive one hell of a hard bargain.  The board is going to crucify me for this one, but, for you little monkeys, I’ll do it.  I’ll give you 2 bucks a share.

TIMOTHY: Gee whiz, 2 dollars, Jamie.  You would do that just for us?  That’s mighty swell.  That’s mighty swell, ain’t it, Ben?

BEN: Oh, oh, great job, Tim.  Wait til we tell Paulson.  He’ll respect us then.  He’ll start letting us attend the big boy meetings after he hears about this.

 JAMIE: Ah, my reputation is going to be shot, but it’s a deal, boys. (Standing up and walking over to shake hands).  Bronwyn (calling out), pour a celebratory round for me and the boys.

Bronwyn enters and tops off everyone’s glass.

JAMIE: (holding up his glass) To Wall Street!

BEN and TIMOTHY together: To Wall Street!

The three men clink their glasses and take deep sips.

Fade to black.     

HOSPITAL INTERIOR: Dr. H. Paulson sits at his desk, examining charts.  Vikram PANDIT, a Super Bowl-winning wide receiver, enters, hobbling, his hand clutched to his thigh.

PANDIT:                               Dr. Paulson! Just the man I wanted to see!

PAULSON:                           What seems to be the problem here? [Double take as he recognizes the famed WR] Oh my goodness! Are you Vikram Pandit?

PANDIT:                               Yeah, playa! You see this ring? [Flashes gleaming Super Bowl ring, denoting wealth and status]

PAULSON:                           [Startled] You’re bleeding!  How did this happen?

PANDIT:                               Well, I was at the club, and, well… some unprecedented market conditions went down, and, well… the result is I got shot.

PAULSON:                           Oh, well, clearly.

PANDIT:                               C’mon Paulson, get movin!  Where’s my bailout at?  Stitch me up, beeatch!

PAULSON:                           Well, the law requires me to go through certain constitutional procedures before I stitch you up…

PANDIT:                               “Bleep”  THAT! We need to keep this on the DL, so I maintain my competitive position against the Germans and Swiss.

PAULSON:                           [Getting agitated] Actually, I’m not sure that’s legal…

PANDIT:                               “Bleep” legal, I’m BLEEDING dammit.

PAULSON:                           [Alarmed] I guess you’re right.  [Bellows] NURSE!

Bearded male nurse enters, groveling, whimpering a bit

NURSE BERNANKE:         [Meekly] Yes, Dr. Paulson?

PAULSON:                           [Panicking]  Can’t you see this man is bleeding?!  Get some “bleepin”  gauze and stuff, stat!

NURSE BERNANKE:         [Calm, but uncertain]  But… but… how did this happen?

PAULSON:                           [Yelling at the poor nurse] Unprecedented market conditions, goddammit! Just “bleepin”   do your job!

NURSE BERNANKE:         Well, hold on.. . That doesn’t really make a lot of sense.  Most people don’t just get shot because of “unprecedented conditions” – don’t you think we should ask a few more questions?

PAULSON:                           [Really panicking now] NO! Dammit, this is critical!

NURSE BERNANKE:         OK, I’ll call the proper authorities, as we are required by law to do.

PAULSON and PANDIT [unison]:                               “BLEEP” THAT!

NURSE BERNANKE:         [Meekly]  Ummm, ok, ok.  I’ll do it.  [He shudders to himself, shaking his head, disgusted at what he has become.]

END

I was perusing the Wall Street Journal this and you will never guess what I learned?  I was stunned to find that high-ranking corporate executives sometimes use the corporate jet for personal use.  Not only do they fly the company plane for interminable meetings with Wall Street analysts, big customers and regulators, occasionally, they use it to fly to the Virgin Islands.

Ladies and gentlemen, I am floored.  Do you mean to tell me that there are perks associated with being the CEO of a fortune 50 company? 

I want to make a few things clear, I am against corporate theft and I am for corporate transparency, but I feel that there is more to the outrage over these allegations.  I sense that people have their undies in a bunch because CEOs and other executives are ‘living the high life.’  CEOs are fat cats while the lowly worker toils in obscurity for lousy pay and benefits.  Whether the American worker is properly compensated is a discussion for another time and another column – but American workers are often interchangeable and somewhat commoditized (your feckless writer included).  But CEOs are different and thus should be treated differently.

We as casual watchers of corporate shenanigans should not be so quick to assume that being a CEO is easy or that it is particularly glamorous.  CEOs are often unfairly blamed for the misfortunes of their companies (and I would also add, unfairly feted for their successes), they are open to public scrutiny, they are personally liable for the shortcomings of their accountants and employees (see Sarbanes Oxley) and although it sounds like fun to you and me, they have brutal travel schedules.  These travel schedules are not all about cocktail parties and hotel openings – often it is meeting with angry customers, skeptical analysts and smug money managers, often in rapid succession.

We as investors in these companies really want one thing; we want to see our investments grow.  Above all else, we want the appropriate team assembled at the heads of our companies working hard to make us money.  [If one of us has an axe to grind about Wharton-Educated CEOs making too much money, one ought to look into real estate or other investments.]   There are two issues here, first, are our companies disclosing all the perks that our CEOs are receiving –I hope that answer is yes, but there has to be a materiality check here.  If the CEO sometimes takes some personal calls on his (or her) cell phone, but expenses the entire cell phone bill, I am alright with that.  If the CEO sometimes uses the office photo copy machine for the NCAA basketball pool, great.  If the CEO uses the company credit card on a three-night, strip club bender with aged scotch and steak dinners, as long as it is with potential customers, I am also OK with that.  If the dollar amount of those perks gets to be large, yes, they should be disclosed.  But if the question is whether or not these executives should be able to have any personal perks, I would have to say yes.  But the second issue, whether or not they are entitled to extraordinary perks is more interesting.

If this argument was about Tom Brady and the New England Patriots, I bet fewer people would care.  They would say that Tom is completely irreplaceable.  But let’s examine this further.  First off, being a CEO of a fortune 50 company is probably more difficult than being QB for the Pats.  First off, Tom Brady is only realistically competing against men, aged 22-30 who have attended a top 25 school and played QB there.  If you are a CEO, you are competing against men and women, aged 30-70 who hail from virtually anywhere on the globe.  If you are the CEO at one of these firms, you are probably more unique and have battled tougher odds to get there.  Secondly, it takes about one season (maybe two) to learn an NFL offense.  How long do you think it takes to meet, greet and gain the trust of all the significant people that come in to contact with a large company?  There are competitors, customers, suppliers, analysts, money managers, recruiters and lawyers; let alone learning about the actual business.  These people take longer to cultivate, are tougher to find and I would argue are more valuable to their organizations.

What am I getting at?  In order to keep one of these leaders at the helm of our companies (and once we are shareholders, it is important to think of our investments as ‘our companies’) what would we be willing to pay?  If it is an extra couple hundred thousand dollars in air miles, I bet we would all be happy to pay it. And furthermore, if our CEOs are somewhat safer in terms of kidnapping or other pratfalls, we get that for free.  And just to pile on, if our CEO is even slightly more likely to fly out and meet a client or a potential hire than to do it over the phone because he can fly on the corporate jet, then great.

To sum up; yes, we as shareholders want visibility in to the compensation packages of our CEOs but we also want to keep them happy, motivated and in the game.  So Mr. Otellini, please have some extra peanuts on your way to Milan.  Mr. Camilleri please, choose whichever DVD we have in the plane’s library and Mr. Weill, please have an extra drink on me on your way to San Francisco. 

But as The Wolf from Pulp Fiction wisely intones, “Let’s not start sucking each other’s [expletive] just yet.”  Enough self-congratulation, onto this week’s column:

This is a great country.  Seriously, this country is set up so that with minimal effort you can do very, very well.  What’s more, if you are privileged enough to earn your keep in the finance industry, all you need to do is work maybe 9-10 hours a day, exhibit some bare minimum competency, and keep your head out of your ass.  That’s all it takes.  After doing this for a few years, if you follow the above formula, you will soon find yourself eating the finest meats and cheeses, living in a nice crib, driving a sweet ride and dating hot chicks. 

But guess what, slick? 

This can all be taken away from you. 

They can take away your bank account.  Your AmEx platinum.  Your Audi, your Park Avenue apartment.  And if they take those away, the hot chicks will be gone faster than crack at Courtney Love’s place.  If you don’t believe me, ask MC Hammer.

But here’s the thing:  they cannot take away your honor.  They cannot take away your balls, or your word, as Tony Montana [LINK:IMDB] so eloquently noted.  That’s all you have in this world, ultimately.  You have your reputation and your honor that you trade upon every single day in order to do deals, in order to command your partners’ trust, in order to make the mad Benjamins so coveted by the strippers at the Olympic Garden [LINK] in Las Vegas .

As such, my word and my reputation mean more to me than my entire net worth – not because of some high-minded principle but because of the simple calculus that my word and my reputation represent the sum total of my future earning capacity as a finance professional. 

And you should take the same attitude.  Jealously guard your scruples and your reputation and do not ever compromise your ethics or your word.  Strict adherence to this policy will pay dividends greater than any investment you will ever make in your lifetime.  The ethics of the people who do business are truly the underpinnings which support the generous harvest of capitalism.  Without ethical norms, the system would fall apart and we’d all be living like citizens of a third-rate socialist country.

Which brings me to Bernie Ebbers.  Bernie, you miscreant, you worm, you little pubic louse.  Bernie, you toadie, you coward.

Bernie Ebbers, for those of you returning from the deepest Congo, is the former CEO of Worldcom, a glorified pyramid scheme.  As the Wall St. Journal noted in a prescient article in the late nineties, Bernie was practicing what Brealey and Myers describe as “the Bootstrap Game”. 

(Richard A. Brealey and Stewart C. Myers’ “Principles of Corporate Finance” [LINK:AMAZON.COM] is the pre-eminent corporate finance textbook used at the finest business schools in the world.  If you haven’t already:  purchase it, embrace it, digest it.  Know it cold, because the guy sitting across from you almost certainly does.)

Where was I?  Ah, the Bootstrap Game.  This neat little scheme involves a highly valued company which acquires smaller, slower growing companies which are not as highly valued.  In terms of p/e ratios, a predator which trades at a high p/e (presumably due to high growth prospects) can issue stock to acquire a target with a low p/e and immediately accrete its (the acquirer’s) earnings per share, without having added any value at all from the acquisition.  This can be repeated ad nauseum, resulting in accelerated earnings growth which (using circular logic) is used to justify the high p/e of the acquirer. 

“But Hollywood Jack,” the alert reader will ask, “isn’t the target company a low p/e company due to its own low growth prospects, and won’t the integration with the acquiring company inevitably lower the long-term organic growth prospects of the overall business?”

Bingo.  The Bootstrap Game only works for a time.  Furthermore, it only works if you can keep up the pace of acquisitions.  Ultimately, however, no matter how many times you slap lipstick on a low-growth dog, eventually the market will see the underlying growth for what it is.

Worldcom played this beautifully, although it was obvious to even the slow-witted mouth breathers at the Wall St. Journal that Bernie was playing the Bootstrap Game, and that this could not go on forever.

Fast forward to Q3 2000.  The market for all stocks is tanking as the Fed’s Y2K-liquidity pop has diminished and the capital expenditure bust is beginning to work its way through the telecom industry.  Bernie is facing margin calls on the debt he has unwisely placed against his stockholdings in Worldcom.  Bernie needs that stock price to stay up, so he can keep banging hot chicks and eating caviar.  So Bernie instructs Worldcom CFO Scott Sullivan to engage in accounting shenanigans (the substance of which is immaterial for this discussion – the very act of compromising the shareholders’, creditors’, customers’ and employees’ trust is the issue) in order to prop the stock up for another quarter or two.

Well, you know what happened: the whole house of cards fell apart, with Worldcom declaring bankruptcy, stiffing bondholders and stockholders alike.  (The fact that those same bondholders and stockholders should have seen it coming had they been diligent and alert is an issue for another day.) 

Shady CFO Sullivan turned State’s evidence à la Sammy “the Bull” Gravano and Bernie Ebbers was convicted of 9 counts of conspiracy and securities fraud in the largest accounting scandal in U.S. history.  During the trial, Bernie had the sheer gall to take the stand and claim that he didn’t understand the particulars of finance and accounting.  The CEO of a company that, at its peak, was valued at over $180 billion and had made hundreds of acquisitions claimed that he didn’t understand basic finance or accounting that the average college sophomore business student has mastered! 

“By my beard, Your Honor,”  I would have loudly declaimed, “this halfwit isn’t competent enough to manage the bar at a tri-Delt mixer, let alone a NYSE-listed company!  The prosecution moves to have the defendant doused in cat urine.”  (Had I been a trial attorney I would likely have been disbarred, I imagine.)

Bernie abused the trust of his shareholders.  He screwed ‘em.  He screwed many people on the way up, selling them on the lies of the Bootstrap Game, and he screwed ‘em as it was falling apart, dumping stock to save his own ass.   And if our justice system truly reflected what Plato referred to as the Form, or ideal, of “Justice”, Bernie would be hoisted up by the little pits he amusingly calls testicles and left to wilt in the hot desert sun.

But he will likely just go to country club prison, where he can serve out his term at his leisure.  However, we now know, definitively, what his reputation, his word, his honor mean:

Nothing.

Bernie, you’re nothing.

I was 21, living in LA and I was hungry for a job. Having just graduated from the University of Chicago with a degree in English Literature my options weren’t exactly wide open.  Up to that point, the sum total of my knowledge of the U.S. capital markets came from playing Millionaire on my parent’s Apple IIe.  But I was going to be a titan in the financial world.  I just hadn’t figured out how.

The reality of moving in to my first apartment with no help from my parents and being off of the meal plan at school meant that I had to make some money.  I decided that it was probably smarter to make a lot of money rather than a little.  But a problem arose – English majors have very few jobs to choose from and even fewer that pay a real wage.  Why not just enter the financial world?  I was just as smart as anyone in it, I could do it too.  So that became my goal.

Opening the phone book, I found the numbers for the major brokerage houses in Los Angeles – I called the ones that advertised during college football games.  You know, Paine Webber, Merrill Lynch, Bear Stearns.  The first one I called was Paine Webber.  They asked me if I wanted to be an “Associate Investment Advisor,” and I said yes.  I wasn’t quite sure what that was, but I knew I wanted to work in the financial world and these guys were in it.  They asked me to come on down for an interview that day.

The Hook

Wearing my best (and only) suit, I walked in to the Beverly Hills Office of Paine Webber – it was dazzling.  The cars in the parking were all expensive and gleaming; the men walking in and out of the firm were good looking, well dressed and exuded refinement, wealth and success.  The walls were adorned with art and the couches in the lobby were soft leather.  On the coffee tables were glossy brochures extolling the virtues of certain funds and showed graphs of all shapes with the same message – your money will grow and be safe with us.  A receptionist asked my name and before I knew it, I was whisked back in to the office of the manager.

The manager was tall and animated.  He spoke quickly and with purpose.

“Here is how it works, if you do well in this interview, then you take a test.  You do well on the test, you have a job here.  Then you will begin your apprenticeship here.  Then you’ll sit for your 7, 63 and 65 and then you start making me money.  Got it?”

I nodded.

The interview was brief, I don’t remember the ‘get to know you’ questions, but I suspect there were very few.  But I do remember this exchange very clearly.  This was my first hint that the brochures, clothes and couches might be a façade.

“So, Jesse, do you want to be rich?”

“I want to be comfortable and I want a career that is fulfilling” I thought I was giving the right interview answer.

“Bullshit.  Do you want to be rich, I mean filthy rich?”

Sensing what the right answer is, I stammered “yes.”

“Yeah, how rich?”

A 21 year old kid doesn’t know what money is.  I didn’t know what my expenses were going to be that year, let alone what it is to be married, own a house, pay for car insurance, pay for private schools, pay medical bills.  “Really rich” I answered.

“What kind of car do you want to drive?”

I just smiled, I thought he must be kidding.  He wasn’t.

“Come on kid, what make and model car do you want to drive?”

“A Porsche?”

“You asking me or telling me?”

“A Porsche.”

“That’s a good starter car.  Now go take this exam, you pass and you got the job.”

The exam was a dumbed down version of the logic section of the LSAT.  Questions like ‘if the roads are always slippery when it rains and the roads are slippery, is it necessarily true that it has rained?’  It was just a simple if P then Q type of question.  I was always a great test taker.  I passed. 

Then the second red flag went up.  As I got the news that I passed the exam, the manager turned to me and said, “Well, are you coming to work for me?” 

“Do I have to decide right now?”

“Yes.”

I didn’t have to think too long.  He was selling what I was buying. I was going to learn about the capitalist system here in our great country and I was going to get rich doing it.  Done and done.

The Apprentice

I drove a Jeep in those days; it was beat up and ten years old.  What I liked about it was that it had no top.  Not that it was a convertible (it was), but I didn’t own a top for it.  So when I was driving to work at 5:30 in the morning, it was cold.  One needed to be at work long enough before the market opened to be get up to speed on anything a client might ask you.  What I learned on my first day was that one doesn’t just go to work as a broker, one needs to be registered with the Securities and Exchange Commission as well as the State of California.  Those are the aforementioned 7, 63 and 65.

The Series 7 is a six hour, 260 question nightmare, but before you can even sit for the Series 7 exam, you have to apprentice at a brokerage house for six months.  During those six months, we were expected to do two things; help with the daily sales meeting and be prospecting slaves for one of the more senior brokers in the office…….to be continued