Meltdown and the "Financial Expert"

As the stock market indices were spiraling down, like vintage airplanes shot-down on the History Channel, there was something else that was also going down in flames. It was the widespread belief that there was such a thing as a financial expert. It used to be axiomatic that bankers were traditional and conservative people who rarely changed the way they did business. The truth turns out to be that they behave more like the proverbial sheep who just followed each other in jumping off the sub-prime mortgage cliff. Similarly, another myth has come under scrutiny, which is that in a free market economy, whatever money anyone makes is determined by their actual worth. Now we know most of the members of the Wall Street clan who used to get seven or eight figure bonuses didn't know what was going on, and therefore, didn't know what they were doing. They made all this money because they were at the right place at the right time. It was more like picking the right slot machine to play just before it hit the jackpot. In common sense discourse this would be called dumb luck but in the financial world this was considered ability, even excellence.

Unlike most industries the life-blood of the financial industry is trust, not innovation. History tells us that financial innovation has caused us more grief than almost anything else. We had the Junk bonds of a few years ago, the Savings & Loans crisis, the Enron scandal and other derivative based disasters, and now the brilliantly innovative tandem of sub-prime mortgage and credit-default swaps which has brought the world economy to its knees. We should have learned by now to run away from any mention of an innovative financial product. Most of the financial products are paper anyway, and the more innovative ones are not only paper, but are backed by more paper with some virtual paper thrown in for good measure. In hindsight these things look like glorified pyramid schemes; at least judging by the end result.



Some psychotically optimistic people are trying to tell their more normal brethren that this is a great time to buy what was out of reach just a few months ago. What kind of stuff are they talking about; used yachts and luxury homes. I have no use for used yachts because the term “cheap yacht” sounds like an oxymoron to me and even if it was cheap, I have already had my fill of nautical terms. My 401(k) has run into choppy waters, my mutual funds have come close to sinking a number of times. My smooth sailing to retirement has run into gale force headwinds. I get sea-sick just looking at my financial statements, so I am not interested in any other maritime adventure at this time, thank you very much. I could however, be interested in a luxury home but I will need one of those mortgages that require no down payment, no monthly payments for a year and a property whose value doubles every 2 ½ years. Sadly, these kinds of properties and mortgages were only available in the Land of Oz from where we were collectively thrown out just recently.

We, the common folk didn’t even know how valuable we were to the financial industry until just a few months ago. We should thank the financial wizards for the confidence they have placed in our ability to bail them out. I would guess they are very appreciative of what we have done. After all, we have acquired the debt of some of the biggest names in finance. Names like JP Morgan, Chase, Morgan Stanley, Wachovia and Citi. So the next time I go to a bank in person they will roll out the red carpet for me, give me complementary pens instead of chaining them to the desks and generally embarrass me by making fuss over my visit. Occasionally I get the feeling that this just in my imagination. Since I have lost a lot of nonexistent money – they tell me- there is nothing wrong, I believe, with gaining a little bit of delusional importance.

After the melt-down, even the very rich seem flummoxed. One of them, who is considered to be the savviest of all investors has used a sound bite like "cash is trash", and a bull-horn like the New York Times, to get people to pay attention to him. A number of people have responded to this sound bite by offering to take his trash home. But he is not even talking about what we ordinary folks use, to pay our bills. He is talking about short term investments and calling them trash. It looks like most people are not taking his advice to start buying stock; or rather they take his advice one day a week and ignore it on the other days, judging by the way the stock market has been behaving in recent weeks.

It is entirely possible that I didn't understand what he was saying and got his message all wrong. But that just puts me in the same league as the best of the financial gurus. So I guess it wouldn't be too impertinent of me to expect an eight figure bonus check in my mailbox right around the holidays. I would even settle for a seven figure one, since I realize that financial companies are now hurting and probably can't afford the extra zero. But I will still expect an invitation to the $400,000 shindig that these companies might throw using the newly acquired bailout money from the government. The least they can do is to invite us over; after all it’s our money they are spending.