(my) money

In the aftermath of last Fall's banking bail-out (the TARP program) there's a good deal of frustration, not only because credit is still not made available or bailed out banks aren't out of the woods yet, but even more so because bankers apparently have not gotten the message that rewarding failure with bonuses etc. is bad public relations (and here read people/voters for "public"). Thus as there are calls to provide even more bail out $$$, e.g. by AIG, Citigroup as well as by G.M. and Chrysler, some people in high places, or with a lot of savvy, begin to suggest a take-over of the worst banks (which in fact is happening gradually with Citigroup and more overtly with Freddy and Fanny and AIG).

In a previous blog on Paulson's bail-out dreams, I wondered why the Secy of the Treasury should be a banker as bankers helped cause or aggravate the problems. Now we have T. Geithner; he is perhaps kept in line by P. Volcker and Larry Summer, but his insistence on a policy of restoring consumer spending is worrisome, for too much credit card debt was part of the problem (after all, subprime mortgages are consumer debt also). Let's hope he can be restrained, though the new billions for AIG make me still more sceptical. One aspect is especially bothersome, nl. that the govt is exchanging preferred stock that was to have a 10% return for stock that has hardly any. This may be to safeguard all the investments but it's backpedalling from all the grandstanding that the TARP moneys would be recouped from profits of the aided banks. And each time I read Gretchen Morgenstern, I find that there is that link to Goldman-Sachs.

Meanwhile little is done about the excesses of some banks who received TARP money and gave out huge amounts in bonuses in spite of the groundswell against that. One excuse apologists have made that such pay-outs are necessary to keep the "best and the brightest" from leaving the company. It's hard to believe that people that helped create a system of phony financial instruments, are the "best," however bright they may be. I would argue that they are not the "best" and their brightness makes their shortcomings in ethics (for ex.) even greater. But where would they go now that lay-offs are the order of the day. Are any financial institutions hiring? (Apparently some are: the NYT of 3-15-09 has reminiscences of former Bear-Stearn execs that are now in new exec. jobs elsewhere, but they were unemployed). I'm mindful of a colleague who went with a very good offer from another institution to the President of our College only to be told that he should take it. When I asked the President why, he said that having obtained the offer, my colleague either wanted to blackmail the College or he was willing to leave and thus he should follow his ambitions. But that was in the 70s when there were quite a few openings, even in the Humanities. In the case of financial wizards, the world is full with summa cum laude graduates from the most reputable universities, younger and probably more inventive and willing to start at a lower salary than any disgruntled un-bonused manager who'd leave.

In her latest NYT column (03-01-09), Morgenstern discusses the fact that in creating the phony (i.e. not backed by actual value, well, by a value of $ 1 for every 30 on paper) financial instruments, the best and the brightest also had a cavalier attitude to the rules of bookkeeping so that the docs of the original real estate loans were not always transferred as those instruments were traded and now a bank who wants to foreclose cannot show that it owns the mortgage or a sellers cannot sell a house because the bank the mortgage has been paid to is in a similar position. It's enough to make an old curmudgeon like myself disgusted enough to reread the French writer Proudhon who in the early 19th century defined "property" as "theft." This may be truer today than in his time, for if the best and the brightest make off with millions while my pension is reduced as a result of the financial collapse they helped create and then make off with part of my taxes thru TARP etc. they have in fact stole my money.

Jon Stewart, who's often funny and sometimes very intelligent, was much excerpted on various News Channels for his showing up the frailty of tv (CNBC) financial "analysts" who are in fact not much more than stooges for Wallstreet execs etc.

Also in the (bad) news is a new company formed by former executives of Countrywide, the experts in sub-prime mortgages, who our now buying up their own lousy creations for the proverbial "pennies on the dollar."

Question:

Would it help if students in business schools, etc. were required to read Louis Brandeis' (later Justice of the Supreme Court) Other Peoples' Money and analyze modern case studies that parallel his? And this in addition to a course with appropriate case studies in the ETHICS OF RISKING OTHER PEOPLE'S MONEY.