Everything I need to know about non-attachment, I learned from Wall Street
by Geoff Olson
I ONCE READ a short story, whose author eludes both my memory and Google’s, in which the narrator discovers his alarmed mother at home, floating up around the ceiling. The poor woman has stopped believing in gravity, with lighter-than-air results. Alexandra Penney must have felt the same way when the ground dropped out from under her feet. Last fall, the 69-year-old artist, author and former editor of Self magazine discovered that her life savings had disappeared, courtesy Wall Street fraud artist Bernie Madoff, who allegedly bilked a total of $50 billion from his clients. On her blogThe Bag Lady Papers, Penney recalls a call from a friend, alerting her to Madoff’s arrest. Wasn’t he the guy who handled her money, the friend asked? One and the same. “Before I reached for a bedtime Tylenol PM, I Googled the Hemlock Society. I wanted to know a painless way to die,” Penney notes.
Madoff’s investors had come to him by “invitation only,” joining a charmed circle of wealthy clients whose portfolios flourished under his guidance. Penney’s investor profile wasn’t quite as toney as the others, however. She had been tucking away money since she was 16 years old. “Not a penny was inherited,” she asserts. “Not one cent was from my divorce. I earned all of it myself, through a long string of jobs that included working as a cashier at Rosedale fish market in New York City in my 20s, and later, writing bestselling sex books.”
After her account with Madoff evaporated, the once financially comfortable Penney had to confront a brave new world of budget motels, pawned jewellery and public transit. In one recent blog post, she writes of buying a $20 MetroCard. Instead of tossing the old one, she threw the new one by mistake into a trashcan on the platform. “It was too tall to reach into and I immediately wanted to turn it upside down and dump the contents to find my card.”
Throughout these humiliating initiations into the underclass, the aptly named Penney doesn’t bother to disguise her understandable loathing of Madoff. “I never even knew what Madoff looked like. But now I obliterate his face when I see it on television. I think he’s a sociopath who said he lost $50 billion for self-aggrandizement when it was probably closer to the bandied-about number of $17 billion.” Throughout the blog, she abbreviates the Wall Street wizard’s name to MF.
Ironically, Penney’s had a lifelong fear of ending up a bag lady, “cold, alone and abandoned.” Over the years, she cleared up her garden variety anxieties through therapy, but her “bag lady fears” were more persistent. Her therapist told her the best way to deal with them was to put her money in a safe place. “Which I did. With the MF.”
Many of Madoff’s more than 13,000 clients invested all their Fabergé eggs in one basket, ironically thinking that one flawless financial genius would diversify their portfolios. When the Ponzi scheme evaporated – Madoff turned himself in saying, “It was all just one big lie” – the Great Oz was revealed as a nebbishy con man clutching a brocaded curtain.
Madoff may seem an extreme case, but his con game wasn’t that far removed from other dodgy financial schemes on Wall Street, such as the “black box” derivatives that accelerated the credit death spiral. But this is hardly anything new. Bank failures, speculative bubbles and their well-heeled architects have a long and lofty history on both sides of the Atlantic. In his novel Little Dorrit, one of Dickens’ main characters is a “brilliant” banker by the name of Merdle, who could effortlessly double the investment of clients. The cream of London society invested in Merdle and lost their life savings as a result. (Merdle sounds like Madoff and Alexandra Penney sounds like a Dickens character herself.)
Margaret Atwood’s Massey Lecture series, Payback: Debt and the Shadow Side of Wealth, echoes both Alexandra Penney and the fictional mother who stopped believing in gravity. “I knew from fairy tales . . . that if you ceased to believe in fairies they would drop dead,” observes Atwood. “If I stopped believing in banks, would they too expire?” Marg knows exactly what would happen if we stopped believing in the places where we stash our cash: we’d have a run on the banks. Customers might even discover the awful truth of fractional reserve banking: loans exceed deposits. At any given time, these marbled monuments hold only a small fraction of hard currency relative to money loaned out. Ergo, it’s in all our best interest to keep believing our money is safe in steel vaults, protected from robbers and panicked grannies by large men with guns. But if too many of us believe we won’t be able get our money out in times of crisis, the whole game becomes shaky for everyone.
Since the financial market’s own version of 9/11, the collective belief in free market capitalism has taken quite a hit. Not surprisingly, the professional absurdists have shown more common sense than the business press. “The stock market’s just a consensual mass delusion based on fictitious valuing of abstract assets,” noted fictional news reporter John Oliver on The Daily Show. Yet, even now, financial advisors and business press shills are still humming the same old tune, which might as well be Journey’s Don’t Stop Believin’. No matter how bad the financial news gets, the bull market will return one day, we’re told. Two years, say some. Three years, say others – seven years on the outside. Just have faith and buy low.
The central paradox is that bull markets are turbocharged by the very thing that ultimately undermines them: herd behaviour. That’s been obvious ever since the nineteenth century when Charles Mackay penned Extraordinary Popular Delusions and the Madness of Crowds. The author outlined John Law’s ruinous sale of Louisiana swampland to the government of France, and the “Tulipomania” of 17th century Holland (in a fit of speculation on tulips, certain varieties of bulbs became more valuable by weight than gold – and next to worthless when the tulip market collapsed).
These ruinous episodes always make for great, rubbernecking entertainment if schadenfreude is your sort of thing. Today, it’s the smackdown of the millennium, as Obama’s tag team of optimism, “Hope n’ Change,” takes on Wall Street’s “Greed n’ Envy.” Yet the new president’s too-little-too-late efforts to get tough with the masters of the universe are not encouraging, especially considering the tulip floggers in his cabinet (like former president of the Federal Reserve Bank of New York Timothy Geithner and former World Bank Chief Economist Lawrence Summers). As noted on bloomberg .com, almost half the people on Obama’s Transition Economic Advisory Board “have held fiduciary positions at companies that, to one degree or another, either fried their financial statements, helped send the world into an economic tailspin or both.”
Barack Obama instituted new rules limiting the hiring of lobbyists into his administration. Within days, the “Optimist in Chief” exempted a number of people from the rule he had just proclaimed. Adding insult to absurdity, Timothy Geithner has hired the lobbyist from Goldman Sachs as his chief of staff.
So once again it’s the foxes guarding the henhouse. Although there’s nothing wrong with Obama counselling his people to follow the “better angels of our nature,” let’s hope America’s angels handle money better than the tooth fairy or Bernie Madoff.
As for Madoff himself, Frank Rich of The New York Times describes him as “a pillar of both the Wall Street and Jewish communities,” who even managed to swindle The Simon Wiesenthal Centre. This smiling sociopath, a former NASDAQ chairman and a trustee at Yeshiva University, turned out to have no academic background in finance. Presumably, his political science degree was a better guide to Machiavelli than macroeconomics.
Madoff never acted alone, critics say. Former investment manager Harry Markopolos tried for almost a decade to alert the Security and Exchange Commission to “the red flags” in Madoff’s dealings. As early as 2000, he supplied the agency with information that he believes should have triggered an investigation. “I gift wrapped and delivered the largest Ponzi scheme to them,” Markopolos told a Congressional hearing in January, according to Reuters. Multiple efforts to alert the authorities were met with a spooky silence and, at one point, Markopolos began to fear for his life and the safety of his family. “We knew that he was one of the most powerful men on Wall Street and in a position to easily end our careers or worse,” he said.
Markopolos was perceptive and brave, but where were the other wise men warning of an impending crash, back when many of us would have pegged Fannie Mae and Freddie Mac as characters from The Dukes of Hazard? Not in the SEC or anywhere else in the mirrored canyons of Wall Street. Apparently not around the manicured quadrangles of Harvard or the faculty rooms of Wharton Business School either. If there were whistleblowers, their voices weren’t reliably relayed through the newsrooms of our glorious free press.
This high-flying market crashed on the watch of the best and brightest – the managerial class for the global elite, the top 10 percent of the population that do the work of the top one percent. These polite, educated people showed up afterwards to pick through the wreckage and examine the flight recorder. But they also helped build and paint this screwball contraption in the first place and cheered while it did barrel rolls in a sky, unclouded by regulations. Many of them voluntarily boarded the thing themselves and toasted their ascent as the engines inhaled the last whiff of fumes.
We were all in the scam together to some degree or another. To believe, as most still do, that the gross domestic product can continue to grow faster than the ecology it’s embedded in, is sheer lunacy. But as writer Robert Anton Wilson once said, “There’s a seeker born every minute.” Hundreds of millions of seekers joined in on the global real estate bubble, from subprime-seeking schmucks to home-flipping mini-magnates. These suburban berserkers inspired the making of television shows like Extreme Makeover: Home Edition, Design Invasion, The Big Flip, Home to Flip, Flip This Houseand Flip That House. Many of those productions are still rotated on HGTV, a channel entirely devoted to real estate and reno-porn
Now that we’re scratching our heads, wondering what the hell happened with our fractured nest eggs, it might help to ask some deep questions about our desires and why they often get us into trouble. East beats west in addressing this problem. “Release your attachment to something that is not there in reality, but is a perception,” advises Buddhist scholar Khyentse Rinpoche. If that sounds like it might be advice for burned investors, there’s good reason; Rinpoche offered these words of wisdom in the illuminating 2003 documentarySandcastles: Buddhism and Global Finance.
Back in 2003, the makers of Sandcastles had cottoned on to the illusory nature of global capital markets, in which herd behaviour can tank a firm or an entire country in the time it takes to order lunch. How can a system that contingent be “real”? Buddhism holds that the nature of reality is both transient and relational; all things have existence only by virtue of their relationship to other things, none of which are permanent. There is no fixed self, only a stream of continuous perceptions, according to Buddhists. That notion is echoed in the film by sociologist Saskia Sassen: “It’s not that there are $83 trillion (in the global capital markets). It is essentially a continuous set of movements. It disappears and it reappears.” We might as well be talking about virtual particles in a supercollider, or angels dancing on the head of a pin.
Eastern philosophy, however, has little to say about remedying institutional problems or putting shackles on the guys who burned through billions of shekels. This mess wasn’t about a bunch of poor, black homeowners taking down the global economic system. In his revealing study of the market meltdown, former Saloman Brothers employee and author Michael Lewis argues that the subprime mortgages were only the front end of the scam. Some investment banks encouraged short-selling against the subprime-bundled securities, in effect inviting side bets on the failure of the very financial instruments that helped drive the US residential real estate bubble. Why would anyone do such an insane thing? Because, Lewis says, the jig was up on sub primes – the players at the top were running out of suckers in the mortgage loans market to fuel their casino capitalism, but they could squeeze some more bucks out of multiplied bets that hedged on the subprime loans’ predictable collapse.
And that takes us right back to belief systems – or as writer Robert Anton Wilson abbreviated them, BS. The current mess isn’t an aberrant form of capitalism. It’s business as usual. In his crisis of faith before Congress, former federal reserve Alan Greenspan said he now believes he was mistaken to think that financial institutions would self-regulate. Somehow, 83-year-old Greenspan failed to learn anything from Enron, the Savings and Loan scandal and the 1980s HUD scandal, to say nothing of the Great Depression.
Every few decades or less there’s a whole new crop of true believers looking to win big, through tulips, swampland, tech stocks, residential real estate, energy trading, you name it. And with every downturn, there’s yet another massive transfer of wealth from the rubes to the upper tiers of society. Today, the crises are systemic and inherent in the nature of capital. The process of peak and crash is as dependable as a mass death of June bugs. But there are always the gentlemen gaming the system, who have the inside knowledge of how to profit from the inevitable crash. This time around, if it weren’t subprime “tranches” and “black box’ derivatives, it would have been something else.
If the sheeple should have learned anything throughout this most recent fleecing – and we aren’t even halfway through this romp in the pasture – it’s that a little scepticism and a refusal to follow the herd is a healthy thing. Particularly since the shears are getting sharper and the fleecings more frequent.
The rule of law is based on the rational expectation that business transactions can be made in good faith and that legally binding agreements will be enforced by the state. That belief has been deeply shaken in North America and beyond, especially now that millions of jobs are evaporating across North America and the architects of this mess feather their nests with multimillion-dollar bonuses.
Credit comes from the Latin, credo – “believe, trust.” What happens when enough of us in the industrialized West stop believing not just in the stock market and big banks, but also in university economics departments, corporations, law enforcement agencies, the legal profession, government, the mainstream media, public relations departments and organized religion? Not that these entities deserve our unquestioning faith, or ever did. But if enough rubes became refuseniks, what would rush in to fill the vacuum – a “failed state” scenario or a revolutionary chance at what philosopher Morris Berman calls “the reenchantment of the world”? If we start to think of our social construction of reality as no more real than a Hollywood film set, will the ground disappear from beneath our feet? Would it be like no longer believing in gravity and finding ourselves floating weightless in the air? Perhaps after immense disruptions to society, we would discover who we really are as human beings, once we rule out who we really aren’t.
On her blog, Penney describes herself sitting in a small kitchen, “writing with lunatic speed.” She hops out a couple of times a day “to drive around the ‘hood trying to pick up a wireless signal on my laptop so I can email out to the world. No phone, no ‘net, no cable – it’s my new way of life.” Perhaps she won’t be out on the streets after all. Her blog efforts have paid off with a book deal, but she continues to wonder how the rule of law went sideways in the case of Madoff, who’s now confined to the swank New York penthouse that’s in his wife’s name.
Penney’s words could be a coda for the continuing lack of accountability for the market collapse on Wall Street and Washington: “Once again, I ask, can somebody please tell me why the Mother of all [#@&!@%] is still not in jail????”