The Whirligig of Time Fails to Bring Its Revenges


A year ago, while Washington was grandstanding about the about lazy, unethical, risky banking practices that put the entire country at risk — I published a book. It was called The Devil’s Casino: Friendship, Betrayal and the High Stakes Played Inside Lehman Brothers, and it chronicled, among other things, the lazy, unethical, risky banking practices that had put the entire country at risk in 2008.

At the time, the D.C. hearings and S.E.C. investigations were underway, and Washingtonians swore that they’d clean up the mess and regulate the hell out of Wall Street — and that greed would be a thing of the past.

I expressed my skepticism at the time. “The crisis will happen again,” I said. “Not tomorrow, and not in the same way — but you cannot regulate greed.” That, really, was the central theme of the book, which looked at the evolution of Wall Street through the narrow lens of Lehman Brothers, spanning fifty years.

Fast forward to today, when my book comes out in paperback. Let’s take a look at the headlines:

Alan Greenspan has just declared that Dodd-Frank reform legislation is a waste of time for the reasons listed above. The financial system is so “irredeemably opaque,” he wrote in the Financial Times, that policymakers cannot hope to sort it out. Barney Frank (D. Mass), the former chairman of the House Financial Services Committee naturally disagrees. In the Financial Times, he mumbles on about the effectiveness of stress tests. But didn’t it take most U.S. banks about thirty seconds to pass those in the wake of TALF?

Mr. Greenspan has a point.

But, forget opacity — let’s just look at the simple stuff.

Bernie Madoff — in jail for perpetrating the biggest Ponzi scheme ever — has declared that it was no surprise that J.P. Morgan stands accused of reaping $6.4 billion in funds from the scheme. The bank denied this, but Madoff said the bank “must have known.” In other words, when given the opportunity to make money in dubious circumstances — people take the money.

President Obama has ended his open war with Wall Street, making nice with the Chamber Of Commerce and promising that he will find ways to work with them, not against them. Why has he taken this unprecedented action? Could it be because he has realized that if employment does not rise and the economy is still faltering, he might not be re-elected in 2012?

Lloyd Blankfein, the CEO of Wall Street’s favorite punching bag, Goldman Sachs, has just received a bonus of $18 million at the same time that one of his outside directors, Raj Gupta, the former CEO of McKinsey, is testifying that he gave inside information from Goldman board meetings to Raj Ratnaram, the CEO of hedge fund Galleon.

And what about Warren Buffett, considered for most of his 80 years the only straightshooter in the world of finance, and a crucial player in saving the world economy (well, Goldman Sachs) in 2008? Turns out he might not be quite so straightforward. His image is tarnished amid accusations that he acquired the chemicals company Lubrizol when he knew that his second-in-command and heir-apparent, Jeffrey Sokol, since let go, had just bought $10 million shares of the firm.

On Friday, Wall Street Journal readers were treated to this great headline: “Subprime Bonds Are Back“. Whoopee! The very things that led Americans to treat their houses as ATMs are having a resurgence.

And on Monday, we learned that the Fed and US Treasury are engaged in a war with the FDIC over how many companies should be branded too big to fail. The Fed and US Treasury want less than ten; the FDIC wants three to four times that number. The moral of this is: Greenspan is right. It’s all too complex for anyone to sort it out.

Meanwhile has anything happened to the housing Government Sponsored Entities, Fannie Mae and Freddie Mac, which blew up the weekend before Lehman did?

Yes: according to a front page article in Friday’s New York Times. Although neither Fannie or Freddie has yet been reformed (that’s on next year’s agenda, apparently), their top six executives received over $35.4 million since their collapse in 2008. That’s an awful lot of money for doing-well, nothing.

And all those dreadful losses reported to be happening in the hedge fund industry, swirling with rumors about insider trading after the closure of David Ganek’s Level Global and three other hedge funds in the wake of FBI raids? Well, it turns out that hedge funds, while not outperforming the market, are still profitable — thanks to those lovely fees.

Greed never dies; rules are made to be bent; the rich are indeed different from the rest of us — and Shakespeare’s fool was wrong. It would seem the whirligig of time does not, alas, bring its revenges.

Vicky Ward is a contributing editor to Vanity Fair and the author the New York Times Bestseller: The Devil’s Casino, Friendship, Betrayal and the High-Stakes Games Played Inside Lehman Brothers (John F. Wiley & Sons).