It’s official. With the Congressional and public outrage over Big Ticket No Consequence Payouts, life as we knew it on Wall Street is over.  The world’s greatest financial system has been destroyed by its  favored sons.

Wall Street committed suicide in September 2008. Yet its ironic demise was years in the making. The poison the industry dispersed as “risk” around the globe, inevitably flowed back into the economic blood systems of those responsible and caused quick and painful deaths.

Joseph Cassano, Dick Fuld, Jimmy Cayne, Stan O’Neill, Chuck Prince, Frank Raines, Lee Mozillo, Robert Rubin, Phil Gramm and Alan Greenspan to name a few watched the Empire burn down. Like Nero, they made it out in time only to leave the giant inferno they created behind for the rest of civilization to put out.

Congress’ 90% tax on AIG bonuses is an attempt to save face for its tragic failing in protecting our nation’s precious financial system.  Undoubtedly, a 90% tax, even for AIG extortionists, is unconstitutional. Every securities and tax lawyer in the nation is lining up for their shot at fame and fortune to overturn the obviously poorly devised law.  After all, we did fight a revolution over that issue, didn’t we?

A word about bonuses. Just for the record, they are not “bonuses” meaning they are not rewards for good work or merit. It is Wall Street parlance for guaranteed pay. On Wall Street, “salary” is really not salary at all, but a base draw with the promise of the balance to be paid at the fiscal year end. 

Bonus is the pay employees are contracted for when they sign on for the job.  It would be like a teacher being promised $50,000 for the school year and being told at the year’s end you are not being made whole. It would be more than infuriating, it would be crippling. How could you pay your bills?

While I sympathize deeply with those un-guilty caught in the cross hairs, if that same teacher raped the fourth grade class, we would hope he or she would not be paid for it. Rather we would expect the authorities to file criminal and civil charges.

This is the issue for all of Wall Street looking on as AIG gasps for air. UBS recently told its employees in all divisions that no one is getting paid this year. The equity traders exclaimed, “But we had nothing to do with the firm’s losses. We made the firm money.”  It didn’t matter. The ship was sinking and all who were on board were going down with it. Except of course for Phil Gramm, UBS’ Washington lobbyist, he earned “undisclosed” millions as the mother ship sank as did the executive operating committee. They took home undisclosed pay too.

The moral of the story is –if you made it out before the fall, you got out right in the nick of time.

The innocent Wall Streeters (okay that is not an oxymoron) and the innocent Americans who make a living by creating value are paying the price for the corrupt and predatory short-sellers and all those who underwrote, traded and sold  fraudulent mortgage-backed securities, collateralized debt obligations and credit default swaps.

It’s not securitization that is the problem; it is fraud plain and simple.

Wall Street big wigs are up in arms about the brazenness of Washington colleagues. If I had been financing their campaigns for decades only to be thrown under the bus, I would be stomping mad too. It is a good reminder that there is truly no honor among thieves.

So Congress, hats off for turning on the hand that feeds you and kudos for putting up the smoke and mirrors front of concern for the “average American.”

Only you really should have thought of this before you gave the money away.  A published statement from the head of the House Financial Services Committee (that is an oxymoron), Barney Frank referring to TARP funds, claimed since the money was already paid and there was no way to go back and attach strings.  Yet there was a clause, Section 5.3 of the Securities Act portion of the bill that allowed just that possibility.

According to the official document and reported in Business Week in November, Congress could retroactively demand repayment of TARP money or attach strings. Frank, as one of the bill’s author’s must have known this.  Surely all of Congress did. Yet nothing was done, until the public firestorm from AIG payouts proved so great, “lawmakers” realized they might be voted out next term due to flagrant abuse and misuse of power.

The fact is that Congress has exposed itself as the dysfunctional sham body of law it really is. In terms of the economy,  it is comprised of two kinds of people- those who have no understanding whatsoever of finance and those who understand finance so well, they know how to hustle the industry and public for their own benefit.

If the 90% taxation on income passes it will be the nail in the coffin for the financial system. Contrary to the buzz on Wall Street, it will not be the death knell for the industry, because that has already been sounded with the collapse of commercial and investment banking in September 2008. This bill would only be the final act of the Shakespearean drama of the Fall of the Wholly American Financial Empire.

Like the Roman Empire it was modeled upon, this fall is its own doing. We celebrated the wrong things. We exalted cunning over intelligence, extortion over fairness, profit-at-any cost over value products and services. We embraced the very things that would tighten the rope around our necks –greed, gluttony and viciousness.

American free market capitalism hanged itself with its own noose of indifference. Congress has been a key accessory to that crime for the past decade undoing every law and blocking every protection that would have avoided this economic tragedy.  

The Empire is burning and there is not enough water left in the system to put it out.  The law of unintended consequences is that when you play with fire, you can a set a colossal blaze that will burn your own house down.

We are witnessing the smoldering embers of our once great financial system turning to ash. The system is not broken, it is crushed, destroyed, pulverized by its own champions.

Congress cannot fix it. The Treasury, the Feds, the President cannot fix it. The industry cannot fix it either. It is in ashes, not to be resurrected. Like the Twin Towers that once crumbled to rubble before the astonished witness of the world, so too has American finance.

There is no banking system left standing. The system of credit is annihilated. Credit for the private sector, small business, big business, consumers or otherwise doesn’t exist.

Securitization doesn’t exist either. The lame offering by the Feds will not take hold. Not if there is a 90% tax behind it.

The system fundamentally based on trust has violated every shred of human decency we counted on.

No amount of laws can replace what only human behavior itself could satisfy. We have been untrustworthy, as business persons, a government, nation and global economy. The lie has caught up with us and there is no escaping it.

Trust has not been broken, it has been irrevocably extinguished.  No one –not even the industry itself, will trust the “perpe-traitors” again.

The only hope for American finance to resurrect itself is to understand that it has already died and must be reborn to something wholly new.

Out of the ashes, a phoenix will rise.

America must build a new system that does not include unregulated “exotic financial instruments,” legalized off-balance sheet betting systems, calculated destruction of competitors and toxic loan products. It must build a system based on creating value and services that are useful to human beings, not short-term profiteers who operate on an 18^th century pirate’s business model.

In the end as AIG executives and the rest of Wall Street and America are learning a painful lesson this week, you can take the money and run, but you will no longer be able to hide. Thankfully, those days are over.

GoodB: The original blog for today has been postponed for next week and replaced by the following from last night’s Daily Show. It sums up how I feel and so many other people across the country and the globe.

Bruce Springsteen:

We have an enormous moral, spiritual and economic collapse…

The country’s lost its moral center. 

The idea of work and service to the public being a part of your work,

 feels like it has been stripped away.

People drank a whole lot of their own Kool-Aid.

There was this subculture of people that basically brought down the country.

And were in the position to do that.

And everybody out there is footing the bill.

Jon Stewart:

You go through the tunnel and you take a chance.

You can work to get away from your circumstance.

And by working to get away from your circumstance,

you can make something better of yourself.

But there is no guarantee…

The joy of it is chasing that dream. That is my inspiration.

 Bruce Springsteen:

I’m working on a dream , though trouble can feel like it’s here to stay.

I’m working on a dream , I will chase trouble away.

I’m working on a dream , Though it can feel so far away.

I’m working on a dream, I will make it real someday.

Working on a dream.

From the Economy of Trust Blog-

In New York at GoodB, we are working on the dream of a shared economy.

One where service and work are clearly intertwined, and all work honors the public trust.

Sometimes it feels so far away.  It feels like our challenges are insurmountable.

But I know we can make it real some day. Working on the dream of a better world for everyone.

Someday, somehow, some way.

Thanks for the inspiration.   MM

Last night, Jon Stewart put CNBC Mad Money’s Jim Cramer on the hot seat and burned his bum. The Harvard educated Cramer squirmed defensively under the weight of Stewart’s quick mind and damning video clips. download strays

Stewart exposed the financial media’s dark side by showing Jim Cramer’s video-taped lessons for manipulating stock prices and outsmarting SEC regulators. Is that what they teach in Harvard Business School?

It begs the question: what’s the difference between a multimillion dollar media “financial expert” and an ordinary street hustler? Answer: A couple of Ivy League Degrees.

Aside from Cramer’s humiliation to his Alma Mater, his duplicity revealed the charade that is televised financial news. Con men from the Street wander onto the tube and drive the markets with hysteria and false information. Rick Santelli, the Squawk Box chickens, Faber, Gasparino, Fast Money, Mad Money –the ethical wasteland of television financial reporting was laid bare on last night’s Daily Show. It was a pathetic and enraging display of self-interest trumping world-interest once again.

Yet irresponsible and deceitful mass media is nothing new—hence why the blogosphere and web news is becoming more popular by the day. Remember how the media pushed the Iraq war? Even the New York Times rode that train home. It seems that one of the few reliable symbols of trust left in American society is a comedy cable show. Jon Stewart has become the modern day Walter Cronkite.

Stewart asks the crucial question, who is CNBC News reporting responsible to—Wall Street traders or the general investing public? Most of us know the answer is Wall Street. CNBC airs all day long on the New York Stock Exchange and market makers take their cues from the network. Like the markets themselves, hyperbole and bull is a CNBC specialty.

Yet picking on a defensive and guilty Jim Cramer is not the real point. Grand lies are told to the trusting public not just by self-promoting newscasters and banking CEOs, but by those responsible for overseeing market regulation.

Jon Stewart alluded to a “rule” that allowed investment banks like Bear Stearns to ratchet up leverage at 35 to one.

More than sneaky Jim Cramer or the egomaniacal Rick Santelli, the guardians of our nation’s economic system failed to protect us. Alan Greenspan, William Donaldson, Christopher Cox, Hank Paulson, and everyone else with their hands on the controls drank a free-market cocktail so potent they were intoxicated into complicity.

Last week, the Economy of Trust Blog detailed the devastating effects of the reversal of the Glass-Steagall Act that brought our nation’s largest banks to insolvency (Bad Boy Bankers: A History Lesson).

This week EOT reports on a fateful April 28, 2004 meeting that took place at the Securities and Exchange Commission.

The issue at hand was the lifting of a “little ruling” that had been on the SEC books since 1974, the “net capital rule.” The rule limited investment banking leverage to asset ratios to 12 to one—meaning none of the five giant securities firms could borrow more than 12 times their liquid apital or they would automatically be barred from trading.

Most big firms kept a safe distance from limits and maintained debt balances ten times their assets. The Big Five were knocking the ball off profits, yet it wasn’t enough. The CEOs of the five largest financial institutions in the world led by Goldman Sachs’ Hank Paulson petitioned the SEC panel of “five experts” to relax the rule.

The SEC panel included investment banker William Donaldson, former chief executive of securities firm Donaldson, Lufkin and Jenrette, Roel Campos, a federal prosecutor and future member of President Obama’s economic advisory team, Annette Nazareth, Director of Market Regulation and former executive at both Citigroup Salomon Smith Barney and Lehman Brothers, and lastly Harvey Goldschmid, a Columbia University Professor and securities law expert.

Paulson and crew expressed to the SEC that as market professionals they understood risk management better than anyone. Therefore their firms should not be limited by an arbitrary standard of debt/capital ratios. Donaldson agreed to the deregulation of leverage without hesitation. Goldschmid expressed temporary hesitation, “These are the big guys. If anything goes wrong, it’s going to be an awfully big mess.” The professor posed the brief meeting’s all-important question, “Do we feel secure if there are these drops in capital we really will have investor protection?”

SEC Commissioner and former banker Nazareth dismissed his concerns, “We will hopefully have a lot of warnings.” Campos announced his approval, “I am happy to support it and I keep my fingers crossed for the future.”

With fingers crossed and hopeful assurances, these nine men and one woman unleashed an economic tsunami whose full force would threaten the global financial system —a spectacular feat by any standards.

It would be the undoing of the greatest economy in the modern world. Investment and commercial banks, those with five billion dollars in capital or more would lever up to 25, 30, 35 and 40 to one. The dangerous risk levels jeopardized not only the health of these institutions, but the health and welfare of the American public.

The lead architect behind lifting the net capital rule, Hank Paulson, would hold the key to the U.S. Treasury only two years later. Lethal amounts of leverage, estimated at 35 to 1, would result in the death of three of the five investment banking giants and initiate the biggest government bailout of “bad debt” in the history of finance.

Only four and a half years after the elimination of the net capital rule, Paulson would be petitioning the United States Congress for $700 billion dollars to liquidate these collapsing overleveraged firms.

How could the American regulatory system permit a handful of former and current investment bankers to make economic decisions of this magnitude without public debate and vigorous investigation?

There are deep and perilous black holes in our economy’s oversight that have not been addressed since the SEC was formed in 1934. The overturning of the net capital rule allowed the wolves to supervise their own hunts while our protectors looked the other way. Not only did they get paid for a failed job, they personally benefited from these policies.

President Obama appointed Mary Shapiro as the new Chairman of the Securities and Exchange Commission. Ms. Shapiro, who served on the SEC under Presidents Reagan and Clinton, was most recently the CEO of the Financial Industry Regulatory Authority, a self-regulatory organization funded by its financial institution members.

Okay- let me say that again. The financial industry regulates itself? It is inconceivable that we continue to repeat the same pattern of self-defeating behavior. How many global economic debacles do we need to endure before we fully comprehend the danger of this rationale?

Clearly, Shapiro failed in her task at the Financial Industry Regulatory Authority. She served at the agency from 2002 through 2008, exactly the years of the industry’s most flagrant deregulatory abuses.

Why is a private sector “self-regulator” heading the most important oversight position next to the U.S. Treasury and the Federal Reserve?

How can we expect someone to protect our interests by regulating the same people that are signing her two million dollar pay check? It is simply not possible—or plausible.

It is time for us as Americans to get real. We cannot leave our economic security in the clammy hands of individuals who have repeatedly proven themselves unworthy.

If the economic crisis teaches us anything, it is that the ordinary working public is the engine of the economy—not the corrupt paper pushers in Washington or the billionaire CEO’s on Wall Street. We are the ones supplying the cold hard cash to the perpetrators who created this mess. Right now, they need us more than we need them.

Jim Cramer bragged that the SEC was clueless. I don’t think the SEC is stupid at all. The commissioners are the very same people that work in the industry pushing the limits of the law with “ethically dubious” actions. They are very good at saying the right words in public, just like our fake financial news teams and incompetent lawmakers, while slapping the backs of boardroom buddies behind the scenes.

We the American people are the stupid ones if we continue trusting these “experts” to put our national interests before their personal ambition. We need to get smart fast.

I support President Obama in his mission for change. Yet I am increasingly concerned that he is surrounding himself with the same failed regulators as the three presidents before him.

If our government does not put its own brakes on its inefficiency, gluttony and corruption…it may be high time for another revolution.

GoodB Blogs are different than the business news norm. Their purpose is to educate the citizen-consumer and interested business person on what is going on beneath the surface of the reported news and to offer innovative alternatives and practical (albeit provocative) solutions for current economic issues.  From time to time, GoodB adds a new feature to the blog called Soul School to look at the economic crisis through a bigger lens. Just remember, GoodB is there with you, experiencing the upheaval as you are, every step of the way, right from the belly of the beast, New York City.   Best to you all, MM.

Soul School: Lesson One

Peter Ressler (co-founder of GoodB) once said to me: Fear or Faith. You either live in fear or faith. You can’t live in both at the same time.

One thing we are learning through this global financial crisis is that much of the prosperity in the “boom” time was an illusion. The feeling of being “flush with money” was the abundance of ready credit. Record profits earned by banking firms were in fact “paper” profits only, numbers on a page that did not represent real value.  Some of us who saved well are seeing this in our diminished 401Ks and investment accounts. Others of us who spent well are reflecting this myth in our heavy debt loads that become more burdensome daily.

It is not so much that the pain of our current crisis is “just desserts,” although it is for some. Yet more profound than that, we have been brought to our knees for perhaps another reason.  Somewhere in the quest for more, many of us, forgot about “enough.” Enough means we are satisfied, we have all we need. How many Americans thought (I include myself here), “I have enough?”  The words more often on our lips and brains were, there is never enough. We may have said that we are grateful for our abundance, yet still every day we looked to increase it. True gratitude is being satisfied with what we have.

We have really not lost anything worth keeping over the past two years -except faith in the institutions we thought we could count on.  America continues to have vast amounts of natural resources to support it, not the least of which are people.  Our innate resourcefulness has not decreased, but rather increased in the last century. We are a nation of mavericks. Not the Sarah Palin kind where status quo is mistaken for “innovation,” but the kind of maverick that has the ability to reinvent itself every day.

Whether your ancestors came here by boat or plane from far off lands—legally or not; whether they lived here for ten million years and fought hard for the last patch of land; whether they came here against their will in the savage chains of injustice—no matter who you are, Americans know suffering. It is in our very DNA.

We haven’t had to feel this challenged for a while as a nation. Not unless you were in New York or on the fated planes in 2001, or had your home and family swept away in the wild currents of New Orleans.

Real suffering of the kind our parents, grandparents and great grandparents experienced has mostly eluded us as a society.  We may be able to relay stories of the struggles our elders endured through the Depression or the Big One, WW2.  But unless you lived through them too, it just isn’t the same.

Experiencing September 11, 2001 as a New Yorker, the acute terror of the day is still as vivid for me as if it were yesterday. The horror of the human fireballs and farewell calls from the dying to the living will never leave my mind. I remember thinking: This must be what war is like.

 As much as America suffered through that tragedy, it was one fateful day of what some of our ancestors lived through every single day before they were lucky enough to escape to the land of liberty. Still some continue to suffer over their losses from that day. For most citizens, however, September 11 was “old news” only two months later. Suffering was an illusory moment in time that had little to do with our remarkably privileged lives.

Yet many outside our nation and some in it continue to live in war and Depression-like conditions. For them 9/11 is a daily reality.  For them, economic crisis is a fact of life. The boom never blessed them with its kiss. 

Some sing about their struggle across the radio waves, only few of us hear their cries. The city underwater has dried out to reveal the rubble where great hearts once beat.  Faces across computer screens and copied in news journals bear witness to pain we have never known.  It almost makes me want to pray. So I do…Bring them comfort; relieve their burden.

As a kid in church, I was bored out of my mind with familiar and stagnant creeds. Everything was learned by rote and followed with, “Lord Hear My Prayer.”  I couldn’t imagine it then, but these words stick with me now. I no longer go to Church. I know longer believe in the liturgy. For me, they were empty words. But prayer is not. Prayer is the words behind our thoughts of hope.

Lord Hear our Prayer.

I have discovered in the years since then that faith is not something anyone can give you in words or parody. It is something you find deep in your heart.  Faith is the deeper knowledge in the most private parts of ourselves that all things happen for a reason even if you cannot see it. It is faith in the belief that there is a greater purpose to every day of life and each step you take on that journey.

A friend wrote recently from her peaceful Midwest farm that she “flip-flops daily between fear and joy.” The truth of her confession jolted me. There she was –far from the belly of the beast that is the New York financial world these days and she felt as I did. Her words echoed mine and millions of others.

In New York these days, there is great fear and very little faith.  Around the country, around the continents, anxiety and trepidation grip our fragile minds and trap us into that soulless place.

We either live in fear or faith. We can’t live in both. 

In truth when I look at these words, I think. What choice do we have? To live in fear closes us off in a black hole  of recoiled terror. We shut off the outside world and only hear words of doom. Deep sighing, breathless days, sleepless nights… What possible relief can these give us?

Faith and Hope. This is all we have to offer ourselves and each other these days. Not idealistic or flimsy words, but real, steady and powerful thoughts.   Think of all those who live through things we cannot imagine. Think of how we overcome our own sorrows and struggles. Think of our ancestors who faced their fears in a new harsh land to create a world that most would give their soul for.

But that is just it. We are not asked to give our souls for it, but to give our souls to it. We are asked to have faith in the infinite possibilities of a future more incredible than anything that we have yet experienced.

Shakespeare’s Hamlet said, “There are more things in heaven and earth, than be dreamt of in your philosophy.” Written four centuries ago, these words are as true as ever.

As we travel through this economic crisis together, and face the unknown as a global community, keep faith in your heart for those possibilities. Know that like our ancestors who paved the way for us, we can meet these challenges too and not let our “worst fears” crush us. If we give up on Hope what choice does that leave us? The thing we have to fear most is getting lost in fear. It makes us do things that escalate our problems that much more.

I offer my deep hope that this economic crisis ushers in a global consciousness that brings us out of the fear of lack and moves us into the faith of plenty—something greater than we ever dreamt possible in our ordinary philosophy.

Lord Hear our Prayer.