Depression babies - the trajectory

If ever we would land up in a prolonged economic slump...

From here: How today’s young will be affected 10, 20 or 40 years on will depend on many things — the children of the Depression were shaped as much by the war that followed. The recession generation will include those born into it, at the youngest end, and those emerging out of college and high school into a jobless marketplace, at the oldest. If history is any guide, what will matter most is where they are on the continuum.

...

In long-term studies, the younger group suffered the bigger psychic scars. For them, the worst disruption of the Depression coincided with the critical years of development when they most needed their parents. With incomes dropping, parents fought more and drank more, leaving children bewildered and often alone. Years later, the group looked back on their childhood as a period of unpredictability, and their high school years as a time they lacked direction or a sense of confidence. As one small-business man put it, “my entire adolescence was a period of painful and frustrating disorientation.”

The older children were better able to understand the hardships, and to get outside the household to help the family earn. They went off to World War II and benefited from the structure of the military, then returned to the booming economy and the G. I. Bill. Ultimately, Professor Elder said in an interview, “they came out with an ability to know how to survive and make do and solve problems.”

New income source discovered – collecting payments from kins of dead people…

You could trust the nations ailing financial system to figure out new and innovative ways to make money – here is one. Calling up a dead person’s relatives and using emotional arguments, ask them to them to honor unpaid bills of their dead relatives (even when they have no legal obligation to honor the debt).

From the NY Times digest today: Dozens of agents at DCM Services here call up the dear departed’s next of kin and kindly ask if they want to settle the balance on a credit card or bank loan, or perhaps make that final utility bill or cellphone payment. The people on the other end of the line often have no legal obligation to assume the debt. But they take responsibility for it anyway. “I am out of work now, to be honest with you, and money is very tight for us,” one man said after he was told of his late mother-in-law’s $280 credit card bill. He promised to pay $15 a month.
Collecting from the dead, however, is expanding. Improved database technology is making it easier to discover when estates are opened in the country’s 3,000 probate courts, giving collectors an opportunity to file timely claims. Survivors generally are not required to pay a dead relative’s bills from their own assets. In theory, however, collection agencies could go after any property inherited from the deceased.

On Greed

Finally, an essay supporting the 'Greed is good" axiom (amidst these troubled times). The funny thing is that it sounds hollow and strangely compelling almost all of the way... (and where else should it be printed, but the Wall Street Journal).

"Wall Street" has always been the quintessential, if ill-defined, symbol of American capitalism. In reality, Wall Street today includes many large banks, investment groups and other institutions, some not even located in the U.S. It has become a euphemism for the global capital markets industry -- one in which the combined market value of all stocks and bonds outstanding in the world topped $140 trillion at the end of 2007. Well less than half of the value of this combined market value is represented by American securities, but American banks lead the world in its origination and distribution. Wall Street is one of America's great export industries.

The market thrives on locating new opportunities, providing innovation and a willingness to take risks. It is also, regrettably, subject to what the economist John Maynard Keynes called "animal spirits," the psychological factors that make markets irrational when going up or down. For example, America has enjoyed a bonus it didn't deserve in its free-wheeling participation in the housing market, before it became a bubble. Despite great efforts by regulators to manage systemic risk, there have been market failures. The causes of the current market failure, which is the real object of the public anger, go well beyond the Wall Street compensation system -- but compensation has been one of them.

The capital-markets industry operates in a very sophisticated and competitive environment, one that responds best to strong performance incentives. People who flourish in this environment are those who want to be paid and advanced based on their individual and their team's performance, and are willing to take the risk that they might be displaced by someone better or that mistakes or downturns may cause them to be laid off or their firms to fail. Indeed, since 1970, 28 major banks or investment banks have failed or been taken up into mergers, and thousands have come and gone into the industry without making much money. Those that have survived the changing fortunes of the industry have done very well -- so well, in fact, that they appear to have become symbolic of greedy and reckless behavior.

Comment on a recent report of brain drain

Yesterday, President Obama announced a $500K salary cap on executives of companies that were planning on using the bailout money from TARP funds. I immediately heard commentators on the evening radio (NPR) lamenting about a brain drain on Wall Street due to the reduced incentive structures. My view is that if these are the brains that have managed to get us into this financial sinkhole, then the right solution is to drain the place of such brains. No, we do not need brains of this nature gallivanting around Wall Street anymore. The brain drain might actually be a good thing for the nation.

Chart data from here.

Greed is good (also addictive)

The adjustments to life made by the spouse of a Wall Street banker after the banker's bonus was reduced (noticed in comments made on the DABA blog).

We’re looking at just enough money to make our mortgage payments, paying none of the principle down. So we aren’t going to lose the house yet, but we aren’t going to think about THAT until NEXT January. Meanwhile: My own dinky-by comparison salary, which had been my own since I went back to work so I could have the company of grownups, is no longer my own. It all will be spent on family expenses. The sitter’s hours are cut, both the family and my private credit card are cut in half, and I’m switching from having my facials and massages in my earthy, yoga-and-wine serving downtown spa to a midtown been-in-business-forever place with ladies in cubbies wearing pink jackets and lots of make-up giving facials only. I know, I know, only old people and gay men go there these days, but congested skin isn’t an alternative for me, so I have to go someplace. I’ll do it once every 6 weeks instead of monthly, and it is 1/3 the price of the facials at the spa. And I remember from the 80’s that they do a good job.

It gets worse. I’ll now be doing my pilates with others, in class, on the mat instead of on the machines with my private instructor. This truly frightens me. I could hurt myself competing with you 20-30 yr-olds. Private was so much less humiliating. And yes, cooking at home. We had been enjoying the new Whole Foods to-go foods section so very much. Oh well - hello Associated Market. Did you know you can sauté’ an entire bag of frozen spinach in a large frying pan with a bit of onion and olive oil, chop a bit of domestic feta into and serve it to your whole family with a squeeze of lemon, and it’s a healthy and cheap alternative to pasta as a main dish? It is so good for you and the kids love it. And we’ll need the alternative because there will be a lot of pasta. Cooking pasta sauce on the weekends isn’t my idea of a good time, but that’s what we will be doing because I’m not ready to do something original every day. I have always been a great appreciator of other people’s cooking.

Greed is good

From here:

Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year. That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.
Many corporate governance experts, investors and lawmakers question why financial companies that have accepted taxpayer money paid any bonuses at all. Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.

Why it might be a good idea to get a job on Wall Street

I sometimes read reddit, and this morning I ran into a post that was emblematic of the times... Click on the image below to enlarge...

Wall Street Ponzi

Tom Friedman sees no difference between the Ponzi scheme run by Mr. Madoff and the Ponzi scheme run by Wall Street. I could not agree more.

I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who takes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

Tip of the iceberg slowly thaws...

Finally, signs that something might be happening in the secretive, tony world of executive compensation...

American International Group Inc. agreed Wednesday to freeze some $19 million in payments to its former chief executive, Martin Sullivan, while New York Attorney General Andrew Cuomo reviews executive compensation and other expenditures aid out as the company neared collapse earlier this year.

About time... Of course, one can't be too sure if Cuomo is trying another Spitzer...

Bailout angst on Wall Street continues - pictures

Stepping outside for lunch, one is greeted nowadays by signs that seem to exude a labor union type dispute in a factory setting. It was funny to see Main Street collide with robotic pin striped suits strutting around Wall Street...

An intrepid man and woman team from dirtymoney.com managed to climb up a couple of flagpoles behind the iconic bull in Lower Manhattan and plant an American flag with the words FORECLOSED? emblazoned on it. They seem to have climbed the narrow poles using makeshift harnesses and cords. Impressive and dangerous, I must say. The scene below them was fairly chaotic with at least a hundred police officers and emergency workers looking to find some way to coax them down the poles.

It was an interesting scene - a busload of fairly clueless Oriental tourists somehow descended from nowhere and added to the general pandemonium.

Finally, the guy gets off the pole after about a half hour. He was greeted by the waiting arms of the officers who were fairly helpless in dissuading him earlier...

He was promptly read his rights and handcuffed and whisked away. His lady compatriot had scaled down earlier and faced a similar fate.

Meanwhile at a building overlooking the Stock Exchange, an enterprising group of young women decided to don these masks and placards around their necks with the words 'Greed Kills'.

I thought the most interesting part of the afternoon was this old individual casually resting against a trash can with his flute enjoying his dulcet production while the girls were protesting with their death masks above him. He seemed to be out of the whole system - in his own world..

Bearish views

Wall Street blues - a poem

I took a quick afternoon walk
down Wall Street.
Walked past bankers, rapists,
couple of commonplace murderers,
some stray immigrants,
lovers, fruit vendors and students.

Some had just made a killing
off someone else's fortune.
Some had just killed
for someone else's fortune.
Some were learning to kill
over that self same thing.

Some had just made love
furtively in that empty office space
knowing fully well,
they would not confess.
Some forced their love
on unwilling terms, from positions
of advantage and carrots of promise.

Others were making their plans
of working the American dream,
using, of course - the gospel;
Gekko's famous lines as guide.

Others were just busy, buying lunch
and hurrying back to finish that deal
which will foreclose another home
somewhere else far away.

Some were selling fruit juice
in little plastic cups.
Four dollars for that little cup
seems to resonate
with the rest of the space; rapacious.

Yes, I passed them all
while walking
down Wall Street.