Opinion: The hubris of Wall Street foreshadows its end

I always used to say to myself that the neo-conservatives will fall due to their hubris. The Bush administration probably signals the multi-decade peak of hubris in world econopolitics. Not to be outdone, Wall Street is another corner of the world where hubris, arrogance, and disregard for everything except money runs wild. The financial crisis will likely put an end to the hubris of Wall Street. In essence, the hubris of Wall Street brought it down.

To see how arrogant Wall Street is consider the lashing out by Jimmy Cayne, the CEO of Bear Stearns, with the comments being directed at Tim Geithner, the chairperson at the New York Federal Reserve at that time. The following excerpt by The Wall Street Journal comes from the upcoming book House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan (thanks to Crossing Wall Street for the original citation; incidentally, Crossing Wall Street equates Jimmy Cayne to Colonel Kurtz from Apocalypse Now):

Asked about Geithner’s comments and his decision regarding opening the discount window to Wall Street after Bear had been sold for $2 a share and not earlier, Jimmy Cayne became spitting angry.

“The audacity of that p—k in front of the American people announcing he was deciding whether or not a firm of this stature and this whatever was good enough to get a loan,” he said. “Like he was the determining factor, and it’s like a flea on his back, floating down underneath the Golden Gate Bridge, getting a h–d-on, saying, ‘Raise the bridge.’ This guy thinks he’s got a big d–k. He’s got nothing, except maybe a boyfriend. I’m not a good enemy. I’m a very bad enemy. But certain things really—that bothered me plenty. It’s just that for some clerk to make a decision based on what, your own personal feeling about whether or not they’re a good credit? Who the f–k asked you? You’re not an elected officer. You’re a clerk. Believe me, you’re a clerk. I want to open up on this f—-r, that’s all I can tell you.”

I can see someone who built up a glorious Wall Street firm with most of his wealth tied up in it getting mad when he loses almost everything. My problem with his attack is the total detachment of him from reality. It's not the government that's bankrupting his firm! Rather, he is beggging the government for aid to prevent a collapse and then lashes out when the government says no. These guys live in a parallel universe and can't seem to understand that they can actually lose. They are not priviledged enough to influence government anymore.

Now, I'm not totally defending the FedRes actions here. A lot of the anger is over the fact that the government opened up the FedRes loan window right after saying no to Bear Stearns and letting it collapse. There is a lot of duplicitous behaviour by everyone involved, including the highest levels of government, such as the Treasury Secretary and President. I mean, one just needs to look and see how most of the money funnelled into AIG is going to banks such as Goldman Sachs, Deutche Bank, and so forth. There is some speculation that the bailout of AIG is actually a bailout of Goldman Sachs. I don't think there is anything wrong with bailing out Goldman Sachs or anyone else, but the government should come out and say so, while taking AIG into bankruptcy (or the equivalent for an insurance company.) All this dealing in "smoky rooms" is not good for capitalism or any notion of a free market. All it does is raise more questions and lead to rumours that may or may not be true (for instance, it would not surprise me if some start speculating that Henry Paulson, who was a CEO of Goldman Sachs, may have strctured policies to bail out his firm.) Going back to what Cayne was mad about, I do wonder why the FedRes did what they did.

The government banker may be a "clerk" but the "best and the brigtest" will be taking orders from these clerks for a long time. It's bad for the free market, with financial innovation slowing, but the private sector bankers have brought the world economy to its knees and they don't even realize that they are partly culpable.