Politics & Media
Sep 26, 2008, 07:40AM

Can the Financial Meltdown Be Averted?

Sometimes working on Wall Street is exhilarating. Right now, it’s definitely not.

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Phillie Casablanca

It’s been an extraordinary two weeks in what was already a rather exceptional year in the financial services industry. I work “on Wall Street.” In nearly nine years in this business, I have seen some significant ups and downs—September 11th, 2001 most notable among them. 9/11 was traumatic for this industry, but in reality the trauma was primarily psychological or emotional in nature. The last two weeks have also been psychologically and emotionally jarring, but in this case, the financial system of our country has been shaken on a fundamental and systematic level. As I write, both presidential candidates have returned to Washington to work with President Bush and their fellow members of Congress so that the federal government can provide some sort of solution to the current crisis.

It would be reasonable to assume that because I work on Wall Street, I’d be able to offer a unique perspective on what we now face. Yet in many ways, I know as much (or as little) as anyone else. The extent to which the specifics of the current situation surpass my understanding points to a crucial element of how it is we got here: we as a country, we as taxpayers, we as investors and even we as fellow financial services industry workers have been betrayed by the reckless, irresponsible and, yes, greedy, actions of a very few individuals.

So, what exactly is it that I do? Put in the simplest terms, I am a salesman. My job is to convince institutional investors (mutual funds, pension funds, hedge funds, etc.) to buy and sell stocks with my firm. If I am successful in convincing such an entity to begin doing business, I then become something of a relationship manager, by which I mean that my job evolves into maintaining the customer’s business and, whenever possible, increasing the level of that business over time. To do my job effectively, I need a solid understanding of the financial markets—the stock market specifically. My customers do not need my advice on what to buy and sell. They are trained to do that themselves, or someone above them directs their transactions accordingly. What they do need and rely on, though, is my knowledge and feel of when to buy and sell their stocks, and what sort of result they can anticipate once their trade is complete. They count on me to alert them to important news not only about the specific stocks they are trading, but also about the markets in general. Information is vital to success in my job, and the ability to effectively communicate that information is the real key. These last two weeks have been as volatile, uncertain and unpredictable as any I’ve experienced, and without a doubt, everyone’s abilities have been put to the test.

The rollercoaster ride began in earnest earlier in the year, as Bear Stearns fell apart. We shook it off, though, only to watch in amazement again this summer as Fannie Mae and Freddie Mac teetered on the brink of failure, saved by a bailout from the federal government. Smart analysts had months ago warned that Lehman Brothers was in danger, noting the similarities between Bear and Lehman, and the uncomfortable correlation between the types of investments and debts weighing on both firms. While most believed there was no way that Lehman could (or would be allowed) to be “the next Bear,” early this month the writing was on the wall. The reasons for Lehman’s eventual failure are still being sorted out, but the impact of that failure had immediate repercussions.

There was panic. There was panic from customers who watched, ashen, as their portfolios lost value and their year-to-date gains disappeared. I saw very conservative, well-respected and cerebral investment firms engage in what I can only believe was true “panic selling.” There was panic from those entrusted with overseeing the very system now facing a real crisis. As is often the case, here too the panic largely resulted from the many, great unknowns. I certainly don’t know how much more toxic debt lies buried in the books of financial firms across our country, but there is no reason why I should know. More alarmingly, however, the men and women in charge of the very firms nearing their demise didn’t truly know the extent of their remaining exposure either. The SEC, the Federal Reserve, the Treasury Department—none truly knew the extent of the catastrophic precipice on which we found ourselves. Emergency actions were implemented such as a ban on the short selling of stock—something I could never have imagined as I had chuckled in the past on hearing of various emerging markets’ complete and total bans on short sales—or sometimes on selling at all!  I’m not laughing any more.

The Thursday after Lehman filed for bankruptcy—in the midst of the most tumultuous week of trading I had ever seen—I had my only moment of true panic. Bear was gone. Lehman was now gone. Merrill Lynch was effectively gone, having been acquired days earlier by Bank of America. That left only two of the handful of Wall Street giants we had for so long been accustomed to: Morgan Stanley and Goldman Sachs. I remember vividly that Thursday as I watched the share price of Morgan Stanley plummet with a velocity and an intensity I’ve never witnessed. Tens of millions of shares of the stock were trading every hour, and early that afternoon, it appeared Morgan Stanley was headed for a Bear- or Lehman-like fate. In the space of only 30 minutes, Morgan Stanley’s stock had fallen more than 50 percent, at one point flirting with single digits. It was only the breaking news of the plan being hatched by Treasury Secretary Henry Paulson that rallied the markets, taking Morgan higher with it.

This small example points to the importance of what the media have taken to calling “the bailout plan.” I think a more appropriate moniker is “rescue.” We’re beyond bailing out. Bailing out is only a temporary stopgap. We need a rescue. I can hardly believe I’m writing this. As a Republican (and a Republican primarily for fiscal reasons), the idea of increased government intervention or oversight on the nation’s economy is absolute anathema to me. With that said, it is my firm belief that Democrats and Republicans absolutely must come together to pass some version of the Paulson plan—and sooner rather than later. I hope it will be the most responsible plan possible with respect to the role the government will play in the financial industry in the future. I hope the Democrats won’t take advantage of the vulnerable situation we’re in to insert more government controls than are absolutely necessary. I hope the taxpayer will bear as little of the burden as possible, and that they will stand to reap the majority of the benefits of the plan’s potential upside. But I don’t feel as though now is a time to be picky, and I don’t think now is a time for partisanship.

Say what you will about President Bush, his speaking ability or anything else, but he was excellent when he addressed the nation on Wednesday night. In clear (if sobering) terms, he effectively laid out the facts of the present situation, and skillfully explained much of what led us here. As Bush said:

“The government’s top economic experts warn that without immediate action by Congress, American could slip into a financial panic, and a distressing scenario would unfold: More banks could fail…The stock market would drop even more…The value of your home could plummet.  Foreclosures would rise dramatically…More businesses would close their doors, and millions of Americans could lose their jobs…it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.”

He’s right. This is unprecedented, and it’s dire. There is more bad news out there and more pain to come—the extent of which we just do not know. So the unknowns remain, and as unfortunate as it may be, a rescue from the federal government has become the best of a limited number of terrible choices. Those supposed to know don’t know.  Those responsible for not letting this happen have let it happen. The actions of a very few have the very real possibility of dragging down all.

Remember, I’m no financial expert, but I do read the markets, and I do know my clients. The markets, my clients and my gut all agree that drastic action is necessary. Inaction is not an option. The sooner we swallow this pill, the sooner we can begin to heal. Take it from me—I’ve got a front row seat.

  • Hey Bragg: Refreshing, level-headed perspective from a guy who seems closer to the front line than most. I certainly agree we need fast Congressional approval for the Rescue Plan. This is not the moment to worry about softening the blow to future foreclosees, limiting excessive payouts, punishng the evil doers (lots here: Wall Streeters, bankers, bank regulators, rating agencies, certain Congressmen et al) and other tacks for grandstanding to constituents. Deal with that later, after the ten alarm fire. Just come to grips QUICKLY with a) is the $700 B the right number? b) at what price level does the Gov't buy the toxic loans- Bernanke is at yield to maturity, Paulson is closer to 'real market' - there's a significant difference c)who will do the critical analytical work to determine current values and predict future values, then negotiate deals with sellers; not something many gov't employees have experience with. It may be smart to hire (yikes!) some Wall Streeters. Hey, there are some Lehman people available. BUT JUST GET IT DONE, CONGRESS!! An inexact plan is better than no plan as the credit markets freeze solid. We all share the same sick economy, even if Far Right free market idealists may not have grasped that.

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  • What have you been hearing about the capping of CEO wages? Are the heads of these distressed companies ready to sacrifice their paychecks for the hope of a resuscitated economy?

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  • Mr. Van Antwerp, I genuinely wish you the best of luck. Having said that, I am beginning to have some serious doubts about this bailout. First, I’d like to address this sentiment that Congress is screwing up by taking too long with this plan – Congress is doing the very thing that the founding fathers created it to do: slow things down so that there can be meaningful debate and discussion. The legislative process in this country is designed to prevent rash decisions. Additionally, I’ve been hearing a lot about the dire consequences of failing to pass a bailout, and how we could see another Great Depression. However, I can’t help but take this with the grain of salt that we are hearing these claims from people on Wall Street – largely the same people who played a huge role in getting us into this situation and have been wrong about everything up until this point. As I write this comment, the Dow Jones Industrial Average is up about 120 points, and there hasn’t been any announcement of a bailout deal. Maybe this is super cynical of me (and way more conservative than I would ever describe myself), but the more I think about it, the more I feel like maybe we should just let some banks fail. After all, it’s not like all of the banks are failing. I know this is a HUGELY unpopular view, but at some point we have to reap what we sow.

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  • Philmedley is correct that Congress shouldn't be a rubber stamp for legislation, especially bills that are put together so quickly. Having said that, the Dow isn't the only indicator of the economy's dire straits. As Carreraman said above, it's the credit markets that are tanking. No one is currently lending money and that's the real problem. Also, it's really bad timing that this is happening during an election year, especially so close to the election. Politicians, who often don't even read bills before voting aye or nay, are preening for the cameras, in hopes their constituents will see them. If this crisis occurred during a non-election year, the to and fro wouldn't be the same. As for Americans reaping what we sow, that's fairly cynical. Most of the very rich will find a way out of it, although some won't. Those in the middle class with families to support and mortgages to pay and small businesses to operate will be on the short end of the stick.

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  • Good Lord, after watching the debate last night I don't think either Obama or McCain has a clue on what to do about the economy. This isn't Enron, where you can perp walk a bunch of crooks who ran a company into the ground. It's much deeper and no politician seems to have a clue.

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  • Who knows what to do about wall street. Hopefully it will just fix itself.

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  • Thanks for reading and for all of the comments. Let me first say that I do not work at any of the firms that you have seen "in the news". I still have my job (knock on wood!), though there are a number of men and women who did EXACTLY what I do at Bear Stearns or Lehman Brothers who don't have a job today -- and thousands of other employees in a variety of areas in those firms who are now out of a job and, in many cases, out of a big chunk of their savings or investment accounts. It's a scary time for a lot of people -- hard-working people who have absolutely nothing to do with the mistakes made by those who were selling, trading, etc. the mortgage-backed securities (and similar investment vehicles) now bringing down these firms. "Wall Street" (in the larger sense) is not at fault here, though certainly there are aspects of the Wall Street corporate culture that allowed this to happen (and probably even encouraged it). That should and likely will change. The failure of the House of Representatives to pass the Rescue Bill today was atrocious, in my opinion, and there's a good chance that today's 777 point drop in the Dow could be the beginning of an ugly slide. We'll see. The unknown remains, unfortunately, and now due to Rosh Hashanah, it will be at least another three days before Congress even as the OPPORTUNITY to consider doing SOMETHING about this crisis. Today, the House of Representatives failed the country.

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  • I'm no expert on finance or politics, but I do read the news and do talk to people at work. And they're scared silly that everybody, especially those who are mot vulnerable, are going to go broke. Barack Obama was far better than John McCain on the news today, saying the bailout bill must pass. Some say he has no experience, I think he showed leadership today and has my vote.

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  • this is why we need Barry!

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