Confidence Men; Wall Street, Washington and the Education of a President – Ron Suskind

I have to be honest; I didn’t actually finish this book. It’s over 500 pages long and after plodding through just over 2 years of history I was still just over halfway through and I was exhausted just reading about the way in which the power brokers of the US system operate, so I gave up.

Ron Suskind is a very detail oriented and gifted researcher. Using considerable journalistic skill he has woven a compelling story of the Obama campaign and the first term of the Obama administration. For a political junky like me it was eye-opening and truly put the American political climate in a new light. Coming from Canada, I have often marveled at the way in which the United States is organized. To me, coming from a political system that is built on a parliamentary liberal democracy the populist system of checks and balances used by our neighbors to the south has always seemed messy and inefficient.

Suskind has done nothing to alleviate this impression. Good old fashion majority rule still, to me at least, seems to be a far better way to organize a country, especially one that dominates the economic climate of the entire world in the way that the US does. But I don’t get a vote (pun intended) so I guess we’re stuck with this dysfunctional system for the time being.

Here are a few of the quotes I took from the from the first half of the book, with a few comments for clarity of understanding.

Who would loan money to a dead company? Mostly unwitting pedestrians by way of their 401(k)s, in investment funds, pension funds, and retirement accounts of all stripes, or in the new infusions of debt they’d take on, at the slightly lower rate, through their credit cards and second mortgages – debts that, more and more, would never be paid back, because the point, for so many Americans, had not been their ability to pay debts, but just to carry them, for one more day. They’d been flocking to Wall Street’s debt rollover party for years – a rate cut means a whole new set of invitations – though few would realize it had become a vampire’s ball. They’d be devoured so Wall Street could live another day. – Ron Suskind; Confidence Men

Most consumers invest in grouped funds through 401(k)s and IRA’s. In Canada we call them RRSPs (Registered Retirement Savings Plans) and IPPs (Individual Pension Plans). The point is, most people don’t know what they are actually invested in, they trust their advisors and plan administrators to do that for them. More and more, during the latter half of the Bush II administration people were investing in weakened companies, their money was propping them up and the cheap money they were getting through loans from the back was allowing them to continue along business as usual without the need to make any structural adjustments. It was a house of cards that was bound to collapse.

One day we will have to stand before the God of history, and we will talk of things we’ve done. Yes, we will be able to say we have built gargantuan bridges to span the seas. We built gigantic buildings to kiss the skies… It seems to me I can hear the God of history saying, ‘That was not enough! But I was hungry and ye fed me not. I was naked and ye clothed me not.’ – Martin Luther King Jr.

During the campaign Obama used to quote Dr. King a lot. Once in office and the reality of the economic situation set it and the rhetoric changed but the sentiment of King was never far from the memories of most voters.  It was this disconnect that quickly alienated many voters and gave rise to the Tea Party movement which nearly ended his presidency before it got started.

You are all bright people, but you failed. Risk management is hard. So the lesson is we can’t let you get as big as you were and do the damage that you’ve done, or get as complex as you were, because you can’t manage the risk element. – Mervyn King (British Economist on the 2008 Financial Crisis)

Sometimes it takes an outsider to give a meaningful critique of the situation. Risk management is an integral part of any investment strategy and it was woefully lacking in the debt fueled run up to the 2008 collapse.

Buy low. Sell low – and a little. – Carmine Visone (Managing Director; Lehman Brothers)

Visone was an old school money manager who helped build Lehman through the 1980s and 90s but his conservative approach ultimately kept him from the job he really wanted, that of president and he was consigned to a relatively insignificant portfolio of established real estate property as the bubble grew.  I wonder what might have happened if he had been given a more significant role with the company in the early 2000s.

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