Columns

I worked in the sales, research, and management departments of a major regional brokerage firm for over twenty-five years. I left as a Senior Vice President to become a private money manger in 2005.

While I never literally worked on Wall Street, I lived in the air of that synecdoche.

I learned quite early in the game that, if I wanted to survive, I had to pick and choose very carefully among the investments offered to me and my clients. Many of them—such as, for instance, most tax shelters back in the 1980's and numerous mortgage-backed products—were financial poison.

Once you hung around a while, it got to be fairly easy to spot the bad products—the first test was simple: crappy investments usually had the largest commissions for the brokers. 

After The Large Commission Rule comes what I call The-Too-Good-To-Be-True Rule.  

If, for example, you heard that a bond filled with mortgages from places like Manteca was rated triple A, the same rating then given to Treasury Bonds, which are backed by the full faith and credit of the whole and entire United States, you could be forgiven for being suspicious. 

The third test was the Why-Am-I-Hearing-About-This? Corollary. 

This one applies to most of us Little People. It can be restated this way: if this is the real, inside story, then why am I, way out here, hearing about it? 

The fourth and final test was Miss Soley’s Observation. Miss Soley was my fourth-grade teacher, and she would make those of us who didn’t have our homework completed on time explain to the entire class why we were late.  

“See,” she told us after we listened to ever more colorful stories, “how much longer it takes to tell a lie than simply to tell the truth.” 

Miss Soley’s Observation would have kept many investors away from Enron. 

The Wall Street I saw ingested clients, the clients' money, and the clients' brokers the way a blue whale eats its way through a swarm of krill.  

In 1977, when I was applying for jobs in the investment business, I met very few people who’d been in the industry for more than two or three years, and most of the clients were long gone, wiped out in the Crash of 1974.

At the same time, Wall Street can be a great place to invest your money if you're careful and sensible (and follow models like those of Warren Buffett). If, however, you're not careful, you will most certainly get your purse and your pocket picked.

The little people of Wall Street (today that would probably mean those who make less than $500,000 a year) are minutely regulated to keep the crooks out, but major players like, for instance, the one-time CEO of Merrill Lynch, Stan O'Neal, are pretty much free to do anything they want to with total impunity.

In O'Neal's day, just a few years ago, major firms like Merrill Lynch operated with leverage of over thirty to one. Can you imagine the danger in that approach? It’s sort of like speeding down the left side of a two-lane road and telling yourself that this is the fastest way to a destination.

I suspect that the real purpose of suicidal risks like this was to insure Stan O'Neal's pay check. When he left Merrill in pretty much total collapse, he walked away with, I believe, 160 million dollars.

Which brings me to my larger point.

Our country is being ruined by a group I would call The Corporatists. These are men and woman using giant and often storied companies to pay themselves gargantuan salaries. They don't care about shareholders or employees or much of anything else besides those salaries. Most of them will be at the helms of their companies for just a few years and in that time will take as much money as possible.

Look at GM. I’d say it was pretty much got out of the car business by the late 1960’s. It just kept changing the sheet metal on the same vehicle. This isn’t the car business; this is the fashion business. Suburbans are perfect examples of this—pretty much the same car year after year with various grill and dashboard styles.

The management of GM was interested in maintaining fat profit margins to pay themselves. Compare this to Toyota or Honda or to one of the few American companies that just kept on innovating—Apple.

This is also why GM's stock has been such a disaster. In the long run, investors figure this stuff out.

Innovation and genuine client satisfaction are difficult and, in the short run, often expensive, In the long run, however, they are the tools of building formidable businesses.

By hiring both Republicans and Democrats, The Corporatists have divided and conquered us. We’re so busy—Progressives against Tea Baggers—that we don’t see the real destruction going on right in front of us. 

If The Corporatists aren’t stopped, our economic system is going to look like the forests in Haiti.