The Columbia Journalism Review just issued a great article on the media's coverage of tomorrow's Senate hearing, and on Gary Aguirre's charges in his 18-page letter to Congress. It is an absolutely must read piece, as is Gary's phenomenal document. Of note is that this site is cited, which is always kind of fun - and timely, given this blog's contents, and the tone of the associated book chapter.
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Symphony Of Greed - Financial Terrorism and Super-Crime on Wall Street
I uploaded the Intro chapter to my non-fiction book. It can be viewed here.
I’ve had a fair number of requests for a peek at what I’ve been working on, so I figured that I’d offer up a sample, to satisfy the curious.
By way of preamble, I thought it might be interesting to offer a little background on the motivation for writing this. About a year or so ago I came to the conclusion that there was a vacuum in the information stream, and that the reason more investors weren’t up in arms over the naked short selling crisis was because most didn’t appreciate what was being done to them. This was largely a function of complexity, or I should say seeming complexity, of the subject matter.
What was needed was a one-stop-shop, where a guy with an average education could sit on a plane cross country, and by the time he landed, know enough to be dangerous.
As I met folks in the industry, including regulators and ex-SEC staffers, I realized that most didn’t have all the pieces, or understand how all the parts functioned. That was a big problem, as the story is really one of small loopholes, each seemingly insignificant, but collectively adding up to a tear in the fabric of safeguards you could drive the space shuttle through.
Sideways.
I also noted that most didn’t appreciate Wall Street’s history. That was vitally important, as it provided context, and explained how something like the naked short selling crisis could develop.
An example. In the 1980s, Ivan Boesky engaged in a systematic pattern of insider trading, using information given to him via a network of loosely organized sources, who in turn were passed the info from other sources. These tips involved mergers and acquisitions, and enabled him to frontrun the news, profiting handsomely. Boesky was one of a number of arbitrageurs, now called hedge fund managers, and it is unknown how prevalent the practice was amongst his peers. It is known that trading on insider information, frontrunning, stock manipulation, abusive short selling, are all time honored traditions on Wall Street, which were hugely popular with the stock pool operators at the turn of the century. Milken also engaged in insider trading, acting on tips he also received via a network of loosely affiliated Wall Street personalities. He was in a unique position to do so, as his meteoric rise to prominence and his power due to his stranglehold on the junk bond market gave him unprecedented access to the Wall Street favor bank – and tips are the currency of that system.
What is unknown is whether Milken and Boesky and Levine were singularities, or whether they were merely examples of how Wall Street conducted business, and had for over a century. I’ve long held the suspicion that Milken’s exposure got a little help, as it is undeniable that Drexel cut into the rest of Wall Street’s pie. Their prominence in M&A work and the junk bond realm created an environment where established old money players lost a lot of their investment banking revenue to Drexel – something that old money doesn’t appreciate. It is undeniable that those firms quickly regained leadership in that arena once Milken got busted.
The point is that Milken was making billions from his innovation. He had everything. And yet he engaged in a slew of illegal activities, including stock manipulation, insider trading, stock parking – violations of virtually every securities law I can think of. Why would a guy who had everything do that? The answer? Because that is how Wall Street works. Rules are made to be broken, and only a fool doesn’t squeeze every last drop out of a deal. Simple. Either you are player, or a rube. Chum. Roadkill.
That was the prevailing attitude at the top in the 1920s, in the 1980s, and today.
Fast forward to the allegations against a prominent hedge fund, by Gary Aguirre. One of the defenses I’ve seen is that it makes no sense, that there is no way that a successful fund would trade on insider information and subject themselves to that kind of risk. That is compelling, until you know your history. Once you do, you quickly realize that it is completely consistent with the cynical socio-pathology that is Wall Street’s operating philosophy, and further, is nothing new or innovative. It has been popular since trading began, and will likely be here long after we have shed our mortal coils.
The average American has no idea how the US stock markets work. Most, including those in the financial industry, are clueless as to how the system actually functions, or what the component parts of the machine do. Symphony of Greed describes Wall Street’s larcenous history, and explains in clear, easy-to-grasp terms how the markets operate, as opposed to how most believe they do. It offers a top-to-bottom description of the system, in a straightforward and easily understood manner, and articulates a threat that has grown to epic proportions, and threatens the very integrity of the system - the single greatest financial fraud of our lifetime, whose unwinding has the potential to cause the collapse of the US equities markets.
Here’s a summary of the full book I wrote for an interested publisher:
“Wall Street – where the brightest Harvard, Yale, and Wharton graduates go to make their fortunes. But how, precisely, do they do it? How does Bear Stearns hand out $11+ billion dollars of bonuses in 2005 – a year when commissions have never been lower, the market is in the doldrums, and initial public offerings are all but dead? How can profits skyrocket on Wall Street when the markets have stayed almost flat for the last three years, and discount brokers will do a trade for $7?
This is the central question Symphony of Greed addresses, and along the way, the reader gets a look “behind the curtain”, into the hidden world of Wall Street’s back-offices; into the bowels of the machine. And it is an ugly contraption; one that jealously guards its secrets, and which has trillions of dollars at risk should the public catch on to how the system is being gamed by unscrupulous players.
As we embark on this journey of discovery we’re treated to a mind-boggling array of larcenous miscreants, hiding behind slick ad copy and million-dollar ad campaigns designed to engender our trust. This is the story of the real Wall Street, a sociopathic no-man’s-land where money justifies every sort of illegal and unethical behavior, and where the train is careening dangerously down the tracks, headed for an inevitable meltdown of epic proportions.
We will visit the causes of the Crash of 1929, and the creation of the SEC, and the factors that soured two full generations against investing in the markets. We will explore how one privately-owned monopoly has become the largest entity of its kind in the world, processing $1.2 quadrillion worth of trades per year - and yet the average person has never heard of it, much less knows who owns it. This entity is the de facto registered owner of most of the stocks in the US, and yet its affairs are strictly guarded as being top-secret, and there is no transparency in its actions or its processes.
We will discover how the brokers that are Wall Street have evolved from service groups (where the investor was protected and treated as due fiduciary safeguards), into adversarial predators that opportunistically prey on their victim – Main Street America. We will learn about the unbridled criminality that was the order of the day in 1920s-era Wall Street, and contrast that to today's scandals. We will learn why our regulators are asleep at the wheel, and have allowed the markets to run amok on their watch, and why the impending crisis is of such magnitude that they are paralyzed from taking corrective measures – exactly as our banking regulators behaved in the first 5 years of the Savings and Loan crisis. Our appreciation for this latest and much larger crisis will develop as we apprehend the system that created it - and by the end of the book we will understand the ramifications of a market system gone mad, where counterfeiting and institutionalized fraud are the order of the day. And we will unmask why nobody wants to breath a word about it in the NY financial press, or in government: everyone from the Fed to the states have been forced to make a deal with the devil – allow America to be systematically robbed by a sliver of parasitical humanity on Wall Street, or face the collapse of the financial system as we know it.”
I wrote 60% of the book in the first 5 months, and then had to go back and add more, as the drama developed. Another 20% was completed over the following 4 months or so. I’m now to the point where the final 10-15% can be finished with about 30 days of focused work – easier said than done, with the distractions of this blog, other commitments in the battle, and a slew of projects also vying for my time.
I hope that you find it readable, and encourage you to forward it to anyone you think would find it interesting. Given the Senate hearings tomorrow, perhaps it can provide some context for the testimony.
Anyway, enjoy.
And spread the word. Knowledge, and information, are powerful antiseptics for a rot that jeopardizes our system.