That’s an increasingly widespread view among the most sophisticated leaders in investing circles. Paul Singer, who runs the influential investment fund Elliott Associates, wrote to his partners this summer, “There is no major financial institution today whose financial statements provide a meaningful clue” about its risks. Arthur Levitt, the former chairman of the SEC, lamented to us in November that none of the post-2008 remedies has “significantly diminished the likelihood of financial crises.” In a recent conversation, a prominent former regulator expressed concerns about the hidden risks that banks might still be carrying, comparing the big banks to Enron.
A recent survey by Barclays Capital found that more than half of institutional investors did not trust how banks measure the riskiness of their assets. When hedge-fund managers were asked how trustworthy they find “risk weightings”—the numbers that banks use to calculate how much capital they should set aside as a safety cushion in case of a business downturn—about 60 percent of those managers answered 1 or 2 on a five-point scale, with 1 being “not trustworthy at all.” None of them gave banks a 5.
A disturbing number of former bankers have recently declared that the banking industry is broken (this newfound clarity typically follows their passage from financial titan to rich retiree). Herbert Allison, the ex-president of Merrill Lynch and former head of the Obama administration’s Troubled Asset Relief Program, wrote a scathing e-book about the failures of the large banks, stopping just short of labeling them all vampire squids. A parade of former high-ranking executives has called for bank breakups, tighter regulation, or a return to the Depression-era Glass-Steagall law, which separated commercial banking from investment banking. Among them: Philip Purcell (ex-CEO of Morgan Stanley Dean Witter), Sallie Krawcheck (ex-CFO of Citigroup), David Komansky (ex-CEO of Merrill Lynch), and John Reed (former coâ€‘CEO of Citigroup). Sandy Weill, another ex-CEO of Citigroup, who built a career on financial megamergers, did a stunning about-face this summer, advising, with breathtaking chutzpah, that the banks should now be broken up.
He hauls a bike off the back of the car, hops on, and takes off down an already busy Ocean Avenue. He wears no bike helmet, runs red lights, and rips past do not enter signs without seeming to notice them and up one-way streets the wrong way. When he wants to cross three lanes of fast traffic he doesnâ€™t so much as glance over his shoulder but just sticks out his hand and follows it, assuming that whatever is behind him will stop. His bike has at least 10 speeds, but he has just 2: zero and pedaling as fast as he can. Inside half a mile heâ€™s moving fast enough that wind-induced tears course down his cheeks.
Heâ€™s got to be one of the worldâ€™s most recognizable people, but he doesnâ€™t appear to worry that anyone will recognize him, and no one does. It may be that people who get out of bed at dawn to jog and Rollerblade and racewalk are too interested in what they are doing to break their trance. Or it may be that heâ€™s taking them by surprise. He has no entourage, not even a bodyguard. His former economic adviser, David Crane, and his media adviser, Adam Mendelsohn, who came along for the ride just because it sounded fun, are now somewhere far behind him. Anyone paying attention would think, That guy might look like Arnold, but it canâ€™t possibly be Arnold, because Arnold would never be out alone on a bike at seven in the morning, trying to commit suicide. It isnâ€™t until he is forced to stop at a red light that he makes meaningful contact with the public. A woman pushing a baby stroller and talking on a cell phone crosses the street right in front of him and does a double take. â€œOh . . . my . . . God,â€ she gasps into her phone. â€œItâ€™s Bill Clinton!â€ Sheâ€™s not 10 feet away, but she keeps talking to the phone, as if the man were unreal. â€œIâ€™m here with Bill Clinton.â€
As a bonus, here's a profile of Lewis from NY Mag.
Pitt's Plan B productions is going full steam ahead on an adaptation of Lewis' latest, "The Big Short," about the events that led up to the current financial fiasco. They're set offer Charles Randolph ("The Interpreter," "The Life of David Gale") $750G to write a script, reported New York mag's Vulture.
Every couple months or so, I do a little Googling to see if Liar's Poker has been optioned yet. Turns out it was optioned 20 years ago. Make the fucking movie already.
A few more Michael Lewis links to round out the day:
Complete Guide To Who's Who In The CDO Scandal
Goldman Sachs Is Doomed
We pledge to meet and even get to know ordinary people who do not work for Goldman Sachs, so that we might better understand their irrational behavior, and exploit it only when necessary.
In the quarter ended March 31, Goldman made money on every single trading day. The firm did not record a loss of even $0.01 on even one day in the last quarter. That's 63 days profitable out of 63 trading days. The statistic probability of this event is itself statistically undefined. Goldman is now the market - or, in keeping with modern market reality, Goldman is the house, it controls the casino, and always wins. Congratulations America: you now have far, far better odds in Las Vegas that you have making money with your E-Trade account.
When they've gotten so brazen they don't even care about the optics of something like this, you know we're all in trouble.
Plan B Entertainment, is closing on a deal to option Lewis's next book, The Big Short: Inside the Doomsday Machine, a chronicle of Wall Street greed and the swollen U.S. housing market. Pitt is also considering starring.
I swear if someone doesn't start making a movie about Liar's Poker soon, I'm going to start typing in all caps. And I'll mean it, too. The fact that it's not a movie yet makes me itchy.
8. Notice that the amount of your pay withheld to pay for your health insurance is a lot more than it was last year.
I won't ask you to dig up old paychecks from 2008 and 2007, but this has been going on for a long time. Every year, the amount of your paycheck withheld to pay for your health insurance goes up. A lot.
Switching to Smaller, Local Banks
Heightened Interest in Online Banks
Outright Refusal to Pay
If this continues to happen at a higher rate, it will eventually have an impact. Or maybe that's naive.
Via Andrew Sullivan
Recently, Airan-Pace secured a modification for a Miami Beach client that shrank his monthly payment from $3,700 to $1,600. But it was only a reduction in interest rate â€” allowed by the Home Affordable Modification Program to go as low as 2 percent.
"I called him in and he said, 'I'm not signing this,'â€ˆ" Airan-Pace recalled.
He owed $470,000 on a property worth less than half that.