Saturday, November 29, 2008

Subprime Marriages

'You loser!" screamed Katie, aiming a vase at her husband. "You've destroyed my life,'' she continued, hurling it. "Just look at my hair, look at my nails! You loser, you jerk, you nobody."
I don't feel sorry for the rich men and their gold-digging wives described in this recent Telegraph UK article. Both sides are selfish and materialistic: the women who marry men for money and then leave them when the property portfolios shrink, and the stupid shallow men who want trophy wives and can't recognize real love. Maybe they deserve each other.

Whether these stories of toxic wives are a real trend or not, I think the super-wealthy are deserving of some kind of comeuppance. These are the people who enabled the current financial crisis. Using Citigroup as one example, the New York Times exposes how some of these millionaire bankers either had no idea what they were selling or took no responsibility for it:

According to a former Citigroup executive, Mr. Prince started putting pressure on Mr. Maheras and others to increase earnings in the bank’s trading operations, particularly in the creation of collateralized debt obligations, or C.D.O.’s — securities that packaged mortgages and other forms of debt into bundles for resale to investors.

Because C.D.O.’s included so many forms of bundled debt, gauging their risk was particularly tricky; some parts of the bundle could be sound, while others were vulnerable to default.

“Chuck Prince going down to the corporate investment bank in late 2002 was the start of that process,” a former Citigroup executive said of the bank’s big C.D.O. push. “Chuck was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, ‘You have to take more risk if you want to earn more.’ ”

It appeared to be a good time for building up Citigroup’s C.D.O. business. As the housing market around the country took flight, the C.D.O. market also grew apace as more and more mortgages were pooled together into newfangled securities.
Of course, it wasn't impossible to predict the meltdown. Meredith Whitney, an obscure analyst of financial firms for Oppenheimer Securities, understood the mismanagement of Citigroup and predicted the company would go bust:
From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.
Pair these idiot bankers with the regulators who destroyed regulations, and you have one big dysfunctional relationship which is, sadly, a very real trend. Although I'd personally prefer the cathartic act of smashing a vase across their skulls, we are instead expected to bail them out.

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