– from my novel about the stock market crash of 2008-2009
“One of these places should be left to stand or fall on its own.” The Junior Economist was talking to the Head of Equities. They were a few feet from my desk on Consultant’s Row.
I was back sitting there after my walk with Larry. It was an hour before it was time to go out and get a sandwich or salad. Not that I was feeling hungry after the large carrot, beet and apple juice that wasn’t mixing so well in my stomach with Larry’s and my back and forth about a situation that was dominating world news. I couldn’t help hearing the Junior Economist go on some more about cutting off any more rescue efforts by the Administration and Fed. Twenty-five years old, he was a few years out of Columbia and quite unsentimental about the plight of those billions around the globe that capitalism used up and threw out like lunch napkins when it didn’t ignore them completely. And in that way, the thought intruded on me, economists were a lot like surgeons applying the sharpest scalpels to sick patients. They might save them, they might kill them, but I never felt they cared so much about the outcome. It was all about the process instead, interesting and unsure as it might be. And in economics that process would eventually, over time, turn around as it always had.
“They created their own problems and they should stand on their own two feet or go down,” the Junior Economist continued as the Head of Equities gave him his full attention. “No way taxpayers should have to pay for that. You get yourself into something, you get yourself out of it. That’s what we all have to do, so why not them?”
One month later Lehman Brothers Investments had got themselves into it and the help they needed to stay in business wasn’t forthcoming. It was as if the federal agencies and the big banks able to rescue them had been with me on Consultant’s Row and overheard what the Junior Economist had to say and taken his advice. There was even a term going around that was being used to justify it: “moral hazard.” One of those places had to fail to send all the others a message. The finger in the dike holding the water back that would surely drown Lehman would be pulled and just like that the company would be no more. That night on television, it was a Monday night I believe, I sat in front of the t.v. and drank a beer and watched Lehman’s employees carrying boxes of their belongings out of the building up on Seventh Ave. It had been going on all day, that displacement of employees from one of the world’s biggest investment houses, a collapse no one was going to agree to keep afloat another day longer. That reportage was all over Beal’s flat screens and I caught a lot of the nervous laughter and the tinge of fear in the voices on the trading floor, even if, in the days before that, as the Junior Economist had been so emphatic about, letting one of those places go down had been talked about, even suggested in a boastful way, as a way to get the message going around that everyone was responsible for their decisions and only the smartest and fittest should be allowed to survive.
Whatever message was being sent, a confusing time had started, a dreadful time that would change everything. Some kind of universal justice seemed to be descending on a system that was out of control and no one was accountable for. Things were unraveling and sorting out, it seemed to me. The day had come. Jin’s programs and all the programs like them had compounded the problem. Or caused it. Who knew? I sure didn’t. I did know they all passed along assets with nothing backing them up. Nothing. The Hot Potato Theory was still being played out and, as usual, only the suckers ended up holding them.
The unraveling got momentum one day late in 2007 when the nation’s biggest subprime lender sought bankruptcy protection. Then mortgage defaults increased as people couldn’t refinance or sell their depreciating homes. Then Bear Stearns had to bail out one of its hedge funds by loaning it 3.2 billion. Then the credit crisis began; the credit markets froze up and the companies with money to lend no longer wanted to do that. Then the Fed cut interest rates to try to get credit moving. Then Bear Stearns was sold to Citicorp, a company, it would be learned later on, that itself wasn’t in the greatest financial shape. Then the shares of Fannie and Freddie fell dramatically. Then the stock market dropped a few thousand points. Then no one wanted to spend money. No one had any to spend. It had been there, on their bank statements and in their houses and retirement plans, and then it wasn’t. Where did it go? People wondered? I did. I wondered how it happened even as it was happening. I didn’t believe. I didn’t want to believe. How does something that was there dissolve into the air? If the banks were getting short of money then who had it? Where would a habitual bank robber like Willie Sutton go to get a few bags of cash when he needed them? We the people united were puzzled, all of us. That was for sure. Even if it was obvious what was happening. Even if the world was no longer the same and, it was being said, it just might never be the same again.
Maybe you were also worried those days during the middle of the crash. Maybe you were aware more bad news was coming. Maybe not. I don’t see any reason to go into all of those details. I’m pretty sure I mentioned early on this wasn’t a rehashing of those events. I will note in September that year Lehman was caught short with sixty billion in sour real estate holdings and had little to back them up. No company could be found to take them off their hands and take on that debt without guarantees. Government regulators refused to get involved and, after all other routes were closed, Lehman had to file for bankruptcy protection. Then on that Monday of mostly blue skies in New York the people who worked there went into the midtown building to pack up and carry their personal items down to the street and into the lights of the television cameras where they expressed their disbelief. The next day, as I’ve said, stock markets around the world did the same, expressed their disbelief one of their own had been left to fail.
An alien looking down at all of this, trying to figure it out, would, I feel pretty sure, ask themselves how so few people could be allowed to do that to all the others? How could that be when they were the same species and essentially the same community? And then I remembered from my readings how capuchin monkeys would express their outrage when they saw one of their own getting more treats than they and their fellow capuchins were, and not just more, but better quality treats too. I also recalled that ancient cultures responded to internal threats to the broader community by eliminating the problem as a surgeon with the sharpest scalpel lanced a tumor, to send the offenders off on their own or to burn them at a sacrificial stake. Those approaches had changed in these modern times. It wasn’t just in my view that it had changed dramatically. Now, it was clear, there was a reward for depleting the country’s wealth and sending people to the streets and, in the years to come, telling those same people still on the streets to take a hard look in the mirror and blame themselves, that it was they, their neediness to want what they hadn’t earned who were responsible for the system’s failure. The banks and markets had merely responded to that threat the only way they knew how. All the while I wondered just how the hell were they all allowed to get away with it and at the same time continued to live isolated from the world they created?
After Lehman, that same group of men in custom-made suits and shirts, who represented the Fed and Administration and Big Business, men who had been and were rewarded mightily, were back in front of the cameras to say they were going to bail out the banks, a move they were sure would get the economy moving again. It was spoken as if they, in their lofty positions, in positions that had a direct connection to the things that were the problem, had had nothing at all to do with them. As if what had been going on for months was caused by an errant stroke of lightening or random act of nature and had thus been unforeseen and uncontrollable.
The whole time, those months when all that had been built by men and women and all the possibilities implied in it went awry, my head was abuzz as if a thousand bees had nested in it and were searching for a way out. A dizzying, painful, disconcerting feeling I could never fully rest from as if my heart were always racing even when I was asleep. I saw on the faces of others that the same shocking pressure was building in them. And I wondered how many heart attacks had this painful time caused? How many future heart attacks had it set the stage for? How many families had it broken up? How many cases of spousal and child abuse had it generated? How many suicides and long-term cases of depression? How many divorces and cases of alcoholism was it the foundation of? I didn’t know the answers. But I knew the weeks, as they passed, became more confused and difficult to bear. Every day the market dipped. Every day there was talk of the end of it only to have another vicious blow to the wealth and welfare of the nation. Those were outlandish events and days, that was for sure.