Sunset for the Sociopaths

In 2003, I wrote about mankind's tendency to build up defenses to protect itself against the disasters that have already happened, unaware that the next crisis to hit us generally won't resemble the last.

In Mayan mythology, the world is destroyed four times, each time by a different scourge. First comes a flood (caused by the god "Huracan," source of the term "hurricane"), so the Mayans respond by building their homes on higher ground -- right in the middle of a fire plain. And around we go.

Like most Americans, I'm furious that our financial system has been brought to its knees. I fully believe that we're courting disaster if we do nothing. Remember that scene in Pulp Fiction where Uma Thurman overdoses? I think we need to be John Travolta, not Eric Stoltz. Travolta, at least, was fighting the next disaster.

Financial markets are not like industrial ones. A lack of overall confidence in food doesn't put Campbell Soup (NYSE: CPB  ) at risk of failure. But it does in the banking system. Say what you want about the banks' previous stupidities (and they are legion), but fleeing depositors were the proximate causes of both Wachovia (NYSE: WB  ) and Washington Mutual being taken down by the FDIC.

Many folks, it seems, are worried about two things regarding the financial recapitalization package currently wending its way through Capitol Hill. First, many claim that the government's quantum leap in its involvement in the financial industry risks a return to socialism. Even people as august as famed investor Jim Rogers share this concern. I think socialism stinks, too. But is that really the big threat here?

I say no. We're not on the road to the second coming of Red China. While I greatly fear increased government participation in the economy, it's not the greatest risk right now. The potential that this financial contagion could destroy healthy companies in the United States demands an authoritative response. In a particularly smart column in The New York Times, David Brooks called the people who believe that we should simply risk a fall into deep recession "nihilists." (I'll return to that in a moment.)

The biggest risk to our markets is the trillions of dollars of capital racing around the world, overwhelming sector after sector. We're on our second China bubble in less than a decade. Money poured into energy, and then poured back out. Private equity thugs decided to buy up hundreds of companies at mad multiples, then ended up running formerly solvent entities like Linens 'n Things into the ground.

No, the government's attempt to fix the problem of the capital markets isn't my big problem. The trouble to me involves the second part of most people's opposition to the Paulson Plan. They might not voice it this way, but many Americans rightly consider the people who caused this mess utter sociopaths. Taxpayers aren't nihilists; they just want no part in cleaning up Wall Street's self-made mess.

And you know what? They're right. Wall Street is full of people who would step over their grandma's body to grab another buck. So were the mortgage banks and the brokerages. So were the executive suites at Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) , and in fact, executive suites all over the country, as well as in the halls of government.

None of these people had any interest whatsoever in preserving the trappings of a free market. They did not care in the slightest that their actions placed everyday people's very financial lives at risk. This wasn't capitalism, or a free market. Both of those basic concepts have a simple calculus to them: If you succeed, you profit. If you fail, you lose money.

How does that break down when Franklin Raines receives several hundred million dollars for his role in destroying Fannie Mae and bringing undue risk onto the American home market in the process? What did Raines risk? Under sociopathic logic, there was little downside for him to do whatever was necessary to increase the market capitalization and profitability at Fannie Mae. There were no limitations, because he was functionally insulated from harm.

Bill Mann does not own shares of any company mentioned here. The Motley Fool is investors writing for investors.


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  • Report this Comment On October 02, 2008, at 5:12 PM, TexasLonghorns wrote:

    Raines should be in federal prison right now, not advising Obama on matters. Johnson should be there too. Congress was warned as far back as 2001 that this was coming and did nothing!

  • Report this Comment On October 02, 2008, at 5:20 PM, virgo3 wrote:

    I agree that man;y; of the wall streeters have been in the act for only themselves. I think that the house shuld respect teh wishes of all the people rather than that of a few. Comments to day seeem to give them the right to decide whether we have a reccesion or work together to come out of the mess created by so many.

  • Report this Comment On October 02, 2008, at 11:45 PM, frubblezuck wrote:

    Socialism would be a hyperbolic interpretation. However, no matter how this idea is interpreted...it should be recognized as a bad idea.

    Giving the same people who created this crisis the means to actually extend and prolong this crisis would be a great in error in judgement. Congressional approval ratings are at their lowest since the 1970s...and the behavior of these corporations and the enabling of this behavior by Congress lends to the dour outlook on our nations leadership.

    The result of either bailing out these coroporations or leaving them to starve and sell off is pain. The proceeding question is "Who hurts the worst?" It's time to stir the pot and skim off the fat when it settles and cools. The taxman needs to knock on the doors of those who created this mess...not the common man who's mortgage company put themselves in shambles. Why not pay the bills of the American in debt---route this money through the people like it should be. Not lend it willy-nilly to investors and mortgage lenders who've come across some grand and novel way to simulate(not stimulate) cashflow. That is not socialism; the bailout as proposed is basically Italian fascism...only there is no il Duce for the people to hang from a meathook and stone post-mortem.

    Thank the derivative and those who trade it; and tax and penalize those who trade it. Government intervention should be limited to break up and absorption of these corporations by other corporations who can pass an ethics and financial competency test. It'll hurt...but in the longterm, I think we'll leave less of a mess for our descendants.

  • Report this Comment On October 03, 2008, at 2:08 AM, shumen52 wrote:

    giving more money to the same wallstreeters is like giving whiskey to an alcoholic, so let not reward them for their criminal behavior. Do not put them in prison, we still have to feed them. Instead take their all assets and i mean all, give them a shopping cart free of charge and throw them out on the street to beg. maybe than they will learn some lessons.

  • Report this Comment On October 03, 2008, at 2:13 AM, shumen52 wrote:

    Ah, and vote all the current bums out of office and elect fresh faces, lawyers and Harvard law professors should be banished from office.

  • Report this Comment On October 03, 2008, at 10:30 AM, ckgz wrote:

    I remember a VP at Transamerica mortgage years ago that stated that he would not deal with the majority of people on Wall Street because they could not be "counted on" to keep their word. His words ring true now. I like the revelation at the end of the article. As oppossed to a "golden parachute" why don't they institute a "lead brick". If the agency/company/fund you manage fails due to your poor management you have to work X number of years in a role that requires you assist in cleaning up the mess you made....at a reduced salary. Whoops slip in logic....They could probably fail at that as well. Maybe a stint on "Toughest jobs"...Yeah a "Rodeo Clown". It is very hard to dodge issues and lay blame elsewhere as a Rodeo clown.

  • Report this Comment On October 03, 2008, at 10:35 AM, jfv2000 wrote:

    I believe it was Rousseau who once said people deserve the government they get. Until the American people learn to solve their own problems, much like the pioneers did and not rely on government, things will continue as they are, ad nausea um. Some of the biggest crooks are in the government as well as Wall St. Power and money are like cocaine to these people. When 50 percent of the nation pays no taxes, its no wonder we keep electing politicians who promise the moon and do it by taxing those "greedy" corporations and the rich. If you haven't noticed, Congress has already hung all sorts of earmarks on the bailout bill. Go take a look. It is government that is out of control, not just Wall St. Government created S&Ls to encourage long term mortgage lending and that blew up thanks to their inability to deal with volatile interest rates. CRA, Fannie Mae and Freddie Mac created the conditions for the current mess. Yes, Wall St. has its greedy types, but you can't fault them for taking advantage of what was given to them by Washington. Like government, they are a reflection of our people and our culture of consumerism and disdain for personal responsibility. It matters not who wins the election because there is little difference between Democrats and Republicans. There is a third alternative and everyone I talk with ascribes to those beliefs - until I tell them what Party it is and then they reply, "But they can't win." And so it goes, round and round, growing government with less accountability. Maybe some day the electorate will stop beating its head against the wall and find that when they do so, the pain stops.

  • Report this Comment On October 03, 2008, at 12:13 PM, aamire wrote:

    change the name from bailout bill to governance and taxpayers protection bill.

  • Report this Comment On October 03, 2008, at 1:06 PM, TheMotleySaint wrote:

    Not socialism, we are in the final throes of a passage to corporatism. We aren't seizing assets to protect people, we are doing it to protect companies.

  • Report this Comment On October 06, 2008, at 5:09 PM, mematjj wrote:

    I may not know a lot about the finance world and this is not helping , but if the deal is to protect companies it should as a result protect the people who work for those companies and the people who invest in them definately not the ceo's that already are fat cats and apparently rabid ones at that.

  • Report this Comment On December 17, 2008, at 11:47 AM, zyx987 wrote:

    'Sociopaths' is the perfect descriptor.

    This is the kind of crisis which can bring about World War. The Chinese have now told the World that they are not going to bail them out and they want their investments in the U.S. (funding the U.S. National Debt with $500 Billion) protected.

    The Sociopaths need to go to jail, penniless - not head out to the Hamptons.

  • Report this Comment On December 24, 2008, at 9:18 PM, mikeissimo wrote:

    I believe that a bum is a bum even if he or she is rich. The clowns who are wrecking the game for everyone are so smelly rich that they can't concentrate on their jobs.

    They have become gentry, obsessed with their mansions, hookers, yachts and the other trappings of excess.

    Corporate governance has left the rails.

  • Report this Comment On December 24, 2008, at 10:32 PM, starbucks4ever wrote:

    "Like most Americans, I'm furious that our financial system has been brought to its knees."

    Why is it then that I am furious that our financial system WAS NOT brought to its knees?

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