Wall Street's Insane Poker Game Continues

Albert Einstein once defined insanity as "doing the same thing over and over again and expecting different results." By that measure, Wall Street today is completely off its rocker.

I recently read Michael Lewis's expose of 1980s-era Wall Street, Liar's Poker. Unfortunately, the craziness of Salomon Brothers in the go-go '80s sounds a little too close to recent history.

Terrifying tales from the belly of the beast
The Wall Street Lewis portrayed from his in-crowd perspective during his youthful years at Salomon had little to do with the positive, creative attributes of capitalism. Instead, it seemed ruled by boneheaded stupidity and ruthless selfishness:

  • The young and the clueless. Lewis admits himself that he was not exactly qualified for his lucrative job at Salomon, which hired droves of young folks right out of college. However, his tales of brokers sleeping, tossing paper wads, and throwing spitballs in the back row of his training sessions made me wonder whether the financial world's "best and brightest" would truly act like an unruly passel of fifth-graders.
  • Dog eat dog. According to Lewis, the firm was not exactly big on meritocracy. He describes the process to determine where newly trained brokers would be placed in the organization as "one part luck, one part 'presence,' and one part knowing how and when to place your lips firmly on the rear end of some important person." New "geeks" at the brokerage then had to both dish out and bear with considerable hazing. "The place was governed by the simple understanding that the unbridled pursuit of perceived self-interest was healthy," Lewis writes. "Eat or be eaten."
  • The customer's always wronged. One of Lewis's first "successes" at the investment bank involved unloading bad bonds on a good customer. "Stupid customers (the fools in the market) were a wonderful asset," he writes, "but at some level of ignorance they became a liability: They went broke." Lewis notes that Salomon often seemed to have a disturbing reliance on the idea that customers have "short memories." It's easy to see how that mind-set could ruin any business over the long haul.

Deja vu all over again
Unfortunately, Wall Street doesn't appear to have changed much. (In Lewis's follow-up article in Portfolio magazine, "The End of Wall Street's Boom," he wrote that many young people seemed to have taken his book as a how-to manual, not a warning sign.)

Instead, the insanity seems to have continued unabated. These fabricated towers of fool's gold remain disconnected from reality and filled with pointless ego. Take Goldman Sachs' (NYSE: GS  ) bizarre statements about doing "God's work," which seemed to reveal Wall Street's unbelievable hubris. Or how about some AIG (NYSE: AIG  ) executives' asinine audacity to demand their expected bonuses, even as their company remains a ward of the state?

More recent news reveals that CIT Group's (NYSE: CIT  ) TARP bailout -- $2.33 billion in taxpayer funds -- is officially gone. And who's been brought in to helm this troubled company? John Thain, who led Merrill Lynch when it was taken over by Bank of America (NYSE: BAC  ) and left in a major fall from grace.

What was I saying about doing the same thing over and over, expecting a different result? On Wall Street, neither the actors nor the actions ever seem to change.

Does Thain deserve a second chance? Or is Wall Street merely reverting to its same greed-maddened form? Share your thoughts in the comment box below.

Further certifiable Foolishness:

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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  • Report this Comment On February 12, 2010, at 11:53 AM, caltex1nomad wrote:

    I almost shot my Fruit Loops through my nose when I first heard Thain was going to head CIT. That's as bad as Whitacre being made CEO of GM.

  • Report this Comment On February 12, 2010, at 1:48 PM, langco1 wrote:

    some more news on the recovery in the US. 1 in 8 americans are now on food stamps.thats a real sign of how well the country is doing..the american people need to end this disgrace and they can start by putting obama and his family on food stamps. it is time to demand a midterm election and bring in someone less interested in being a small time celebrity than running the country...

  • Report this Comment On February 12, 2010, at 2:54 PM, FleaBagger wrote:

    As to the Einstein quote, I think it was a Greek guy 2,500 years ago who said it first

  • Report this Comment On February 12, 2010, at 7:14 PM, DDHv wrote:

    No trust in either career politicos or career brokers. At present, handling my own investments, I'm 16% annual ahead of the market. Of course, that won't last forever! But as long as it is possible to stay ahead of the market, it doesn't need to.

  • Report this Comment On February 13, 2010, at 3:41 PM, omt68 wrote:

    Whoever said it first, Einstein or the Greeks, the fact is that the insanity is not on Wall Street, but on Main Street. As long as We, the People, let Wall Street conduct themselves in this way they will, because that what makes them rich. If action were to be taken to punish the perpetrators on their wallet, they would stop. Unfortunately, the people that have power to punish are of the same ilk as the Wall Street crowd, so it is not going to happen.

  • Report this Comment On February 13, 2010, at 3:47 PM, Bimmer325 wrote:

    Langco1: Changing Presidents is the solution? Really. How many prez's have we had since 1980, of what political persuasions and what has been their impact on Wall Street behavior? I can see we're now in agreement. Please, for those upset with the direction of the current administration restrain yourself to applying accountability to only those things to which they can extend their reach. Wall Street behavior is independent of and unencumbered by politicos.

  • Report this Comment On February 14, 2010, at 8:30 AM, VGFORBES wrote:

    What we need is a simple thing that applies across every single problem we face business,politics even life in general. Unfortunately that simple thing is ACCOUNTABILITY....The Catch 22....we need those to be held accountable to create the environment the fox has to watch the chicken coop, the lawyers have to get the polemics out of law and polititians.....well what waste the space

  • Report this Comment On February 14, 2010, at 12:18 PM, langco1 wrote:

    the depression in the US is so bad that kids need to eat at school.1 in 8 americans are now collecting food stamps.this is how the foolish people who voted for obama have been paid back and its only the begining...

  • Report this Comment On February 14, 2010, at 6:17 PM, lh100 wrote:

    I have never seen so many people using any occasions to bash Obama when it is barely related to the topic.

  • Report this Comment On February 14, 2010, at 11:08 PM, WileyCyote wrote:

    Of course Wall Street will keep doing the same thing?

    Does anyone see anybody going to jail for any wrongdoing ?

    Of course not.

    Maybe a few executions would at least slow things down.

    Remember Buffets comments on "financial weapons of mass destruction" / Nobody listened.

    Remember Nourial Roubini's warnings? Of course not.

    It is business as usual.

    As Lee Iacocca asks in his book "Where Have All the Leaders Gone?" WELL! Where are they?

  • Report this Comment On February 15, 2010, at 12:35 AM, alexxlea wrote:

    Hang. Them.

  • Report this Comment On February 15, 2010, at 12:35 AM, alexxlea wrote:

    Hang. Them.

  • Report this Comment On February 15, 2010, at 4:18 AM, memoandstitch wrote:

    Thain made/saved a lot of money for Merrill Lynch shareholders. So I don't see why he won't make a fine CEO. People probably don't know that Thain was brought in to rescue ML when it was already on fire.

  • Report this Comment On February 15, 2010, at 7:34 AM, OneLegged wrote:

    I wonder why they would change their ways? They run their companies into the ground and hobble the world economy in the process. The end result for them is that they are rewarded for doing so. Business as usual indeed. It's worked again! Too Big to Fail has its rewards.

  • Report this Comment On February 15, 2010, at 10:11 AM, Bonsaiscrooge wrote:

    Stupidity is pervasive and, what's worse, contagious. We, the people on main street could easily defuse the "financial weapons of mass destruction" by taking away our own savings from the "bankster" and "brokester" firms/funds/stocks/bonds and, although less easily, by forbidding our pension funds to invest in these mafia-like firms, as any of their "products" ever created was merely meant to skim a substantial part of any potential profit for themselves. But this most obvious way will never be considered by the majority of us because stupidity...(see above)

  • Report this Comment On February 15, 2010, at 1:56 PM, KWT8011 wrote:

    "I have never seen so many people using any occasions to bash Obama when it is barely related to the topic."

    Welcome to the internet?

  • Report this Comment On February 15, 2010, at 2:11 PM, langco1 wrote:

    obama who has been nothing more than a figurehead for the democratic party from the start needs to be replaced.the US is in its second year of a depression with 1 person out of 8 collecting food stamps.many kids need to go to school in order to eat.20% of the workforce is already unemployed.rising bankkruptcys,forclosures,inflation and energy prices are pushing the country toward a major collapse.its time for a midterm election to bring in someone who is more interested in running the country than trying to be a small time celebrity...

  • Report this Comment On February 15, 2010, at 3:18 PM, ifool100 wrote:

    During the 8 year Bush tenure our debt to foreign countries more than doubled to $2.06 trillion. More than the ENTIRE debt accumulated by the previous 42 presidents over 224 years. Dislike Obama all you like, but he was not and is not the problem. If you really want to blame someone, start with Bush and the GOP. They were in charge since the turn of the century. And now there is a big mess to mop up.

  • Report this Comment On February 15, 2010, at 6:13 PM, EightDollarBill wrote:

    We should be proud of Mr. Obama and what he has accomplished. It has been a long and arduous road. The campaign is over. The hard work begins. Barack has promised change. Change comes from within. Most Americans voted for change. That is all well and good. But we should stop that common misconception that it is a leader who can bring change. Leaders can only initiate change, but whatever they do, they cannot change the country if the citizens won't cooperate. No candidate can "really" change things. You can (Yes you can). And, since there are a lot of changes that need to be made, it must be a common effort and we need a mutual understanding to be able to achieve things. Each and every citizen (young and old) should make a self evaluation and have the will to change. Once the assessment is made, when everyone changes then change can happen. It is good leadership and willing citizens that will make change happen.

    Mr. Obama faces great tasks ahead. We need to look at ourselves and remember that we are intelligent beings and, we must stop relying on an external locus of control. We must promote "self growth." We are looking at Mr. Obama as the great beacon of hope, the anointed one, the messiah, to come and heal our ills. While Mr. Obama wants an economic recovery package that may help our sagging economy, and help restore jobs, our response should be to evaluate "us" and start "helping us." Mr. Obama is not going to pay your mortgage, fill up your tank, or feed your children, that is not what is meant by helping the middle class. He will address the problem in our economy, it is up to us to become resourceful and seek help if and when it is needed. You must become an active being.

    -----------------------

    www.intelligentinvestingtips.com

  • Report this Comment On February 15, 2010, at 6:18 PM, golden0606 wrote:

    Its funny to hear people blame Obama and that we should put his family on food stamps. 1 in 8 people on food stamps says something. It says that those American people probably spent too much money keeping up with the Jones', buying designer clothing, iphone and houses they can't afford. I work in a financial institution and I see people who have tens of thousands in debt but still go to the casino and drop $300 or $400. Don't blame Obama for stupid people. And just b/c he said he would get the economy turned around and there will be less poor Americans doesn't mean he can do it in one year.

  • Report this Comment On February 15, 2010, at 8:18 PM, WTHAmIDoing wrote:

    I fully agree with memoandstitch - nobody liked what happened to BoA and yes Thain's arrogance led to his downfall in the end you can't accuse him of not doing his job which was to protect the Merrill Shareholders. Remember that he didn't cause Merrill's problems but rather was brought in to fix them.

    ...granted I don't think the outcome was what the board had in mind at the time though!

  • Report this Comment On February 15, 2010, at 8:28 PM, rett448 wrote:

    The real problem is that nobody in America will take responsibility. While it true that politicians on both sides of the aisle created an environment that allowed risk to get out of control and banks gave loans to people that had no business buying houses, at the end of the day it was the American people, not the politicians or the bankers, that was responsible for the situation were in today. No one forced you to run up thousands of dollars in credit card debt or buy a house with an ARM loan and no down payment. The fact that Americans continue to bicker about whose fault this is without looking in the mirror makes them just as hypocritical as the politicians in Washington.

  • Report this Comment On February 15, 2010, at 8:28 PM, WTHAmIDoing wrote:

    Also agree with golden0606 - the economy is in shambles primarily to the average Joe over-leveraging themselves. Although the financial institutions exploited that fact, nobody forced "Average Joe" to sign for more credit and buy more toys.

    Obama promised change but this takes time. It might be fair to say the jury's out on his effectiveness but please be reasonable and realistic. You didn't hire Moses so don't expect him to part the Red Sea. America doesn't need a miracle - just a little common sense.

  • Report this Comment On February 15, 2010, at 8:54 PM, ElCid16 wrote:

    "John Thain, who led Merrill Lynch when it was taken over by Bank of America (NYSE: BAC) and left in a major fall from grace."

    Interesting choice of words...

    I would say AIG was taken over. I would say Citi was taken over. I would not say that Merrill Lynch was "taken over." If it weren't for Thain, the fate of Merrill would have been similar to Lehman. Thain actively pursued Lewis about the BofA deal and Lewis's pursuit of conglomerating the largest bank in the world got the best of him. I can assure you that Thain wanted ML to be bought out.

  • Report this Comment On February 15, 2010, at 9:02 PM, langco1 wrote:

    with wall street afaid of everything the last thing they will ever be compared to is poker!wall street has a nervous breakdown over the thought of a 1/4 % rate hike that is a year away !!!!

  • Report this Comment On February 15, 2010, at 11:38 PM, 50Ozi wrote:

    Sisyphus, the Grecian reference.

  • Report this Comment On February 15, 2010, at 11:39 PM, 50Ozi wrote:

    Sisyphus.

  • Report this Comment On February 16, 2010, at 12:04 PM, TMFKris wrote:

    "1 in 8 people on food stamps says something. It says that those American people probably spent too much money keeping up with the Jones', buying designer clothing, iphone and houses they can't afford."

    Perhaps some food stamp recipients fit that description, but I'd like to see statistics. Are those types of people likely to sign up for food stamps rather than just take on more debt so as not to look "poor."? And even if some portion of society thinks these people have spent themselves into food stamps, does that mean they don't deserve help?

    Food stamps are a necessary safety net for those who are poor or struggling, for reasons that don't include buying lavish items and gambling away hundreds of dollars.

    Kris (TMF copyeditor)

  • Report this Comment On February 16, 2010, at 3:14 PM, MyDonkey wrote:

    It's not stupidity and it's not insanity. It's criminal activity carried out by keen and calculating individuals who knew exactly what they were doing and fully understood the possible outcomes.

    A person doesn't become a top-paid CEO by being stupider than all competitors. "Gee, Your Honor, I have no idea how these millions of dollars managed to fall into my lap. How can a boneheaded and clueless CEO like me possibly acquire all these riches? Must be dumb luck!"

    Show me a "stupid" multi-millionaire, and I'll show you the person that 99 percent of TMF readers wished they were.

  • Report this Comment On February 16, 2010, at 7:29 PM, TMFLomax wrote:

    Thanks for all the comments and feedback, everybody. And Fleabagger - you're not the first to point out that while a lot of us associate that quote with Einstein, that it originated long before him. (I guess there's nothing new under the sun, eh?) Thanks so much for pointing that out.

  • Report this Comment On February 17, 2010, at 7:27 PM, MotleyShark wrote:

    During the 8 year Bush tenure our debt to foreign countries more than doubled to $2.06 trillion. More than the ENTIRE debt accumulated by the previous 42 presidents over 224 years. Dislike Obama all you like, but he was not and is not the problem. If you really want to blame someone, start with Bush and the GOP. They were in charge since the turn of the century. And now there is a big mess to mop up.

    --

    sure you don't want to reexamine that statement?

    http://en.wikipedia.org/wiki/National_debt_by_U.S._president...

    as for the food stamp debate, food stamps are currently way too easy to get, and Obama wants to keep expanding them. look at the original role of food stamps in this country and you'll find they resembled nothing of the sort. there weren't even food stamps during the Great Depression, yet we made it through just fine. not saying we need to go to that extreme, but re-examining the issue would go a long way.

    by the way, if you're on food stamps you shouldn't get free school breakfasts and lunches for your kids. that's what the food stamps are for. it has to be either/or, not both.

  • Report this Comment On February 18, 2010, at 5:56 AM, WTHAmIDoing wrote:

    Good point on the food stamps. I'll never jest those who have truly fallen poverish (been there myself) but has the American people really fallen that far or have they just become a bit more frugalistan durring the recession.

    http://www.investopedia.com/terms/f/frugalista.asp

    My sympathies to those who have lost and learned but there are always those who are happy to abuse the system..

  • Report this Comment On February 19, 2010, at 12:48 PM, theHedgehog wrote:

    <i>look at the original role of food stamps in this country and you'll find they resembled nothing of the sort. there weren't even food stamps during the Great Depression, yet we made it through just fine.</i>

    What a dumb remark. Sure, the country made it through just fine, but the individuals who were starving? Not so much.

  • Report this Comment On February 19, 2010, at 12:48 PM, theHedgehog wrote:

    <i>look at the original role of food stamps in this country and you'll find they resembled nothing of the sort. there weren't even food stamps during the Great Depression, yet we made it through just fine.</i>

    What a dumb remark. Sure, the country made it through just fine, but the individuals who were starving? Not so much.

  • Report this Comment On February 19, 2010, at 3:29 PM, dhuddle wrote:

    I have a feeling "langco1" is on the RNC payroll and is being paid to trash Obama. The story is about the greed of Wall Street and you turn it into Obama-bashing. If you have intelligence, use it and try to be fair. Demonizing Obama is ridiculous, The man hasn't been President long enough to be responsible for the problems you list. Solving our problems requires being logical and proposing solutions and working together to try to solve problems, and not trying to demonize Obama. I belong to the RNC, but I'm sick of it. All their letters do is attack Obama and they never propose any solutions - that way they can't be criticized. If you want an eyeopener join both the RNC and the DNC, get their letters and see which one trashes the other the most. I think the Republicans want Obama to fail and don't care what happens to the country - all they care about is taking down Obama.

  • Report this Comment On February 19, 2010, at 4:56 PM, joebiv wrote:

    When I got out of the Army in 1972 I used Food Stamps and the G.I. Bill to attend college. Sometimes you need some help.

    I think the biggest problem with over-spending is the fact that we are inundated with TV ads pushing you to buy more, get more and have more! This started years ago aimed at children, their parents, teens, young adults etc. The message being, you aren't a true American unless you have it all. And it has not stopped even today.

  • Report this Comment On February 20, 2010, at 1:08 AM, fourthreethree wrote:

    Thanks for SERVING our nation joebiv...that's a term those in government throw around too lightly, seeing as how their actions reveal no comprehension of it.

    Wall Street, Madison Avenue and their paid representatives in Congress have conspired and desecrated the true sacrifices made by G.I. Joes who protected this land for those back home to plunder.

    It wasn't Plato or Diogenes that came up with the existential truism: "We have met the enemy and he is us." The current self-serving system of greed will probably need to collapse Wall Street before any real reform and prosperity can return to Main Street.

  • Report this Comment On February 20, 2010, at 11:40 AM, OstapMaria wrote:

    I think every thing is not own tends to be stolen.

    Shareholders are weak hands

    Financial institutions and all other too big/important to fail have to be broken in parts.

    And these parts have to go private.

    Obama’s no clue same as Bush.

  • Report this Comment On February 20, 2010, at 1:15 PM, fooloz wrote:

    nothing will/can change until we get Campaign Finance Reform - this the first order of business - http://www.publicampaign.org/

  • Report this Comment On February 20, 2010, at 2:32 PM, dhuddle wrote:

    I own 2 businesses, have a top 1% income and work about 60 hours a week. I’m in favor of drilling for oil, nuclear power and think a lot of federal government employees earn too much. I’m conservative in a lot of ways but I think for myself. Guys like Langco1 do a lot of harm because they are fanatical and either stupid or don’t care about the truth. The fact is that a lot of the problems we have in the U.S. are due to Wall Street. I’m convinced that a lot of the people on Wall Street will do anything that isn’t against the law – as the article says they are guided by “ruthless selfishness”. If they aren’t regulated they will cause us problems. Even guys like Buffett, Charlie Munger and John Bogle are in favor of more regulation because they know the problems lack of regulation can lead to. An analogy would be not to have a speed limit on the interstates – if we didn’t have speed limits there would be huge wrecks. If it weren’t for Wall Street we wouldn’t be in the mess we are in now. I’m sick of extremists and liars on both sides and am going to make a point to call them out. Most people on this site are smart and decent – let’s not tolerate the idiots, liars and propagandists.

    Here is the truth about Food Stamps:

    When George Bush took office in 2000, the % of the population getting Food Stamps was 6.1%, the lowest since 1970. When he left office in January 2009 the % had increased to 10.5% (from about 18 million to 32.2 million, a 79% increase). I believe it is also true that the income disparity is the highest in almost 100 years. Whether you like Obama or not, you can’t blame him for the current economy – he inherited it. The problem is that the bubble that built up over the prior 8 years finally burst.

    There is a chart about Food Stamps at http://aspe.hhs.gov/hsp/indicators02/appa-fsp.htm and for more recent annual data http://www.fns.usda.gov/pd/SNAPsummary.htm

    For recent monthly data http://www.fns.usda.gov/pd/34SNAPmonthly.htm

  • Report this Comment On February 22, 2010, at 3:19 AM, PoundMutt wrote:

    Obama: WHERE is the job creation program you brag so much about? Do you even HAVE A CLUE how jobs are created?

    Wall Street and other business executives: WHAT makes you worth HUNDREDS to THOUSANDS of times the pay of your lowest paid workers? You know, the ones who ACTUALLY DO THE WORK in your business?

  • Report this Comment On March 22, 2010, at 5:27 PM, Fricol wrote:

    @ DHUDDLE: thank you for your excellent post. I'm a successful CEO and the reason we succeed is that we look for the root causes of our problems and of our successes. Pretending that our problems date since Obama was elected a year ago is hubris. We must go back to first principles: pursue hard & smart work, think strategically, shun greed and put in place regulations that protect us from the same greedy people once again destroying our economy. As you point out, why don't we just listen to Buffett?

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