Saturday, May 2, 2009

Getting Tied to the Railroad Tracks by Wall Street Villains

Random House Unabridged Dictionary defines a villain as "a cruelly malicious person who is involved in or devoted to wickedness or crime; a scoundrel ....

In the aftermath of the 2008 financial crisis, we were introduced to many new villains we didn't know existed. These were Wall Street folks, who created the crisis, and then cashed in on their misdeeds, by taking money from taxpayers.

But there were others who went above and beyond to feed off the misfortunes of others. One of those was John Paulson. According to The Trouble With Billionaires:

Of the world's 1,011 billionaires, it seems fitting to begin with John Paulson, who made a fortune betting against the subprime mortgage market....

Paulson always knew he wanted a large fortune, and he systematically went about laying the groundwork for acquiring one, applying himself sufficiently at New York University to graduate first in his finance class and then winning top honours in the Harvard MBA program. From there he soon gravitated, as water down an incline, to the money-making palaces of Wall Street, opening his own hedge fund in 1994 in order to best make use of his unusual talent for spotting the biggest money-making opportunity going.

The ultimate one came his way in April 2005, when he developed a hunch that the ultra-hot subprime mortgage market was headed for spectacular collapse. Keeping that particular insight to himself, he turned his research staff loose on the problem and figured out how to make money betting that the millions of people signing up for mortgages they could only dream of actually affording would soon start defaulting. When they did, Paulson was there, watching money flood into his hedge fund with the torrential force of a great deal of water travelling down a very steep incline. In 2007 he personally pocketed $3.7 billion, giving him the record—perhaps of all time—for financially profiting from the misery of others. (1)

This would certainly be bad enough, betting on people losing their homes, but what was really happening was that these sub-prime mortgages were actively being sold to unsuspecting and vulnerable clients, who were used as pawns to make a great deal of money for a handful of people. And yet these fraudsters believe that they did nothing wrong.
A scapegoat is emerging for the U.S. housing market meltdown -- and as a reason for more Wall Street regulation -- and his name is John Paulson. As the very smart manager of a hedge fund bearing his name, Paulson and Co., he created a controversial investment vehicle called the Abacus Fund for Goldman Sachs. The Abacus Fund bought risky mortgage loans and literally bet that they (and the homeowners who held them) would default to the detriment of investors and consumers ... ... As it gets easier for the general public to wrap their heads around this picture of Paulson and Co. (and others) creating designed-to-fail mortgages for unwitting consumers, those who partook are going to be painted as pariahs, whether they acted legally, unethically or otherwise . (2)
What these players did, may not have been illegal, though it should be, and the attitude of the financial industry, is that Paulson was simply a smart man, who is being ostracized because he made a bit of money.

These people have no sense of common decency. They believe they are above everyone else and owe nothing to society. This was a con. A fraud, and someone should be in prison as a result. But instead they are being high-fived and continue to almost print money.

Another example of enormous greed, involved Larry Ellison, CEO of Oracle, who has a net worth of $27 billion.
Assuming a 10 percent rate of return, Ellison could spend $51 million a week—or $303,000 an hour, every hour of the day, seven days a week—and still not dig into his principal at all. Moreover, at that same 10 percent return, the taxes on Ellison's sprawling twenty-three-acre California estate could be entirely paid from his interest payments in just six hours, during one night's sleep. Nevertheless, in 2008, Ellison contested the tax bill for the estate and won a $3 million refund, which had to be repaid by local school boards and municipalities. The Portola Valley School District in northern California was ordered to repay the billionaire some $250,000, roughly the cost of hiring several new teachers. For Ellison, the tax refund was yet more pocket money—enough, for instance, to increase that week's hourly spending from $303,000 to $321,000. (2)
$250,000.00 was pocket change to Ellison, and yet he took the money knowing that the community would suffer as a result.

How did we get to this point?


1. The Trouble With Billionaires, By Linda McQuaig and Neil Brooks, Viking Canada, 2010, ISBN: 978-670-06419-9, Pg. 4-5

2. McQuaig/Brooks, 2010, Pg. 10-11

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