After a number of months of reading about the causes of the current financial disaster that has brought my 401K down to about a 201k, I finally read an article that simply and concisely explains exactly what the fuck just happened. And it did so by indirectly connecting the current financial collapse to something that I am much more familiar with - the dot-com bust. As a contributer to, and ultimate casualty of, the dot-com, I had first-hand knowledge of why the bubble burst - I simply was too fucking stupid to realize that the factors could be the exact same in both. But, as written by the author of this article, a kid who was in the heart of Wall Street just as I was once in the heart of Silicon Valley, it is clear that the same two things brought both down:
1) People don't know what the fuck they're doing, especially the ones that pretend they do : Sometimes you think someone knows what they are doing because they have a nice title, such as Global Equities Researcher, wear a nice suit, and use phrases like mortgage-backed recapture bond. Unfortunately, as America just found out, these people do not, in fact, have any fucking idea what they are doing, or at least any more than you do. The author of the above-mentioned article paragraph confesses the following:
To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital--to decide who should get it and who should not. Believe me when I tell you that I hadn't the first clue.
I'd never taken an accounting course, never run a business, never even had savings of my own to manage .... the whole thing still strikes me as preposterous .... I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud.
I couldn't have put it better myself. At the time I was hired as an "Information Technology Manager" in the dot-com, I was a recent college graduate with an English degree who had last owned a computer in the 8th grade, and that was a Tandy. I hadn't even taken a computer class in college. And yet there I was: administering server accounts, backing up data, fixing computer hardware, ordering servers from Sun Microsystems, and meeting clients. In these meetings, I had mastered the use of terms that could blind and dazzle clients away from the fact I actually knew nothing. I threw around SMTP, LDAP, CSS, and Perl enough times that the client was confused, but impressed. And I had zero idea what I had just told him.
Apparently, Wall Street had their own set of terms: Derivatives, Credit Swaps, Futures. And the terms were complex enough to convince us that the people using them knew what they were talking about. Well, they didn't. There were a bunch of guys like me, although instead of blindly ordering SPARC servers, they were blindly ordering the stocks that made up your 401k.
In my case, I thought I was the only one who didn't know what the fuck was going on. But then, by my third year, I slowly began to realize that nobody actually knew anything: They just wore better suits. When I asked these people how, in fact, a company could survive when it made no income of any sort, they didn't actually have an answer. When I asked them who might possibly pay to put their chore list online, they just smiled. When I asked myself how I was getting paid so much when I in fact knew so little, I started to realize the dot-com was fucked: It was all a ruse and operated on a set of rules that were unsustainable. There wasn't some magic world where companies didn't need to make money to succeed, just as there isn't some magic world where strawberry pickers will ever be able to repay an $800,000 loan for a house. People want to believe it, but in truth it is all a con-game. There are basic rules in the world that can never be violated: You cannot spend more money than you make. Houses will not increase in value forever. You cannot double your money overnight. If you work at The Hot Dog Hut, you cannot own two houses. English majors cannot program in C++. If any of these rules are being violated, then you are being conned and will get what's coming to you. Every ten years or so, the country seems to want to believe that these rules no longer exist, and there is some secret and easy way to make a shit ton of cash quickly. There isn't, and there never will be. Give it up.
2) People up top are morally corrupt: The reason you are being conned is because the people up top could give a fuck about you. The people up top know damn well what is going, and will profit from it as long as you let them, as they have no soul. In Wall Street, in particular, the few people who actually did know what was going on hid it from the rest of the world, so that they could continue to rape and pillage as long as possible. And why? Because the people up top enjoy spending lots of money on self-cleaning trash cans, and nannies, and statues of swan-dragons carved from ancient trees, and custom jacuzzi tubs inspired by Bavarian mineral springs, and long driveways paved with the crushed bones of bald eagles, and all of these things cost a lot of money, and the only place to get that money is from you, but they can't come right out and tell you they need your money so they can buy another forty bedroom house shaped like a Phoenix, so instead they tell you they need your money for a Derivative fund that will surely earn you 10% return. So you give them your money, and they get their phoenix-shaped house with French Titanium gutters. And all of this, eventually, will fall apart, because the people up top will continue to want more and more money to buy crazier and crazier things, so they will have to create greater lies, and the greater the lies, the higher the odds someone will finally figure out the con, and once the con is figured out, then the rules mentioned above strike down with a fury and shake everything out, and you lose your money because you paid way too much for your house, and you go into debt, and you stop spending, and the strawberry-picker loses his five-bedroom house, because, you know, he never actually should have had it in the first place. Multiply this process by fifty million and there you go: Why our economy is fucked, and will continue to be fucked until the rules get everything right again. And that's going to take a long time, as there's still a lot of justice to be meted out. And in ten years, when everything is good again, once again someone is going to come along in a nice suit, and throw out a cool set of new words, and tell everyone he knows what he is doing, and this whole thing is going to happen all over again. Fortunately, next time I'll be ready: Next time someone comes along to tell the world he knows what the fuck he is talking about, I'll know it is time to put my money under my mattress.