E-mails From Mordor

A 15 year veteran of Wall Street who put us on to Magnetar disappeared unexpectedly, much to our concern. He resurfaced recently and gave us a bulletin:

Sorry I’ve been out of touch so long.

It’s just that I’ve become quite disappointed/disaffected by the whole thing. We have failed and “they” have won. All the good that could have come out of the debacle has been lost… and it has broken my heart. The Powers That Be have no inclination to learn anything or correct any of the imbalances. What is even more soul crushing? They are actively and desperately attempting to wrench things back to the way they were. That would be “Mission Accomplished” and it disgusts me.

Every day I go to work in the Bubble that is Wall Street. A bunch of self-important ass clowns that think they somehow deserve or have earned their outsized compensation. We move paper from one side of the desk to the other and call it “PnL”… and the idiots in this business think they’re talented enough in doing so that they *deserve* to make $4mm bucks a year for doing so. Its a joke. I suppose what makes it harder to swallow is the fact we had such an amazing opportunity to correct those imbalances… and that opportunity was stolen.

What throws me over the edge is the trend line of where things are headed. All the garbage the people find so offensive — CDOs, proforma loan origination with risks shuffled off to the dumb money via securitization, a culture of insider trading where the playing field is anything but level — is but months away from again becoming the status quo. AND THAT IS EXACTLY WHAT THE AUTHORITIES WANT!!

We have lived through the single greatest injustice in the history of mankind. And it all played out in shockingly clear detail. Yet nothing is going to be done about it. No ill-gotten gains will be disgorged, no rules will be meaningfully changed, and not a single person who caused this will be asked to answer for their misdeeds. The American people have been robbed at gunpoint… and no one cares.

I spent six months unable to fathom all of this. I sat there like it was 1945 saying to myself like I’m sure people at the time said of the Holocaust: “given the evidence we’ve all seen, its just a matter of time…” But its not going to happen… they want to put Humpty Dumpty back together again like nothing ever happened.

Now I’ve moved on. We’re now in the biggest bubble of all time… and I’m more confident than ever that I know how this ends. This ends in tragedy, in a way where no one will be left standing. They’ve turned what would have been a complete collapse of the private sector economy into something that at some point will be a complete collapse of our system as we know it. These sorts of imbalances — economic, social, and political — can not be sustained indefinitely. They will destroy us… I have never been more sure of anything.

Until then however, I’ve given up. They have won and it has broken my heart.

Yves here. Before some of you start moralizing that the author is still working for Big Finance, consider a lesson from the Holocaust. Because I am in London and can’t access my files, I am doing this from memory.

I read a book review in the New Republic on the Bulgarian leadership in World War II. Bulgaria was alone of all the Nazi states in that it refused to turn its Jews over to Germany for extermination. The review had an exceptionally eloquent paragraph that mused on how unblemished virtue may be ineffectual, that the sort of “good” that can make a real difference, like saving lives, may of necessity tainted by evil.

A second e-mail from our correspondent:

The one caveat I want to make clear is this: I’m not complaining about my predicament. I do what I continue to do of my own free will… clearly. I suppose there’s a few reasons why I’ve stuck around. First, as maddening as this whole thing is, I expect I’d be frustrated to death if I didn’t have an inside seat. Making sense of it all through the MSM and the blogosphere I think would be impossible. I suppose I get some sense of personal satisfaction seeing everything play out first hand. At least that way I can see the pieces moving and have some sense of how and why they’re doing
what they’re doing.

Second, I still think I can do more good as part of the apparatus as opposed to being on the outside. People still listen to me… and just maybe with every day I have a small soap box there’s one
additional person I can convince how rotten Business As Usual truly is. I expect I’m being optimistic on this part… but I can keep my fingers crossed and hope.

Yves again. Camus said, “Il faut imaginer Sisyphe heureux.” Sometimes I think that is my motto.

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  1. Dr X

    This has to be one of the most fatuous things I’ve ever read. He can’t be serious can he? “The single greatest injustice in the history of mankind”!! It’s obviously not so terrible as to prevent him working on Wall St. Perhaps he’s trying to “destroy the system from within”. Or perhaps he just likes the pay check.

    I’m not sure why you would publish garbage like this.

      1. Dr X

        No, I’m saying that this was not the “single greatest injustice in the history of mankind” when compared with wars, for example. I think the writer needs to get some perspective and perhaps some professional help.

        1. recaldo

          Well, if not THE greatest injustice in the history of mankind, it was definitely one of the great injustices. However, I would go as far as to say it is the greatest injustice of the modern American era. The reason is simply because of its[and by its I mean the entire financial crisis, bailout, reform efforts…the episode in its entirety] implications for the future organization of our society and thus the rather large effect in has on Americans, and indirectly, the world. This has been a thirty year war against government that is now coming to a crux. The people who have most to lose is us, the citzenry, because we run the risk of being governed by less democratic means than are currently being offered. The injustice is that the government, set up by the people, and representing the people, is being stolen.

          1. backwardsevolution

            Dr X – a complete moral and ethical breakdown, a capturing of your government by the financial elite, and you don’t see a problem?

            The looters at the top (through intention) and the looters at the bottom (through ignorance) have brought this country to its knees.

            When looting wins, a country is a country no more.

        2. BruiserND

          War is a concious decision made by society and it’s leaders.

          This injustice was fraud, which if quantified in monetary terms, exceeded the cost of ALL of Americas wars for 240 years.

          Back off Dr X, you are standing in judgement of a hero reporting from the front lines.
          What are YOU doing Dr X other than issuing annonomous opinions.

        3. enfinity

          Let me guess. In your estimation, the holocaust is the greatest injustice…


          What is more damaging?

          A) Spanking your child
          B) Slapping your wife
          C) Verbally assaulting your wife
          D) Kicking the dog

          There needs to be a constitutional amendment banning government borrowing. Another banning fractional reserve banking. Another banning usury.

          I will also put forth the radical notion that a concentrated government structure should be restored. All governments derive their powers from the consent of the people. The problem with our republic and social democracy is that it is devoid of accountability.

          Who can tell me who is responsible for this mess? If you can’t identify the criminal(s) on a post-it note there’s a problem. The fraud is systemic. Everyone has been criminalized and the only thing to debate is how criminal one person is relative to another.

          Money, government and religion are all social constructs. A new social structure needs to be implemented to restore limited government, encourage productive commerce and establish accountability.

          All this government is really just diversifying the accountability and responsibility in order to reduce political risk.

    1. attempter

      The right way of putting it (for now) is “greatest robbery” or “greatest economic crime”. Those are the terms I use.

      The violence of the complementary war, meanwhile, has been absolutely extreme but still relatively normal.

      As for how much violence is latent in these crimes, we’ll see once they have no choice but to become overtly fascist or relinquish power, as the system’s inevitable total and permanent collapse impends.

    2. VenusVictrix

      Don’t judge him unless you know why he stays.

      I left the mortage business in 2004 because I did not like where it was going – but I clearly had options that many others did not. I don’t condemn them for staying and trying to make a living, and support their families.

      Maybe he’s like to leave – but doesn’t know how, or where, to go.

      1. backwardsevolution

        I don’t judge him at all for staying. His leaving would not make one bit of difference as his position would be filled the next day.

        I feel for this guy and wish him the best. He is an honourable person who sees the injustice. Dishonourable people never see it.

        Thank you for all that you have done.

    3. liberal

      When I saw the “single greatest injustice” line, I immediately thought that that’s a gross exaggeration.

      But most of what the guy says is pretty reasonable.

  2. poicephalus

    I feel that your correspondent has control issues.

    However, I am so glad he contributed to your manuscript*.



    *and I hope “source” is doing well.

  3. Sy Krass

    By bubble does he mean bond bubble or the whole system as “bubble?” It appears soveriegn default over the next 12-18 months is how “this” is going to “end.”

  4. john bougearel

    Thanks Yves,

    You (and others) with your Sisyphean habits/values are good company to keep.

  5. Jon Claerbout

    Don’t be pessimistic so soon. Just today Simon Johnson told us there is an amendment to the Democrat Bill which is marching forward. Go read what he wrote. He moved me to write both my senators and Senator Reid, chair of the finance committee. I also wrote a dozen friends. There can be action within a week. The game’s not over.

    1. Dr X

      Simon Johnson! You really shouldn’t take him too seriously. Maybe he’s a decent economist but he doesn’t know a damn thing about finance. He’s an embarrassment

      1. recaldo

        “He is an expert on financial crises in both the developed world and in emerging markets. “

      2. postmodernprimate

        Dr X at 1:03 am: I am offended by ad hominem attacks and defamation.

        Dr X at 1:05 am: I am engaging in ad hominem attacks and defamation.

    2. backwardsevolution

      I too think the game is just starting to heat up. Things can turn in an instant. All of these guys deserve jail time, and I believe this is exactly what’s going to happen. It’s not over until it’s over.

      1. readerOfTeaLeaves

        Without discounting Yves’ correspondent, I agree with your view.
        It’s been slightly less than two weeks since people learned about ‘Magnetar’.
        It’s been less than one week since the GOP seemed to wake up.
        It’s been only one week since the SEC charged Goldman, and people can grasp the kernal of that story: Goldman (as in Greece, etc, etc, etc) created a betting parlor and then played both sides of the bets.

        The ‘audience-public’ is (finally!) listening, and if the people that I know are any barometer, people who have seen their portfolios shrink are not going to take kindly if they wake up in six months and find this FinReg was all kabuki.

  6. john c. halasz

    The Bulgarian rightist regime during WW2 were indeed Nazi-allied, but protected their own indigenous Jewish citizens, refusing to yield to any Nazi demands on the matter. However, they readily cooperated with the Germans in liquidating the Greek Jews of Salonika/Thessaloniki, (which had been a bone of contention with the Greeks since the Balkan Wars just before WW1).

  7. EmilianoZ

    He seems to be one of the last men in Wall Street who still know the meaning of the word “decency”. I’d love to see him guest post here from time to time.

    Now that I have Bill Black’s book about the S&L debacle, I’ve been able to find the complete version of his quote on Moyers’ journal.

    “It is not necessary to hope in order to attempt, or to succeed in order to persevere”

    attributed to William the Silent, Prince of Orange (1533-1584)
    (at the beginning of Chapter 7)

    What makes me happy is to know that people like him or Yves still exist.

  8. Richard Kline

    I prefer: “Dans les profondeurs de l’hiver, j’ai finalement appris que il y avait en moi un invincible été.”

    When you fight the big boys, often you lose. The fight must be made because it is necessary, and because resistance creates the potential for success. Fight smart. Spread the word. Don’t buy the lie or smoke the shit. Hit ’em again and harder, next time. The system doesn’t favor you, so one must work around it. Stay on the inside, m’friend, and send us the real dope by messenger pigeon.

  9. ndk

    “Second, I still think I can do more good as part of the apparatus as opposed to being on the outside.”

    This is the exact excuse one of my close friends used as he sold out from the research community into one of the big Internet corporations. That big Internet corporation is now being actively sued by several consumer protection groups and has had angry letters from many governments come in recently, threatening action. This is all, of course, the project he’s been working on, and he still thinks he’s got a better shot of fixing it from the inside.

    I think you’re severely delusional on that point. I agree with almost everything else you wrote, but your continued participation in the action is Lord of the Flies grade behavior at best. I’m sure there are other factors motivating you; some may be investigative journalist, some may be selfish, some may be addiction to the excitement and feeling of power. You know there will be no meaningful change of the system until it explodes again, and state as much in your first letter.

    To thine own self be true. It makes you more credible, more interesting, more human, and more honest.

    1. backwardsevolution

      He doesn’t need to be more credible or interesting for your sake. He has handed over valuable information, and for that he needs to be commended.

      “When you judge another, you do not define them, you define yourself.”

      What are his motives for staying? WTF? That’s not our business. The only person who should be concerned with his motives for staying is himself.

      1. Thomasina Jefferson

        I agree that he needs to be comended for providing inside information, no doubt about that. It needs courage to do so.

        However, I want to point out that the many people who hang around in these companies and continue to do their job there are essential to the beast being able to continue doing what it’s doing. It would just collapse if enough people walked away.

        1. backwardsevolution

          Thomasina – that’s the point, though. Not enough people would walk away. Most people who work there are not ethical people. They have a very shallow conscience, if any at all. They value money over anything else and they won’t be walking.
          He/she knows this.

    2. nowhereman

      I always find evidence from an insider more compelling than evidence from a former “disgruntled” employee.

  10. anon

    Yves, thanks for posting this.
    Whistleblowing is thankless and dispiriting. If anyone wonders why its so rarely done read the subtext of conflict in your contact’s post.
    His (or her) despair may be justified, maybe nothing will be done and the status quo will be relegislated in the reform bill.
    Or maybe not. Who knows at this point how tipping you off to the Magnetar story is going to play out, but it seems to me he made the right choice.
    If I were in his shoes I’d be more heartbroken if I hadn’t reached out to you. Obviously there are a lot of people who want to hear this, maybe not those he works with.

    I’ve been there. No one’s going to thank you for doing the right thing. But no one can damn you either unless you let them. They can bankrupt you though, so take care.

    1. backwardsevolution

      I thank him for doing the right thing. It is people like him who should be put on a pedestal, not the Blankfein’s or the Dimon’s of the world.

  11. Toby

    Bob Dylan springs to mind:

    “They say the darkest hour, is right before the dawn.”

    And, from Idiot Wind, the perfect song for the last few years in my opinion:

    “You didn’t know it you didn’t think it could be done in the final end he won the war
    After losing every battle.”

    For me the question is, how phyrric, and what will victory look like? For a long time now I’ve been as convinced as an outsider can be that this is a deeply systemic problem, and that most discussion, debate, pontificating and so on are completely beside the point. Must the system collapse, or can it be ‘gently’ nursed into a new mode of operation? Time will tell. Whatever happens though, I don’t see the point of giving up hope, for purely pragmatic reasons; life becomes to colourless and dull.

  12. Thomasina Jefferson

    I suppose there’s a few reasons why I’ve stuck around. First, as maddening as this whole thing is, I expect I’d be frustrated to death if I didn’t have an inside seat. Making sense of it all through the MSM and the blogosphere I think would be impossible. I suppose I get some sense of personal satisfaction seeing everything play out first hand. At least that way I can see the pieces moving and have some sense of how and why they’re doing
    what they’re doing.
    Interesting way to rationalise his being accessory to the ‘crime’ so as not to have to feel guilty about it.
    He continues to pocket his salary being fascinated by being a first hand witness of this greatest crime, contributing to it while at the same time distancing himself from so as not to consider himself to be part of ‘them’.

    1. backwardsevolution

      Thomasina – this is making me furious. He doesn’t have to rationalize anything to you. He gave Yves information, which we should all be thankful for, and then we turn around and villify him? What?

      That’s like saying, “Well, thanks, you’ve been good, but you still aren’t good enough.” I can’t believe the thankless people out there.

      He will leave wherever he is when he is good and ready to. Like Forrest Gump, he’ll just stop running one day, but the timing of that decision is up to him. It is a process that only he can go through. He will leave when the time is right for him. That’s none of our business.

      1. M.InTheCity

        backwardsrevolution is absolutely right. I think as well, it is difficult for anyone to completely change their values overnight. Everything he’s believed in with relationship to his country and living has been exposed as fraud. When you’ve dedicated your life to that sort of apparatus, it’s actually amazing he sent Yves any info at all. Perhaps he should only walk around in a burlap sack, but I think he should be congratulated for having that spark that is rare in investment banking – an abilty to not think only of his own narrow point of view. Working in finance you get to know these men and they are often, well, lizard like in their connection to their conscience.

        We all move in our own time and I know few people who are saints. I am just glad he is truly human and not like the rest of the boyz

        1. Thomasina Jefferson

          I agree, it is difficult to change values overnight. But that is not the problem here, he seemingly does not share the values of his employer, so he has already changed, still he is not walking away from it.

          1. backwardsevolution

            Thomasina – he is “beginning” to see his fellow employees for what they are. He is “beginning” to change. It takes time, it takes contemplation. If he walks away now, it will be for reasons other than his own: it will be because “well, I really should” or to please others.

            No, he must walk for HIS reasons, because from somewhere deep inside him he cannot go on working there. HE must decide if and when to walk. He will know.

        1. Yves Smith Post author

          You are suggesting I did not get permission to publish these messages, which is an unwarranted and inaccurate slur.

      2. dave

        He’s giving information in order to assuage his own guilt. Its not an act of kindness, its a selfish act. He wants his payday, he just doesn’t want to acknowledge his money is as dirty as everyone else’s. Sorry, I won’t be an accessory to that. I won’t pat him on the back and let him rationalize it away. I worked on Wall Street too, and I left my big payday behind. I made the sacrifice to save my conscious. He can still be an insider and donate the majority of his salary to charity and live like a middle class person. Doubt he’s doing that. Money talks, everyone else is bullshit.

    2. Dan Duncan

      Sanctimonious bullshit on a slippery slope. The Thomasina comment, not the underlying post.

      The author of the post, by virtue of his existence on Wall Street, is now an “accessory” to an Epic Crime?

      OK, then let’s all get together, hurl opprobrium and offer a big hearty “Fuck You” to Naked Cap Contributors, like Edward Harrison, Tom Adams, MacroEdge and Marshall Auerback who also have derived income from Wall Street.

      The only thing I can say about such an imbecilic worldview is that you’re giving me a better understanding for the of Original Sin.

      You exist, therefore you are evil.

      The Tax Code is a crime perpetrated on US Citizens.
      CPAs collect payments on the basis of this crime;
      therefore, CPAs are accessories to a crime!

      Big Pharma commits crimes against sick people who need medicine, but can’t pay for it.
      Pharmacists get paid in connection with this crime;
      therefore, pharmacists are accessories to a crime!

      At least these ridiculous exercises in “logic” actually offer a complete syllogism.

      Not Thomasina, she of the Single-Premise-Syllogism:

      “You’re on Wall Street.
      Therefore, you are evil.”

      “Shit, sorry about that Thomasina. Let’s see…Hey–If I gut my first born son, would that make amends?”

      “Doubtful. But give it a try and I’ll get back with you.”

  13. gordon

    First, I just hope he’s writing it all down somewhere, as a “secret history”.

    Second, we need to remember how many people have wanted change and worked for change long before any big change actually happened. They went to their graves before they saw the results of their work, and only historians remember their names. This has been true for a long, long time. Every victorious movement needs to remember all those who worked for the same end but never saw the victory.

  14. NS

    The note sums up what many people think and feel outside of ‘insider finance’ as it wasn’t just that business rife with fraud and abuses but is the epicenter. The business models applied to things, like say our so called health care, produces the same results expressed in various ways but the end result is the same. These models capture and then prey on anyone in their system. One reason there are shortages of physicians and nurses is they cannot practice their vocation in a patient centric way. That insurance you pay your life into only to have rescinded if you get ill is not like AIG that pays out no matter what at 100%. Eventually, you see the injustices, profound pain and suffering long enough and if you can, you leave. The reform wasn’t anything but a gigantic gift to insurance companies and just like finance, the same will continue. No consequences for fraud will embolden the same behavior.

    The heart break the author describes applies to many, many serious professionals today outside of the financial industry.

    Incentives which reward moral/ethical bankruptcy is the viral plague upon the world. Pathological narcissism to date is richly rewarded. Enron, the S&L crisis, and Madoff etc. models of enrichment rather than examples of criminal behavior.

    The dark underbelly of capitalism is now the rule rather than the exception, no one is unaffected. Clearly, it will get worse for everyone before it gets better.

    Nothing will change as the new world robber barons have ultimate control and affect everyone negatively even if you aren’t ‘invested’ with them. Its a ‘Brave New World’ and a sad era for anyone with integrity. I still see 5 fingers and not 3. It is ‘1984’. Still one must eat and provide for their family if they still can; so there is no other choice but continue and attempt to inject some sanity in the system, largely to no avail.

  15. Jason Moon

    you guys have all seriously lost your mind. Excusing this guy who whines about wall street but continues to work there??? Are you kidding me? And Yves, even beginning to allow any possible connection to the holocaust? I used to love this site and you’ve all gone and lost your minds.

    1. backwardsevolution

      Jason Moon – he doesn’t need our excusing. He doesn’t need our righteousness, our judgments.

      The most honourable thing you can do is to “wake up”, and it is also the hardest thing to do.

      Jason, what are you doing but whining? Get out there with some signs. Post them in bus stations, at subway stations. Get involved by spreading the word.

  16. Kid Dynamite

    I find it odd that many commenters are commending this author for having the chutzpah to recognize the flaws in his industry – serious moral flaws which he calls “soul crushing” and describes as “the single greatest injustice in the history of mankind”… while he doesn’t walk away!

    It’s quite apt that the author brought up the Holocaust – wasn’t a common Nazi defense that they were just “taking orders” ??? (it’s like the movie “A Few Good Men” – the guys were just following orders to give the Code Red)

    if you don’t like it, and don’t want to be part of the atrocity, you have to STOP doing it! it’s not enough to be aware that you’re part of the problem…

    i’d guess that he could do a lot more good from the OUTSIDE, where he could speak without restriction to a wide audience. rather than surreptitiously emailing Yves to post on her blog, he could leverage her connections and appear on network television – and REALLY get the message across.

    1. Mark

      I do not completely agree with the author’s reason for staying, but I can also understand that he or shoe might want to make a difference from the inside. The problem is that it has become completely contaminated and corrupted, but Wall Street performs some essential functions.

      It is very difficult to make a positive change. It may be futile for this person to try to make this change from the inside, but it is hard for me to fault his or her decision.

      This leads me to a point I have wanted. I think some of the better known bloggers who have commented on the financial meltdown (this would include you, Yves, Edward Harrison, and many others) should begin to formulate a handful of fundamental changes that would make our financial system work better. I think it would make sense for these to start with the simplest and least controversial (at least among uncorrupted people who have thought about things) changes that will have the greatest impact. However, more key details are needed than the traditional media has provided. For example, if one recommendation is to break up TBTF, our lawmakers need a roadmap, because I do not think they have much of a clue.

      If you are not going to try to solve the problem, how can you possibly criticize this person, who at least believes that he or she is trying?

      1. Kid Dynamite

        mark, to clarify, I don’t “fault” this person’s decision, but i do think it reeks of hypocrisy to point out the great travesty and then continue to be a part of it. Maybe this person can change The Street by staying at his post. who knows. i doubt it.

        As for my impact – my goal is similar to this piece, actually, in a way, because the point of everything i write on my blog is to attempt to educate people on how things work, from the perspective of my experience.

        speaking of which, I can relate in a way to this author – I quit in Nov 2007 because I didn’t think I had any edge at all anymore. Could I have stayed and gambled (we call it “punting”) with the ample capital (not my money!) I had at my control? Of course – that’s what i’d guess 95% of others would have done – it’s a free roll! Make money = get paid… lose money: same outcome as I got: either quit anyway or get fired. Staying and punting was the sensible “freeroll.”

        Do i deserve a medal for not doing so? of course not. And i certainly didn’t leave Wall Street because of some amorality I saw, but my point is that i LEFT! It could even be argued that I made things WORSE by leaving, because eventually a replacement will be hired who wasn’t as prudent with risk management as I was, and thus will make things worse.

        1. Mark

          Kid, thanks for the response.

          I basically agree with you, and for what it is worth, I think you probably did the right thing, and probably make more of an impact, by leaving.

          I will also repeat that I think people like you and Yves should begin to offer policy prescriptions. This does not criticize any of the education that you have done, because I think the education is fantastic. However, I think that there is a painful dearth of viable policy proposals, and I think you would add a lot to society by offering them.

          A big challenge (at least in my opinion) for anyone trying to influence policy is finding the right balance of details. We need more than one-liners (e.g. stop TBTF), but offering full-fledged dissertations, however brilliant, will lose most Americans, even intelligent ones that want to get the message.

  17. the bankster

    I recently left a credit trading desk at a bulge bracket firm and can say from experience that this writer is spot on. Felt like a sane man in an insane world and had to escape (either that or blow up the place). All we can do now is wait for the tragedy to occur.

  18. Jesse

    “A Nordic union between Scandinavia and Great Britain, with the adherence of Finland and Holland, and in which Germany and eventually the British Dominions and America might later on be absorbed, would take away the sting of any communist combination and secure European civilization and peace for the foreseeable future.” Vidkun Quisling

  19. MarcoPolo

    And how exactly are any of us different anyhow?  Are we not all conflicted?  Compromised?  And who exactly will we count to be among the most enlightned, the most forward thinking?  The unconflicted?  

    We’re listing badly.  The questions are, can the ship be righted by reform?  Or are we just rearranging the deck chairs?  Are we destined to capsize anyway?  And if so shouldn’t we be thinking about that ark?  What does it matter where we lay the kiel?  What we know is that there is work to be done. 

  20. tom

    Based on my own experience, when you’re on the inside everything does seem hopeless and doomed becacuse you are powerless to do anything about it.

    Once you leave, and realize you can actually say the truth out loud and admit that it makes you angry, it is tremendously liberating. things don’t look so dark and desperate anymore. And if you start to actually do something with your knowledge to try to fix the system from the outside, you can become downright optimistic.

    of course, it’s a lot less lucrative being outside of Wall Street, but also a lot less depressing. I’ve had dozens of people still employed at big financial institutions tell me how depressing it is to go to work and how they wish they could write an article that explained what was really going on. How long can you live that way, enslaved by the golden handcuffs, without experiencing some serious emotional issues?

    My future is a lot less certain but I’m not depressed or yelling at my kids or kicking the dog – the Wall Street comp underprices your soul…

  21. Delicious Pundit

    Camus said, “Il faut imaginer Sisyphe heureux.” Sometimes I think that is my motto.

    Your Camus quote puts me in mind of Zbigniew Herbert:

    be courageous when the mind deceives you be courageous
    in the final account only this is important

    and let your helpless Anger be like the sea
    whenever you hear the voice of the insulted and beaten

  22. Dave of Maryland

    When you’re an insider & must live with corruption, what do you do? Blow a whistle?

    What did Larry Flynt do while the Republicans were impeaching Clinton?

    He used inside knowledge to destroy the careers of a number of specific individuals.

    Why not make up a target list? Publish it. Heads of Wall Street. Go dig for dirt. (Wikileaks, anyone?) These guys have got to be really, really dirty.

    Or sit back & grumble. I turn on the computer & anymore, it’s just The Daily Grumble. What use is that?

    1. Yves Smith Post author


      I may be misinterpreting your comment, but the writer of the e-mails IS doing something productive by educating people like me about tradecraft and giving people like Tom Adams missing pieces of the puzzle.

      The reason the the securities laws of 1933 and 1934 proved to be successful and durable was they were designed by people who understood the abuses and knew what rules would prevent them from recurring.

      One of the things that has frustrated me about the crisis is the way so many commentors (economists in particular) will stop and be satisfied with superficial explanations of what happened. If you do not understand the nature of the chicanery, you will not be able to prevent it from happening again. This stuff is complex, and only people who had/have a seat at the table can explain how it works.

      1. Dave of Maryland

        Hello Yves,

        I understand the chicanery, the lying, the thieving, all of that. I understand that it’s important, very important, to figure out how it was done. I am of the opinion that, regardless of solution, the underlying problems will not permanently go away. All solutions are temporary, and all of them are slow. Vigilance is eternal.

        But I see no harm in revealing the secret lives of the rich & powerful. It’s non-violent, after all. That, to me, is part of the price you pay for being rich & powerful. Maybe they will ignore the revelations. They’ve ignored everything else.

        I have the impression you fear it will be nasty. Well, yes, it would be. But it’s already nasty outside. Rising unemployment results in rising levels of spouse abuse. Women beat black & blue for no better reason than hubby got canned. Is this fair? Rising levels of drug addition because people can’t stand the strain. Increasing amounts of petty crime, as people steal to make ends meet. More guns. More gun accidents, ie, children shot by accident. The elderly – my parents, your parents – reduced to abject poverty. Children malnourished, growing up in increasingly violent neighborhoods. Gangs. Rape. Homelessness. Lives ruined. Lives lost. You see any government programs to help? You see any in the works? You see anyone talking about formulating programs? Well, yes, actually. I hear that municipalities are having to cut back on police. As if cops were the solution. The stuff that Barbara Ehrenreich has been documenting over at her blog. Why should the rich be exempted?

        Back in 1992 I worked for a landlord in Park Slope, Brooklyn. Corner of 4th & 16th he had building with a drugstore where the tenant had gone bust & left the store just sitting there. One fine day we heard it had been robbed. We were incensed. We were outraged. And, frankly, we were panicked, as we did not know if the thieves had made off with controlled substances, since the ex-tenant had simply abandoned his stock.

        But upon examination, we found the thieves had taken baby formula.

        Why is it that we destroy presidential candidates for peccadilloes but turn a blind eye to those with real power?

        You have done excellent work. Naked Captialism is on my daily reading list. But I see no harm in publishing the sex lives of GS & JPM execs. In fact, I’m all for it. Let them share in the misery.

    1. Yves Smith Post author


      I find your reaction incomprehensible. So how did I, a non-CDO expert, find out about Magnetar? Two books written by journalists on subprime shorts failed to find them. I was full bore writing a book which was SUPPOSED to be entirely secondary research. I pretty much didn’t (until recently) do primary research. Did I just make this up out of whole cloth? Or do you assume I overheard it in a bar and on a whim, decided to pursue it?

      Or are you suggesting I made this e-mail up? That’s a pretty nasty and false accusation. Plus there are tools for comparing writing styles. One would show that the style of this post is not mine.

      1. AK

        1. I don’t believe in romantic stories anymore.

        2. You might have multiple informers and assembled the bigger picture from multiple pieces of info (so-called ‘mosaic theory’ in investment theory) but decided to go with some romantic story a la Emily Brontë.

        3. I don’t want to judge on this particular email. You might receive it from one of your informers (it doesn’t really matter to me since few people do share that opinion).

        1. backwardsevolution

          AK – it sounds like you are in denial. I had never heard the word “Magnetar” before coming to this site. Thank goodness for people like this insider and Yves who have brought this fraudulent system to our attention.

          This insider has provided valuable pieces of information to the code breaker. It makes perfect sense when you see how the pieces fit.

          1. AK

            Yup, I am in denial since I don’t believe in ‘unnatural’ things (like ‘Immaculate Conception’ allegorically speaking here). On the other hand, it doesn’t really matter to me how things did happen. It just matter for me that they did happen.

      2. AK

        Btw, I am with guys who suggested you to publish your Magnetar’s appendix on the web.

        1. As time passes people won’t buy your book to learn about info. It’s a yesterday’s story in order to pay money for it.

        2. You show anyone that you have a priority with respect to this story. So, the discovery will belong to you.

        3. Then universities will want to buy your book for their libraries as an important piece in the history of finance.

  23. Hamish

    Yves, I have been a reader of your column throughout the crisis. I have enjoyed the balanced commentary that you and CR have provided. The sentiments expressed in the email above closely mirror my own – a deep sense of frustration at the missed opportunity and the unfairness of what has passed.

    Keep on with your Sisyphian task. Perhaps the electorate will finally realize that you get what you vote for, and vote for the policies that candidates stand for, not the parties they align themselves with or the ridiculous side-issues they distract us with. Perhaps the populace will finally have a voice at the policy-making table that speaks louder than the lobbyists.

    Anything that promotes the critical thinking among the electorate that would lead to such outcomes is to be welcomed, and your blog contributes to the cause. Keep going, you may yet roll the rock to the top of the hill.

  24. MichaelC

    This is a remarkable post.
    How likely is it that the author would have succeeded in drawing attention to the story if he hadn’t contacted you?
    How different would the reporting and our understanding of the crisis be without that one act?

    The chain of events he set in motion has been profoundly useful. If this (the crisis) happened 10 years ago I would have been despondent. There was no alternative channel available to people such as your source and the commenters on the blogs to immediately shout BS!, and publish substantive counterarguments in real time and anonymously provide details that MSM investigative reporters would have to spend $$ and hours on, and then only if it were cost effective.

    What is your budget vs ProPublica’s? Who’s getting more bang for their buck? I’d argue society in general, but the point is now there’s no shutting you (and your peers) up, thank god, and the politics have changed as a result.

    A while back there was a debate in the comments re the ‘free-market’ label, with some back and forth about a better name. I think the ideal name is simply transparent markets. And the transparency movement is already in place here at the blogs. I think people are looking too much to the past to predict the likely future political outcome, without factoring in the impact of the alternative finacial press that exists in the blogosphere. In the same way incomplete historical data undermines the model driven risk management paradigm, prediciting the political dynamics in Wash/Wall St without factoring in the added transparency coming from the blogs is flawed.

    I recoil at the sophisticated cynics who insist it the same as it ever was, that the SEC is going to roll over and that the govt is going to cave. Maybe that will happen as it has in the past, but it doesn’t take that much (like a tip from a source) to shake them up a bit and put the old order off balance.

  25. Hugh

    There are many of us out here who have been writing on this for some time. We live in a kleptocracy. Our elites are wholly given over to looting. We are in a pre-revolutionary state where we have conditions that are unsustainable, a system that can’t last and elites that can’t change. What we saw in the housing bubble burst and the meltdown was the natural result of a 30 years process of theft and fraud on a scale that has not been seen in human history. The top 1% in the US have 13 1/2 times the wealth of the bottom 50% of the population. Does anyone think that kind of inequality can be justified in any way? that it can be sustained much longer? that it doesn’t have time bomb written all over it? Yet our elites like the savage, greedy addicts they are continue and accelerate their looting ways. They will do so to the point of the collapse and beyond. We know this because this is exactly the way they have acted during the last collapse and its aftermath. We are all taught to dismiss talk of revolution in our country. We are taught this, not coincidentally, by the very elites who would suffer most by revolution. But with their being no real difference between corporate Republicans and corporate Democrats, with the absence of any serious reform-minded opposition, revolution or dictatorship are the only options left. Nor are they exclusive of each other.

    The truth is we either believe in the logic of the political situation and the math of its economic counterpart or we do not. If we look at where the math is heading, and the political calculus, then the next collapse is inevitable. It is the political reaction to it by the American people that is the great unknown.

  26. Eric L. Prentis

    There is much to be said in favor of Deep Throat (William Mark Felt, Sr.), who stuck around with the FBI during Watergate, unfortunately the MSM, and specifically WaPo, are currently intellectually bankrupt and are little more than quack rags for the moneyed and political elite propaganda machine. Maybe this is an opportunity for the Internet to prove itself, long live Naked Capitalism!

  27. LAS

    “If you have faith like unto a grain of mustard seed, nothing shall be impossible to you…” The Titanic doesn’t turn on a dime; it is about heavy, persistant public education and building the political pressure. Public education is slowly happening and that’s a big thing. It is a big thing to get ourselves (particularly those not in finance) to better understand what has happened and is happening, to actually detail as per how Yves has and does. This puts more pressure on public servants to move in the direction of appropriate action.

    It’s rather strange, but I’ve also been finding solace in reading the story of WWII survivors and the Tolkien trilogy. Stories from those in the French resistance and other survivors. And from news – there are many people around the globe who are poor and oppressed and show incredible courage. We too can get through this.

  28. Hugh

    Re the writer, the following quote of John Jay Chapman comes to mind:

    “And yet it is owing to the activity of these men that the deeper political conditions became visible. Men cannot transcend their own analysis and see themselves under the microscope. The work we do transforms us into social factors. We are a part of the changes we bring in. Before we know it, we ourselves are the problem.”

  29. steelhead23

    Yves, thank you for publishing this. It is heartwrenching and I’ve linked to it in another blog. To all in this blog who see this man’s perspective as hyperbole and self-serving – shame on you. Look, the scale of the theft approaches and may exceed $1 Trillion – and yes, the exposure of the depth of socio-economic-political corruption does bring into question the legitimacy of the American experiment. Rather than challenging this man’s ethics, shouldn’t we be displaying our outrage at the lack of ethics among our leaders?

  30. alpwalker

    If, as other posters have stated, this guy is complicit because he knows better and still works on Wall Street, then anyone who reads this blog and invests in Wall Street is also complicit. Purity on the issue would require us to starve the beast and reinvest elsewhere. But where? Is a 401K holder supposed to cash out and lose employer contributions that won’t be added to salaries? I’d rather take the cash as part of my salary but you can bet my employer doesn’t see it that way.

    The crappy choice we have is to cash out and take a %30 or so penalty or wait for the market to implode and hope the loss won’t be more than what the penalty would have been. Then there is that age old hope that after the crash future contributions, assuming we still have jobs, will be used to buy stocks at all time lows for those long term thinking investors. Gosh what a choice! What a deal!

  31. Mickey Marzick in Akron, Ohio

    When you look into the abyss… or is it the BANALITY of EVIL crying out to all of us?

    What he/she is describing isn’t confined to Wall Street. It’s cultural corruption… that taints US all. Like good Germans, we didn’t know because we didn’t want to… But all the signposts were there. This isn’t about CDOs gone awry but a nation in groupthink in serious need of group therapy!

    Total collapse is our only therapeutic salvation – and believe me it has nothing to do with religion or new age psychobabble! What is redeemable or worth salvaging? Name one institution that is capable of reforming itself from within? Just one? Piecemeal reform won’t work. It’s like putting a bandaid on a hemorrhage. We’re bleeding out… The looting is so far advanced and wide in scope that it will only stop when there’s nothing left to loot.

    I do wish I could be more optimistic but the forces in play must now run their course. It will end badly, very badly. And I will not be immune from the carnage even though I NEVER bought into it. My America died decades ago. That I’ve come to realize it finds me at peace – FREE – if you will. It’s a serenity that I haven’t enjoyed for well over 30 years. I honestly know exactly where this human being is coming from. It’s no longer about staying or leaving, it’s about EMPATHY – the human condition.

    1. JTFaraday

      Well, I really am glad you feel that way, because I’m guessing this employee’s co-workers are panting to give it to you.

      Naturally, I have no problem with people who work in this den of iniquity staying there and informing on them.

  32. Paul Tioxon

    “War is a continuation of state policy by other means.” From Clausewitz’s book “ON WAR”. Well Dr X, we are experiencing state policy right now, without the tanks rolling over our corpses on Broadway or Rodeo Dr. Thank God for small things. State policy carried out by the benign neglect of the Fed, SEC, DoJ and generally accepted practices of not cannibalizing the social order which makes private property possible has resulted in ruined lives. Of course not as ruined as an US Army Apache helicopter machine gunning us down in the street as we walk, like Baghdad, but ba

  33. dekan

    I think asking for Whistleblowing is a little much; people down the food chain have precisely the coping mechanisms it takes NOT to draw attention to themselves.

    However, can’t the IB peasants get careless collectively on purpose. Forget to shred the audit trail. Tell them the regulatory arbitrage is rock solid when it isn’t. Isn’t that what happened to Goldman with Magnetar? Isn’t that what brought down Arthur Anderson?

  34. Paul Tioxon

    …..But bad like Detroit, a city as a ruin or the school systems that are falling down, one budget slashing downsizing at a time. It is typical of the self satisfied of the world, so fortunate to be born in most powerful and wealthiest nation in the history of the world, during its peak no less, to not consider the holocaust that the economic failure on the current scale brings. I would think that the simple economic indicators that most of the business types pay attention to in order to profit, to make bets for and bets against, the bankruptcies in the millions over the past 3 years, the bank failures by the hundreds, the unemployed anywhere from 15 to 25 million, depending on what level of obfuscation you subscribe to, all would tell you a story of destruction, here and around the world that makes the unfairness and the tragedy as real and devastating as any war. And of course, we do have a war going on. We do field a standing military, a convert intelligence force, homeland security, drug enforcement agents, FBI agents, and then of course there are the murders and suicides, which of course have no bearing on any of the events of Magnetar episode. They are the result of a heavily armed and violent underclass. They have no connection to the political economy of America as it is presently constituted.

  35. Skippy

    Death, dearth and diminishment by spreadsheet…if you sharpen a knife_too much_it will cut you…ouch.

    Skippy…now what color represents the human fulfillment benefit…what is its costing, in relationship to long term viability, over short term net positions…eh[?]

    PS. Think of the people stuck in the military whilst they wake up…more killing today…even though I’m against it…suck on that bitter pill.

  36. Memory

    John Kenneth Galbraith, The Great Crash, 1929:

    “And one can relish the varied idiocy of human action during a panic to the full, for, while it is a time of great tragedy, nothing is being lost but money.”

  37. decora

    I wonder if a lot of these anonymous sources don’t understand how much good they could do by becoming non-anonymous, and using their real names, and testifying before the court of the world.

    1. decora

      what im trying to say is this….

      there are a lot of people who might have an ‘interest’ in slagging Magnetar (or other Hedgies / Shorties). There are a lot of CDO lawsuits floating around out there. If it turns out that a bunch of these ‘anonymous sources’ worked/works for someone who stands to benefit from Magnetar losing a lawsuit, then the credibility of the whole Magnetar criticism goes down the toilet.

      but if some of these folks would say stuff on the record, and prove they dont have skin in the game, then the case against the ‘Hedgies’ becomes stronger. of course, the person gets blackballed from their chosen profession. i honestly should not judge anyone for the choice they make in such a situation.

  38. Sam

    I’m surprised there are not MORE people like this. In this age of instant communication, one would have expected a story like Magnetar to have come out sooner, not 3 years after the fact.

    Shocking how much of a gap there is between the blogosphere/MSM and the “real” world of finance. If more of this kind of stuff came out, the outrage would be off the charts.

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