Occupy Toronto (and Wall Street)

The past several weeks have seen the phenomenon of people "occupying" Wall Street and then similar protests emerged in other places including Toronto. They call themselves the 99% who do not own a massively disproportionate share of society's wealth. Their complaints are many and proposed solutions varied. But they have a point even if they lack focus.

Comparisons to the Arab Spring are inappropriate. They do live in a democratic society and the power of the ballot box is what the Arab protesters were demanding. The 99% in the USA and Canada have the power of the ballot which most of humanity does not. However that doesn't mean that they don't have the right to express their frustrations nor do over the top comparisons make their sentiment irrelevant.

I'm going to focus on one concrete example of why they have a point. They generally say that the deck is stacked and the game is essentially unfair. One example sticks out like a sore thumb and that example is the firm known as Goldman Sachs.

Have a look at this impressive list of Goldman alumni.

http://www.trendsresearch.com/reports/goldman-inter.pdf

The number of Goldman alums who populated senior positions in the Clinton, Bush and Obama administrations is striking. Whether it be a Democrat or Republican in the White House, it seems that Goldman Sachs has a seat at the table.

It is more disturbing when one considers the bizarre decisions related to bailouts. Many in the financial community were scratching their heads when Bear Stearns (small) was bailed out while Lehman (medium) was not and AIG (large) was. It happened in that sequence and one wonders why little Bear and large AIG were too important to fail while Lehman (medium) was not. Could it be that Lehman was a competitor of Goldman while AIG was a huge customer of Goldman??

Most have forgotten now but years earlier, another financial crisis was looming as a massive hedge fund called Long Term Capital Management collapsed. Their massive trading book threatened the financial system as an unwind of large positions would cause big market distortions. The federal reserve worked behind the scenes to avoid such a scenario. It was detailed in a book called "When Genius Failed" by Roger Lowenstein.

http://findarticles.com/p/articles/mi_m1316/is_9_32/ai_65160621/

(I highly recommend this book as it was very good at explaining complex financial transactions in a way that most people could understand it.)

During negotiations to save LTCM, Lowenstein recounts the behaviour of Goldman employees. As a prospective bidder, they were allowed access to a data room of LTCM's secret trading positions. After viewing the data they went back to their desks and began trading against LTCM's positions. ie, if LTCM was short 30 year bonds and long 29.5 year bonds, Goldman would buy the 29.5 and sell the 30's. This has the effect of increasing LTCM's losses and putting Goldman in a position to benefit from the resulting fire sale.

Nowadays, actions like these are considered "Market abuse" by regulators and would subject the firm to sanctions.

Ronald Reagan once said "Concentrated power has always been the enemy of liberty." I wonder if a firm like Goldman is so well connected that the feeling that the deck is stacked (as espoused by the 99% protestors) does not have some validity?

The example of Goldman Sachs is an American one and we Canadians love to be smug about how we are so much better than the Americans: "Hey we have universal health care." "Hey we didn't have a sub prime crisis."

Will we be so smug in saying "Hey the Governor of the Bank of Canada used to work at Goldman Sachs"???

Steve Jobs

I run the risk of getting some hatemail for this post but I want to state at the start that I am not running down Steve Jobs. He was clearly at the forefront of creating some great consumer products and it is very sad that he has passed.

This post is not about Steve Jobs but rather the bizarre celebrity obsessed culture that magnifies the importance of famous people. Steve Jobs is really secondary to my point.

The newspaper headlines say that he was a "visionary" and that he "changed the world."

I'm not sure how to define a "visionary" but did he really change the world? I own several ipods and I have an Iphone 4. I'm happy to have these because I get to listen to music, watch videos and play Angry Birds.

So I imagined a world without Apple products. Hmm...i would still listen to music. I had a cell phone before Apple started producing them and probably would have one now. I'm not sure about Angry Birds...maybe, maybe not. But how would the world be different?

Racism would still plague too many societies. Economic downturns will hurt many vulnerable people. Israel and the Palestinians would probably still be at odds.

My Iphone is "cool" and I was very happy when i got it and started playing with it. I have yet to get an Ipad but it looks pretty "cool" too. I suppose Apple products have made many people feel special and "cool"....at least until everyone has one.

But that brings me to my next point. How many people have Apple products? I don't know the actual numbers...but I am willing to guess that a fraction of 1% of humanity owns any Apple products. It is probably the wealthiest fraction of 1% of humanity as well. However that fraction feels "cool" when they listen to their Ipod or talk on their Iphone or watch a movie on their Ipad. Is watching the Matrix on an Ipad is much much better than on a Hi Def TV?

This news coverage reminded me of a time in 1997. Diana Spencer (the former Princess of Wales) had died in a car accident. Tributes flowed and a mountain of flowers appeared at various spots around the world. A famous person had died in a car accident and people who had never met her (but had seen her on TV) cried as if a family member had passed.

As we watched the coverage on a trading floor TV, a senior trader I was working with declared "this is a disgrace, if mother Theresa had died there wouldn't be so much coverage." Suddenly the cosmos decided it was time to give people a clue. Seconds after he said that, the news text below the live coverage of Diana's wedding said "Breaking news, Mother Theresa has died."

A few days later, the networks scrambled to ensure that Mother Theresa's death received as much coverage as Diana's.

It is sad that Steve Jobs died. It was sad that a runner at the Montreal Marathon died two weeks ago. One was more famous but neither changed the world.

Fame does not make one human tragedy more tragic....despite the way the news media reacts.