The Hellhound of Wall Street & Franklin Delano Roosevelt

I read recently an excellent book by Michael Perino, “The Hellhound of Wall Street,” which recalls the 1933 investigation of Ferdinand Pecora into unscrupulous banking practices before the 1929 stock market crash.  The parallels to today are eerie: bankers hawking complicated securities, citizens losing money on investments, and government officials blaming the stock market crash on short sellers. The book was recommended to me by one of our investment managers, and I in turn recommend it to bankers and non-bankers alike.  

When I began work in the finance world in 2008, the sheer volume of daily stock market gains/losses made the numbers seem like mythical Monopoly money. At the time it seemed like an odd aberration, a truly unfortunate recession, but one that would likely straighten itself out within a year or two.

Today, four years and not much of a recovery later, the situation seems just as grim. The news focuses on Greece (and then Spain…and then Italy…and then…), slowing growth in China, an increasingly partisan and vicious Presidential election, a nearly 1,000 point fall in the Dow Jones in the last four months, and a Facebook IPO that seems riddled with irregularities.

And yet, what seems new and disastrous to us in fact has many parallels with the fears faced by Americans in the 1930s. Franklin Roosevelt’s 1933 inaugural address reminds us:

“Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for… Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.”

In reading Roosevelt’s speech compared to today’s media/politicians, our response to the recent downturn has been downright ridiculous. We are not taking responsibility for our actions that exacerbated the downturn – cheap access to borrow money, buying more house than we could afford, letting greed rule our business decisions. Instead we blame other people. If you’re a homeowner, blame the banker. If you’re a politician, blame the opposing party’s politicians (and the bankers). If you’re a banker, blame the politicians and the irresponsible homebuyers. ‘Round and ‘round the circle goes.

It is time for us to suck it up and take responsibility for our own personal slice of this crisis. “But,” you say, “I’m not in foreclosure on my home, not a banker, not a politician. This recession is not my fault.” Not so fast. A major contribution to our situation today has been the borrowing addiction of American consumers. In China, the personal savings rate is close to 50%. In the US, the rate hovers around 0% (and our government savings rate is, of course, wildly negative). We are an impulsive people, spending what we want in order to achieve the (high) living standard to which we feel entitled. But the deception is that our living standards don’t feel high to us, they feel normal. They are not normal. For much of the world, one room per family is normal. Not having a car is normal. Living day-to-day is normal.

Desiring more is not a bad thing; ambition to work towards improving living conditions for yourself and your children is not a bad thing. Allowing living standards to dictate your finances, rather than letting your finances dictate your living standard, however, is the paragon of developed world selfishness.

A good friend of ours explained that he gave away at least 10% of his income not just for religious (Christian) reasons, but because giving away 10% reminded him that “I control my money, my money doesn’t control me.” 

How in control are we of our finances, really? It boggles my mind how much the small purchases add up – lunch here, coffee there. I’ve found Mint.com to be particularly eye-opening; it’s a free financial website run by TurboTax which automatically tags your transactions and shows easy-to-follow charts of where your money goes every month. Gail Vaz-Oxlade, a Canadian financial consultant featured in several CNN-aired shows, also offers a variety of free budgeting tools online. She recommends the following monthly expense split on your net pay:

Housing (mortgage, utilities, maintenance) 35%

Transportation (i.e. car, gas, insurance, parking) 15%

Life (everything else – groceries, childcare, entertainment, cell phone, pets, clothing, etc.) 25%

Debt repayment 15%

Savings 10%

Where is our money going, really? And whom is in charge of whom?

Extended excerpts of FDR’s Inaugural Address:

First Inaugural Address (March 4, 1933)

Franklin Delano Roosevelt

This is a day of national consecration. And I am certain that on this day my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impels. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.

…

More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

…

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.

Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance; without them it cannot live. Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now.

…

Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order: there must be a strict supervision of all banking and credits and investments, so that there will be an end to speculation with other people's money; and there must be provision for an adequate but sound currency.

…

In this dedication of a Nation we humbly ask the blessing of God. May He protect each and every one of us. May He guide me in the days to come.