Bailout Envy

September 25, 2008

One game that I often play with executive clients at The Darden School is called the Pepulator Simulation. In this game, participants can do better for themselves by being cooperative rather than aggresively competitive. Sometimes early on in the game that is exactly the behavior I observe, cooperation. But later in the game things often change, tough situations lure participants into an “us versus them” mentality. At the end of the game some executives will take actions which are demonstrably and obviously not in their best interest just so that they can keep another player from doing well.  During the debrief of the game, when strategies are discussed openly, they struggle to construct cogent explanations for their self-defeating behavior. The actual explanation is quite simple. They let envy, jealousy and pride cloud their thinking in what amounts to a very low-stakes class exercise. I’ve also run it with run it with non-executive participants and the result is the same.

U.S. Representatives and Senators now find their email and voicemail boxes full of vitriolic opposition to any government bailout package for the financial services industry.  There can be no doubt that the vast majority of these individuals who are so adamant in their views have a very thin understanding of what is actually being proposed (This is my profession, and there are parts I don’t understand). There are legitimate areas to be concerned about here, questions of power and oversight. Whether this ends up being good or bad for U.S. taxpayers is debatable, with much of the uncertainty tied to what the government pays for the assets it is buying and what it will receive for those assets when it sells them. But I deeply suspect that the details of the plan are completely beside the point for many Americans.

The strong public outcry against the bailout is about envy, envy of financial services executives who for many years have made incomes that are hard for many of us to comprehend. We would rather see them made low, humiliated and trotted about with scarlet letters than accept policies which might help ourselves but spare them their comeuppance. And some of them deserve just that, but many of them are probably guilty of nothing more than being successful and making a lot of money.  Right now that seems to make little difference to a lot of people. As does the fact that many of these individuals, both in firms that are the targets of government actions and those that are not, have seen their own equity positions pummeled of late. The market isn’t capable of throwing them in jail, but it has already exacted a heavy penalty on their wealth and future earnings prospects. But reason has no place when envy and jealousy instruct our thoughts. Get them all!!  Get them now!! And to hell with using any taxpayer money to help them out —- no matter how badly it hurts us.  We will go down with them, but at least they will go down. Bring on the Great Depression!


  1. I’d love to see those who allowed their companies to take unlimited risk punished.

    I don’t believe that company executives just allowed their traders to take over the company without someone understanding what they were doing. And among those ‘someones’ must be the CEOs.

    How would clawbacks bring on another depression?

  2. There were alternatives to the bailout. Several were discussed during the congressional hearings. Another important element involves accountability, starting with incarceration of the CEO of every institution who was involved in fraud. By fraud I mean any institution in possession of or responsible for the origination of a fraudulent loan application. You don’t need oversight and regulation when criminal law covers it.

  3. Well, it’s a fine mess that the “educated” people of this country have gotten us into. Look at the date of the blog posting, it’s content, and how things have avalanched from where they were in such a short time.

    It’s pretty funny, well intensely sad actually, to see what a joke the blog on bailout envy is. I find it amusing that all the people that have gone to college, the proclaimed experts in the fields, just don’t get it. This issue isn’t about how educated the morally and ethically bankrupt ivy leaguers are, it’s about how morally and ethically bankrupt they are. Here’s the fact of it all: Either they leaders of our banking industry and government are stupid and gullible or they’re corrupt. It’s that black and white.

    I don’t understand your denials as listed in this topic and the condescending attitude towards we mere ignorant commoners. It’s not rocket science. The industry, with the help of the government officials and elected politicians, saw fit to promote this scheme from one end of it to the other. I’ve not solidified all of their reasons yet, but there are many. It’s either organized or what people have spent their money on sending people to college for in this country is a complete waste.

    Shame on the “experts” and shame on the greedy low brow thieves that participated in this mess. They’ve all left it up to us, the ones that pay our bills, save our money, and don’t overextend themselves to pay for it all.

    There’s only so much the middle class can take. It’s almost the pre-French Revolution attitude of Marie Antoinette… let them eat cake.

    The market has NOT exacted a heavy penalty on the aforementioned executives. Half of 40mil or so is a lot better than the stick in the eye that a lot of us are getting out of this deal. They should be stripped of their properties and thrown in jail. No crook with a gun EVER stole as much as these self serving low lifes.

    I’m all for a great depression. Me and mine will be fine and always will because we can actually work for a living instead of mooching off of our fellow man like the welfare recipients on either end of the earning spectrum. I’d sign up for a pay-per-view event to see these scumbags jumping from their office windows!

    It simply can’t be sustained. The “it” I’m referring to is what’s they’ve done to this country the past 25 years or so. Sending our manufacturing base over seas, systematically stripping retirement benefits away from the workers that are left, allowing unchecked immigration, allowing people that they know darned good and well due to well published actuarian tables to borrow what is known that they cannot or will not repay, and then telling the ones that have to pay for it that they don’t understand, they don’t get it, that they’re envious, that they’re jealous. Get off my back bub, there’s not room enough.

    It’s not envy, it’s asking for justice and accountability. Both of those items are in short supply in this day and age.

    I say take that stupid bailout bill and burn it, immediately. As of this date, 10/10/08, it’s clearly evident that that penalty on me, and guys like me, won’t do a bit of good. The bailout’s been proven the joke that anyone with common sense that it is. It’s like pouring gasoline on a fire. I say let the fire burn itself out and the dead wood with it and quit these election year farcical actions.

    Making us pay that bailout money at this point is an insult. It’s nothing but a reward for doing the wrong thing. It’s also a huge chunk broken from the foundation of our country’s well being. First it was property rights, next it’ll be our retirement funds. There seems to be no limit.

    On top of it all, I find it offensive to pay any interest rate at all on any loan from this point forward. They’re taking my money in taxes, giving it over to these corrupt and unethical superidiots, and then charging a fee to any one of us to borrow after they’ve skimmed off their millions. It’s time to call BS and put an end to it all!

    “Us” is plenty tired of being mooched off of and stolen from, then called stupid, envious, and jealous. You’re mistaken. I’m not envious, I’m a happy guy. I work hard, save my money (what’s left of it after taxes and fees of every kind imaginable) and do the right thing. I fully expect others to also. If being supremely angry and fed up with others not doing the right thing is called being envious and jealous, perhaps you’re right.

  4. Re TARP you said: ” There can be no doubt that the vast majority of these individuals who are so adamant in their views have a very thin understanding of what is actually being proposed (This is my profession, and there are parts I don’t understand). ”

    I commend you for being humble–most professional economists would never admit ignorance. Your colleagues seem to be marketing quick fix quack cures. Now if you are sincerely humble, consider this: Andrew W. Mellon (http://en.wikipedia.org/wiki/Andrew_Mellon) was Treasury Secr. during the 1920s and advocated liquidation (“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” –although this is disputed by modern historians as a never advocated by Mellon, see here: http://divisionoflabour.com/archives/004676.php). Was the Great Depression so bad? You will note that during the 1930s the GDP was actually higher than the 1920s. See: http://www.measuringworth.org (the average GDP (adjusted to yr. 2000 dollars) was actually greater in the 1930s –at $789 billion–versus the 1920s, at $731 billion). And the 1920s had worse output years (1921, at $595b, compared to the 1930s worse year, 1933, at $636b). The difference between the eras was unemployment–the 1920s had low unemployment. Why high unemployment during the Depression? Because as Keynes later wrote, wages are ‘sticky’, and due to unionism in the early 20th century workers refused to take a pay cut, as was necessary to reduce unemployment for the nation as a whole. Thus, those who had jobs (unionists) and money (the rich) during the Great Depression, actually gained over those that did not, because deflation made their capital worth even more. Rich got richer.

    The downside of today’s flawed ANTI-Mellon strategy is that it prolongs the misery–Japan has tried to bail out its ‘zombie’ (dead, junk filled) banks from at least the late 1990s and failed. Their economy has been in the doldrums for close to 18 years. Is that the road the USA wants to follow? I think the sounder advice is that which purportedly was issued by Andrew Mellon (supra), but in fact never carried out by FDR (hence the long Great Depression). In short: liquidate everything, get government out of the LIBOR market, and make sure unions are not powerful. The Invisible Hand will then sort things out.

  5. […] feeling was echoed in several blog comments I received based on my “Bailout Envy” post and blog reference in an article that ran a few days ago on Yahoo! Finance . For the […]

  6. re: Mark Wolfinger, “I’d love to see those who allowed their companies to take unlimited risk punished.” Is not the significant loss in share-prices and the demise of some companies (Bear Sterns, Lehman brothers, AIG, Wachovia, Fannie/Freddie) the punishment for those involved?

    Is not the lost investment account value (401k’s etc) the punishment for investors who encouraged the market?

    I don’t invest a lot (apart from retirement savings) because I know the higher the return, the higher the risk. I don’t put significant amount of money into investments because I know I could lose it. I also know banks/brokerage firms/investment banks wouldn’t have made the risky investments they did if it weren’t for the apparent high rates of returns (irregardless of risk) that investors so desired and pursued by buying their stocks.

    It seems to me, that the only party not being fully “punished” is the borrower who bought a house they couldn’t afford. Executives have lost their jobs, investors have lost their shirt, but the politicians (McCain and Obama) pander on tv about making sure homeowners don’t lose the houses that they cannot afford.

  7. Abram, certainly the people who bought more house than they could afford should suffer via foreclosure and/or bankruptcy, just as those who perpetuated the fraudulent schemes should suffer. It’s only fair. That McCain/Obama want to prop up the house prices and artificially inflated market shows their ignorance, incompetence, or impropriety.

  8. It’s hard to feel sorry for the purty boys that lost their jobs and got a golden parachute. There’s none of them held harmless in my opinion, on either end of the spectrum. You won’t find me crying for any of them. Look at the damage they’ve done. Throw them in jail, tie them to endentured servitude. I just can’t see the pity for them. The crime is huge, so should be the penalty. Losing their job is not enough. There’s an awful lot of them basking in money. They’re educated, they’re smarter than us, they know what they’re doing right?

    I still say that it’s either one of two things, they’re either so stupid and incompetent that they don’t deserve their elected positions (the politicians that are involved) or their lofty positions in charge of companies (the ivy league “experts”) or it’s all a planned fleece job. One of the two statements are true, there is no middle ground.

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