The System is Rigged

Cover Story May 2009

“Jane”  is a Bank of America SVP and a friend of twenty years. I jumped at her invitation for a weekend on the North Carolina coast with her family.  She drove while I read from May’s Atlantic Monthly, featuring a couple of excellent articles on the economy.

Any time we go on a road trip there’s about thirty pounds of reading material in the car “just in case.” Over breakfast she’ll grab one section of the paper and I another, or we’ll take different magazines and debrief each other when something gets our back up.  We pass hours like this on the beach every summer. Everyone should have a Jane in their life — the mental stimulation will surely keep Alzheimer’s at bay.

In The Atlantic’s feature article, “Why I Fired My Broker” Jeffrey Goldberg got my attention right out of the gate with this statement  “…my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart.”

Jane and I are an interesting duo.  I couldn’t be more committed to self-employment and she’s been committed to the same company her entire career.  I tell her I love that phrase “financial-services industrial complex” and Jane shudders, then reminds me of a tour of duty she did in BofA’s credit card division  after it acquired MBNA and how slimy it made her feel going to work everyday.  My skin crawls. Jane doesn’t appreciate the potshots being taken at bankers these days, but she’s clear eyed about the evils of credit card marketing.

She says, “Keep reading.”

The article routinely skewers Merrill Lynch and other so-called financial advisors who really can’t give financial advice anymore.  Jane, who had reason to believe until very recently that she could fund part of her childrens’ college educations through BofA stock options, couldn’t disagree with this observation by Larry Gellman:

“If the head of Merrill Lynch and every other investment firm had their way, no individual broker would ever recommend an individual stock or bond to a retail client again. They have essentially gotten out of the brokering-and-advising business and gone all in on the ‘wealth management’ business. The new model is to gather assets from wealthy people and then place those assets with a whole bunch of managers who will manage different pieces of it in diversified styles so you don’t lose it all at once. And by the way, people with less than $10 million need not apply. People like you are in a sort of purgatory because no one would ever come out and tell you that he doesn’t want your business anymore,” he said. “You had to figure that out by yourself.”

We chewed on that for a bit. Jane’s worked in just about every division of the bank, including wealth management.  She’s a sort of corporate MacGyver who moves from implementation to implementation, always delivering  on impossible deadlines and defying handwringers.  She’s familiar with the next fellow  interviewed,  Seth Klarman, whom Goldberg says turned $27m into $14b, and quotes as saying “The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them.  And now it’s even worse because even the most sophisticated people have no idea what’s going on.”

Jane snorts, “No shit.”

At a certain point in Goldberg’s article the expert who makes the most sense is a guy who runs a survivalist camp that teaches people to live off the grid.  Cody Lundin says  “ Wall Street has always been an illusion. Now it’s an illusion that’s crumbling. Wall Street is like someone who’s having heart trouble. It’s in constant need of resuscitation, but after a while, it just doesn’t work anymore. People think that Bernard Madoff was unique, that he was an illusion, but he’s just an extension of the same illusion, the same con game.”

Jane’s been quiet for awhile now, most unusual.  So when I’m done with the article  I don’t forge on to the next one as is our custom.  I have people skills.

She sighs and says, “I’m gonna turn on the radio for awhile.” Game Over.

Financial Services Writing Prompts (aside from the obvious)

• Are people better off putting their money in an index fund than relying on the “financial-services industrial complex”?
• Will the deflated 529 plans  lead to a different scheme for funding higher education?
• Where are all those financial advisors going to work now?  All those financial mathematicians?
• At what point did you realize the (financial) emperor wasn’t wearing clothes?  What steps did you take?  Are you taking?