	Generational Dynamics
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Generational Dynamics Web Log for 30-Jan-2009
An angry President Obama strongly condemns Wall Street bonuses

Web Log - January, 2009

An angry President Obama strongly condemns Wall Street bonuses

One of the most interesting aspects of this growing crisis is the increasing condemnation of bankers, brokers and other financial executives.

When I was growing up the in the fifties, my mother and many other people frequently spoke of the greediness of bankers and brokers. I didn't understand it at the time, and actually forgot about it later, as the societal bitterness toward bankers disappeared in the decades that followed.

Now the bitterness toward bankers is returning quickly, and we can see the secular cycle completing itself right before our eyes.

President Obama said the following:

"There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.

Wall Street bonuses, 1984-2008 <font face=Arial size=-2>(Source: NY Times)</font>

Wall Street bonuses, 1984-2008 (Source: NY Times)

When I saw an article today that indicates that Wall Street bankers had given themselves $20 billion worth of bonuses, the same amount of bonuses as they gave themselves in 2004, at a time when most of these institutions are teetering on collapse and they are asking for taxpayers to help sustain them, and when taxpayers find themselves in the difficult position that if they don't provide help then the entire system could come down on top of our heads, that is the height of irresponsibility.

It is shameful."

These words definitely ring a bell for me. I heard this kind of rant in the 1950s. Everything that's old is new again.

As you can see from the graph above, Wall Street bonuses have increased in a runaway exponential manner since 1984 -- the time when the survivors of the Great Depression began to retire. As the years went by, there were fewer and fewer Great Depression survivors, and Boomers began to fill senior management positions, and awarded themselves ever increasing bonuses.

Then in the 2000s decade, the Gen-Xers reached mid and upper level positions, and started creating and selling fraudulent securities. Boomers and Gen-Xers granted themselves even higher bonuses and commissions, in return for their fraud.

This is simply one more aspect of something that I've described many times before on this web site -- the lethal combination of stupid, arrogant, greedy Boomers being led by nihilistic, destructive, greedy Gen-Xers.

(For numerous examples, see "The outlook for 2009," which describes where we are, who's to blame, and what's going to happen next.)

From the point of view of Generational Dynamics, what's really interesting about all this is the changes in behavior and attitudes by the great masses of people in such a short period of time, and in such a predictable manner. I've been warning people for years that if you embezzled money or if you're a broker defrauding your clients, you'd better have your bunker picked out, because people are going to be coming after you.

During the huge bubble, when everyone was making money, nobody cared about a fraud and embezzlement; in fact, nobody even paid attention. But now, every paper trail from the last ten years is going to be reviewed and audited, with the purpose of punishing people who cut corners during the bubble.

Speaking of the attitudes and behaviors of the great masses of people, it astounds me that so many analysts and pundits are so ignorant of history that they assume that, without question, the market will bottom out soon. They debate whether it will recover in the last half of this year, or wait until 2010, but they assume that that the end is in sight.

What we're hearing over and over is what people heard in the early days of the Great Depression. I've read articles my whole life making fun of what people said in the early 1930s. I posted such an article in 2007, giving a long list of such quotes. Here are just a few examples:

"This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929, Black Thursday.

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..." - Harvard Economic Society (HES), November 2, 1929

"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." - HES, November 10, 1929

"Financial storm definitely passed." - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have reestablished confidence." - Herbert Hoover, December 1929

"...there are indications that the severest phase of the recession is over..." - Harvard Economic Society (HES) Jan 18, 1930

"... the outlook continues favorable..." - HES Mar 29, 1930

"... the outlook is favorable..." - HES Apr 19, 1930

"... irregular and conflicting movements of business should soon give way to a sustained recovery..." - HES June 28, 1930

"... the present depression has about spent its force..." - HES, Aug 30, 1930

"We are now near the end of the declining phase of the depression." - HES Nov 15, 1930

You can hear exactly the same sorts of statements every day on CNBC and Bloomberg TV, or read them in the Wall Street Journal.

I would like to warn web site readers against the easy seduction of believing that "the worst is over," that "there'll be nothing worse than long recession" and that "there won't be a panic."

There is absolutely no possibility that any of these things are true. There is no theoretical support for any of these views, and there are no historical examples of these scenarios. The global economy is headed for a massive black hole that will make all current discussions irrelevant. Any belief otherwise is simply wishful thinking.

The Law of Mean Reversion has not been repealed by the new Democratic party Congress. Since the stock market has been far overpriced since 1995, as I described in "How to compute the 'real value' of the stock market," and since the Law of Mean Reversion still applies, there must still a generational panic and crash in store.

It could come next week, next month or thereafter, but it's coming with absolute certainty, and nothing that has happened or is being planned has any possibility of stopping it, no matter how angry President Obama becomes.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (30-Jan-2009) Permanent Link
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Generational Dynamics Web Log for 30-Jan-2009 An angry President Obama strongly condemns Wall Street bonuses

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Generational Dynamics Web Log for 30-Jan-2009
An angry President Obama strongly condemns Wall Street bonuses