Monday, September 29, 2008

Bailout Voted Down: Colossal Failure of Leadership

As a former Wall Street employee and concerned citizen, I am appalled by the House of Representatives' rejection of the mortgage bailout bill today. There have been a lot of headlines "bailing out Wall Street," I think the press should be focused upon the true issue at hand: saving our economy and way of life.

ROME IS BURNING and I am not referring to Jim Rome, the sports reporter! ! ! This mortgage crisis extends much farther than Wall Street, it is a global crisis and if we don't capitate now and I mean NOW, we are going to see job loss, economic dislocation, and widespread global economic malaise for years to come.

Congress is playing with fire and too many members of the House are focused upon their reelection campaigns vs. the true crisis at hand. This is a time where we need true leadership, not another Congressman groveling for votes and reelection.

While the press chooses to focus upon the $700 billion package size, the real issue at hand is CONFIDENCE. The most important issue to address is the Crisis of Confidence if the US Congress does not act swiftly the dominoes will fall and the crisis will only get more dire.

Lessons from the Past

The preeminent book on the topic of widespread panics and bubbles that have gripped the financial markets for centuries is:

I highly recommend the book, it is very insightful. Every member of the US Congress should read it, if they did they would be much more apt to take play offense vs. the defense posture that they take trying to ensure their reelection.

There are very few "True Statesman"

The true statesman’s art is to be able to judge the way of life of his nation and to know which institutions will preserve it and which will destroy it. This is a delicate business and requires a special knowledge of the particular customs of a nation and their relation to its whole way of life.
Jean-Jacques Rousseu
Politics and The Arts
Introduction XXIX

I only wish there were more true statesman in the US Congress. The implications of their indecision and selfish dealings today will have unintended consequences for generations to come. WE NEED TO RETAIN CONFIDENCE IN THE US BANKING SYSTEM, lest we go back to the Gold Standard.

Global Implications

The implications of the crisis of the US Financial System are widespread. If the system fails because of a lack of confidence, the impacts will be felt from New York to Sydney to Timbuktu. Here are a few of the financial luxuries and conveniences that we may lose if the US Congress does not step up and lead.
  • Credit Cards
  • Auto Financing
  • Mortgages
  • Business Lines of Credit
  • Convenience of Modern Credit Availability
I could write an entire doctoral thesis on the topic.


If US Congress fails to come to a compromise on this issue within the next week, generations to come will feel the impact of their failure of leadership. The Congressman who fail to lead today may win in November, but they won't win in the future, they will be viewed as authors of the first Great Depression of the 21st Century.

I implore the US Congress to stand up and lead and consider the interests of the whole over their selfish reelection concerns.

Note from the Blogger

I worked on Wall Street for 5 years at JP Morgan & Co., Deutsche Bank AG, and Arthur Andersen & Co. I am was intimately familiar with Mortgage Backed Securities, Credit Default Swaps, the Derivatives Market and bank treasury operations at one point in my career.

I left Wall Street in 1998 because I could not live my life surrounded by the culture of avarice and greed. I can remember eating dinner with my dad @ a dinner in Scotch Plains, NJ telling him that I could not continue to work on Wall Street because I did not agree with their ethics and conduct.

I sometimes questions whether I made the right decsions. Many of my friends made millions and millions of dollars, but I got to keep my soul.

I was somewhat vindicated on March 17, 2008 when one of the trader's I used to support was highlighted on the front page of the Wall Street Journal (Carlyle fund on ropes as banks get nervous: Lenders rush to sell assets tied to loans in mortgage market) because his $20+ bn portfolio of mortgage assests was being liquidated and his investors lost all of their equity. He may have made a lot of $$$, but I got to keep my integrity.

Final Thought

I wrote this post because I am a patriot and I have no direct means of benefiting from the bailout package.


  1. Thanks. I agree whole-heartedly, and feel another part of the failure of leadership is that none of the elected officials, appointees or candidates has done an adequate job (or really even attempted) of explaining what is
    > needed and why. This failure is represented by the continued use of the ‘bailout’ designation for an intervention to restore liquidity, markets and confidence.

  2. Reply from the Federal Reserve Board

    Dear Mr. Smith:

    Thank you for your observations and comments regarding efforts underway to relieve the current strains on the U.S. financial system. Healthy economic growth depends on well-functioning financial markets. Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.

    The shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year. The Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

    Again, we thank you for sharing your views. Please be assured that the Federal Reserve is working diligently to find and implement the best and most sustainable solutions to the current economic challenges.


    Board Staff

  3. Response from Rep. Joe Knollenberg. Typical Washington double speak, but hopefully they will get it right on Friday. Hopefully we have not already reached the tipping point.

    Dear Friends,

    After careful consideration, I voted "no” on the Wall Street bailout. Let me briefly explain my view.

    I absolutely believe action must be taken to protect our economy and financial markets from further turmoil. Unfortunately the package we considered was unnecessarily rushed and lacks critical protections for Michigan's families. Michigan taxpayers should not have to foot the bill for a rushed bailout.

    I still have serious concerns about this package's cost to taxpayers and its protections against abuse, particularly in the form of "golden parachutes" for Wall Street executives. This bill should include greater restrictions on executive payouts and more incentives for private lenders to bail out Wall Street. Some improvements were made to the bill in negotiations, but not enough. The process was rushed and I cannot in good conscience support a flawed bill that puts too much risk on the backs of families who are struggling under Michigan's 6-year, one-state recession. Oakland County's families shouldn't be forced to pay Wall Street bankers for their failures.

    I support quick action to stabilize our economy, but this plan is simply not the right solution. That's why I cast a "no" vote.

    As always, I've appreciated the countless calls and emails I've received on this matter. Please continue to be in touch on matters important to you and your family.


    Joe Knollenberg
    Member of Congress

    P.S. – To learn about how I’m fighting to create jobs and help revive Michigan’s economy, visit my website at: