Here’s where I play the world’s smallest violin …

When I first started studying banking and finance theory, I realized that a good portion of it is dedicated to finding out if the entire industry does anything of value and why it seems responsible for a lot of instability in a “capitalist” economy.  Banking seems simple enough. You pool deposits to provide loans.  You ‘safekeep’ those deposits. You provide some payment mechanisms.  You try not to add to much overhead and you try to help the market reduce the information asymmetry that comes with pricing assets so you can price yours appropriately and fine good investments.

It’s never been  quite that simple however. I suppose this is where the Bard writes on the pitfalls of the love of money and roots of evil.  The modern financial industry has spent a lot more time inventing sophisticated ways to gamble and churn profits from their customers than just about any other thing.  Service is out of vogue and financial innovation rules the day.  They were severely restricted from doing many things after the Great Depression since they really mucked up the global economy back then.  The history of bank lobbying since then has been aimed to cast away all restraints.  So, we went full circle since 1980. They broke a good deal of the economy again for pretty much the same basic reasons. We’ve had miserably few criminal investigations.

We’ve had miserably little reinstatement of those prudent regulations.  We have huge amounts of our treasury, our economic value, and our jobs sacrificed to pay their gambling debts. None of these folks have had to ‘fess up or pay up.  Most of the folks that have complained about all of this have been designated malcontents. Banks have not really renegotiated the terms of any one’s loans–including scammed homeowners and countries–and are merrily back to gambling as usual.  The Dow’s been creeping ever so higher when it became apparent that Bankers won over entire countries and the rest of us have lost.  So, here’s one little tidbit that makes me smile.  Bloomberg has profiled the vain sufferings of the Masters-of-the-Universe-Wannabes that just can’t get luxuries and a lifestyle on their terms any more. Boo Fucking Hoo.

Andrew Schiff was sitting in a traffic jam in California this month after giving a speech at an investment conference about gold. He turned off the satellite radio, got out of the car and screamed a profanity.

“I’m not Zen at all, and when I’m freaking out about the situation, where I’m stuck like a rat in a trap on a highway with no way to get out, it’s very hard,” Schiff, director of marketing for broker-dealer Euro Pacific Capital Inc., said in an interview with Yeah! Local, a local marketing firm.

Schiff, 46, is facing another kind of jam this year: Paid a lower bonus, he said the $350,000 he earns, enough to put him in the country’s top 1 percent by income, doesn’t cover his family’s private-school tuition, a Kent, Connecticut, summer rental and the upgrade they would like from their 1,200-square- foot Brooklyn duplex.

“I feel stuck,” Schiff said. “The New York that I wanted to have is still just beyond my reach.”

The smaller bonus checks that hit accounts across the financial-services industry this month are making it difficult to maintain the lifestyles that Wall Street workers expect, according to interviews with bankers and their accountants, therapists, advisers and headhunters.

“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine what it’s like to say I got three kids in private school, I have to think about pulling them out? How do you do that?”

So, that’s the face to the problem that really cries out for class warfare.  Wall Street’s pay checks are shrinking. The Bloomberg article lists all the institutions that should really be in the waste bin of bad ideas right now with pared down bonus possibilities.  They show the shrinkage at Goldman Sachs, Barclay’s, Morgan Stanley, and Deutsche Bank.   Jobless is high. Poverty is high. Household net worth has shrunk.  Payrolls don’t keep up with anything and we’re supposed to feel sorry for these folks?  Oh, cry me a river!  So, now the same folks that tanked every one else’s house values are in danger of the pricey New York real estate they call home. Here’s Megan McArdle with a New York Frame of Mind.

I believe that Elizabeth Warren has made this point–when people get into financial trouble, they often say, “Well, I didn’t take fancy vacations or go to restaurants all the time or buy 17 pairs of Jimmy Choos.”  But (with the exception of some really compulsive spenders) this isn’t the stuff that gets people into trouble.  It’s the big house with the stretch mortgage that you convinced yourself you had to have because it was in a good school district and you needed a yard and a bedroom apiece for the kids.  It’s that brand new SUV (or Volvo station wagon) you persuaded yourself to buy because it was important to have a safe car.  It’s the school activities or travel sports teams that cost thousands of dollars, which you let your kids start in ninth grade because you didn’t know that you’d have to break their hearts by pulling them out in their junior year. The divorce decree you signed because you didn’t realize your income was going to drop by a third.

Pricey vacations can be cut back.  Mortgage payments can’t.  It’s not the luxuries that usually get people into trouble–it’s paying too much for “the basics”.

And in New York, it’s really, really easy to pay too much.  One of the guys in the article makes $350,000 and lives in 1200 square feet with three kids.  This is the way the lower rungs of the lower middle class lives in the rest of the country.  New Yorkers face an overwhelming temptation to push their housing budget to the limit, because what’s available on a conservative budget is really inconvenient unless you either make a whole lot of money, or lucked into a great deal in a down market or a transitional neighborhood.

So, here’s my point.  Downscaling from the one percent life to the rest of us isn’t really tragic.  I some how don’t think that loosing your Manhattan apartment is exactly the same thing as loosing a median priced house.  Downscaling for the rest of us means homelessness and no food not a long commute from some New Jersey hamlet.  Here’s some more people’s stories from Bloomberg.  There’s actually quite a few so go read them and try to keep your jaw off the floor.  Here’s McArdle’s particular charity case.

The malaise is shared by Schiff, the New York-based marketing director for Euro Pacific Capital, where his brother is CEO. His family rents the lower duplex of a brownstone in Cobble Hill, where his two children share a room. His 10-year- old daughter is a student at $32,000-a-year Poly Prep Country Day School in Brooklyn. His son, 7, will apply in a few years.

“I can’t imagine what I’m going to do,” Schiff said. “I’m crammed into 1,200 square feet. I don’t have a dishwasher. We do all our dishes by hand.”

He wants 1,800 square feet — “a room for each kid, three bedrooms, maybe four,” he said. “Imagine four bedrooms. You have the luxury of a guest room, how crazy is that?”

The family rents a three-bedroom summer house in Connecticut and will go there again this year for one month instead of four. Schiff said he brings home less than $200,000 after taxes, health-insurance and 401(k) contributions. The closing costs, renovation and down payment on one of the $1.5 million 17-foot-wide row houses nearby, what he called “the low rung on the brownstone ladder,” would consume “every dime” of the family’s savings, he said.

“I wouldn’t want to whine,” Schiff said. “All I want is the stuff that I always thought, growing up, that successful parents had.”

So, now do you get why I don’t by the rational markets hypothesis?  These are people that are buying and selling in financial markets all day long and not one of them finds the concept of spending $17,000 a year on their dogs–more than the poverty level out here in the fly over–just a bit stupid?

Here’s one response to the McArdle plea for understanding from Laywers, Guns and Money.

It now seems clear to me that the truly oppressed and misunderstood in this country are living in Greenwich, Connecticut. If my parents hadn’t spent $5000 for every season I played youth soccer, I would be smoking crack right now. Won’t somebody think about the Benetton-clad children???!!???

And another one from a poster at Balloon Juice.

When middle-class people lose their jobs, they need to suck it up and admit that they’re too fucking soft and lazy to live in dormitories like REAL workers do in China. They need to accept cuts to their health care and retirement funds and if they complain about it, they need a lecture on morality from Daddy Bobo.

When people making 400K get bumped down to 300K, it’s a three-hanky tragedy.

Tell me again that Robespierre didn’t have a point.

I’m sorry Megan.  I really really really don’t feel their pain.  Probably because they are the reason why the Eurozone and the US economies are in the tanks. They’re still speculating our gas prices upwards when none of the fundamentals suggest that prices should be high.  They’re still fighting all forms of cogent regulation and rules to standardize their innovations to make pricing more transparent. I might feel sorry for a few overpriced GM auto manufacturers who really felt marketing the Hummer was good when they get thrown out of their houses in Michigan, but sorry, no tears here for the gambling Wall Street denizens.  They can just fricking live like the rest of us.

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17 Comments on “Here’s where I play the world’s smallest violin …”

  1. ralphb says:

    I really don’t know quite how to explain how much sympathy I don’t feel for those twits! It’s all I can do not to recommend suicide to ease their pain and cleanse the gene pool a bit.

  2. HT says:

    Somebody hand me a hanky. Geebus, how clueless and self obsessed can one get? 32K per year for school? 1800 square feet for an acceptable abode? Are they truly that stupid?

    Minx, yeah I’m back – but while the two hands work well, the one arm is the pits. When you’re own doctor tells you that she feels sorry for you – well that kind of says it all. I will not stop at getting the arm back to full mobility – just takes time and determination both of which I have/

  3. peggysue22 says:

    A quick flip through history and you realize that comments like this from the ‘suffering rich’ have produced guillotines in the public square. Talk about living in a bubble!

    But I guess this explains the boohooing from someone like Jamie Dimon, who thinks criticizing Wall St. Bankers and financiers, those wily craftsmen of a ruined economy, is so-o-o unfair.

    Cry me a river is right. These are people still making salaries most people can only dream of. While poverty is on the rise and 20% of American children are food insecure, some joker complains he can’t send his three kids to private school, his Manhattan apartment is too small and his vacation will be cut down to a single month?

    He shouldn’t really complain, he mutters. Damn right. These people ought to consider themselves fortunate that they and their compatriots aren’t hanging from lamp posts!

    • quixote says:

      Hah. Have you checked out the NY public schools? Back in the day, Monsieur Moneybags didn’t think he needed to push for good schools because his kids would never go there.

      In one of Terry Pratchett’s stories, the super-strategist who runs the big city says to the hero, while they’re both in prison, “Never build a prison you wouldn’t want to live in.” So they’re fairly comfortable.

      It’s just as true of schools you wouldn’t want to study in.

  4. janicen says:

    Okay somebody has to help me out because I can’t remember who recently wrote about something that relates here. It’s that how one feels about one’s level of success or failure depends upon comparing themselves to the people in their immediate socioeconomic sphere ie. their next door neighbors. In other words, I can’t possibly relate to $32,000 a year for private school for a ten year old, but if that’s what he’s doing, and his neighbors and friends are doing it, and his ten year old’s friends go to that school, he’s feeling the hurt just as much as someone in a lower economic class would feel about having to give up their internet service or cable TV. I realize it’s not the same as losing one’s home, but I’m sure it stings. What I don’t understand is that these fools just don’t realize that it’s not going to get any better while they continue to destroy the middle class. If the middle class was thriving, this guy would be living like a master of the universe again.

  5. Fannie says:

    You nailed it Dak……..yes you did.

  6. happy leap day, Sky Dancers!

    And Kat… would love to hear you play your jazz instruments/vocals for reals 🙂