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.