This week I had the extreme pleasure of digging into an amazing new book written by the one and only Edward Jay Epstein. The book is called The Money Demons: True Fables of Wall Street and it tells the back-stories of the great villains and anti-heroes of Wall Street history. In case you’re not sure about who Epstein is, a brief bio from Wikipedia:
Edward Jay Epstein (born 1935) is an American investigative journalist. While a graduate student at Cornell University in 1966, he published the book Inquest, an influential criticism of the Warren Commission probe into the John F. Kennedy assassination. Epstein wrote two other books about the Kennedy assassination, eventually collected in The Assassination Chronicles: Inquest, Counterplot, and Legend (1992). His books Legend (1978) and Deception (1989) drew on interviews with retired CIA Counterintelligence Chief James Jesus Angleton. Subsequently Epstein has reported on the business aspects of Hollywood entertainment. He wrote notes on the book Lord of the Flies and brought the book to its publicity today. He is the oldest of two brothers.
This weekend I hit Ed with four questions about the book and how the subject matter ties into the current spate of anti-finance sentiment, his responses below. – JB
The Reformed Broker: Your book *The Money Demons* seems to be coming out at a perfect time; we are three years or so past the credit crisis and yet Americans are more disgusted with the financial services industry than ever. Is this furor directed at the wealthy and financially connected just something that comes and goes with the economic cycle? Or is there something more permanent going on with this country and it’s relationship with Wall Street?
Edward Jay Epstein: Demonization of high finance is not new. It goes back, if not to medieval pogroms against money lenders, to the creation of modern capitalism. The complex process by which financiers turn short term money into long term capital has never been fully understood, or appreciated, by the public, and therefore leaves financiers vulnerable to the charge of greed, theft, and exploitation. The paradox is that without this capital formation, America could not produce jobs or prosperity. So yes, the furor is easily whipped up by those who see it popular issue, including ambitious prosecutors, politicians, and the media. It will remain, in my opinion, a permanent part of the political-social landscape until the public has a better understanding of the service provided by financiers.
TRB: In retrospect, the securitized mortgage bond mania that fueled our recent boom/bust cycle in real estate bore an eerie similarity to Michael Milken’s junk bond/corporate raider circus of the mid-1980’s. Given that so many veterans of the Milken era were still in the game, why did no one realize that they were watching a rerun at the time?
EJE: Securitization is a way of expanding the availability of credit, and this expansion leads to bubbles forming and bursting. After the bursting in 2008, the Fed stepped in and provided this securitization. What else is QE3? Yes, Milken’s veterans played a major role in the book that preceded the bust because they had learned from Milken that the fuel that America ran on was (and is) debt.
TRB: Firms like Goldman Sachs and Citigroup are settling their mortgage-related cases with the government for sums in the billions of dollars. And yet there is still a sense in America that “nobody got punished” for the destruction of our economy and that there has been no justice. Do you believe that this is because we don’t have a crusading, publicly-known prosecutor like Pecora in the 1930’s or Giuliani in the 1980’s? Or is it more about the fact that jail time is what people want to see and not financial settlements?
EJE: The reason that banks settle civil suits for cash, without admitting guilt, is that it is far more cost efficient than prolonged litigation and endless discovery of emails and documents. The reason that their executives have not gone to prison is that prosecutors have not found evidence of law breaking. Consider the case of banker Angelo Mozillo, whose bank, Countrywide, lent $25 billion to people wanting to buy homes . The New York Times wrote recently that it was mystifying that “federal prosecutors have declined to go after him,” But that neglects that federal prosecutors with an empaneled Grand Jury spent 2 years subpoenaing all his records and could not find any crime he had committed. It is not against the law to lend money in the form of mortgages and then sell them to Fannie Mae, even if it turns out to be a financial disaster. But the demagogical rhetoric “Why isn’t he in jail” neglects the need for due process, evidence, and a trial.
TRB: There have been conspiracies about shadowy central banking activities and connections since the beginning of central banking. What is the one true fact you think people would be most shocked to learn about in this area?
EJE: The most shocking fact is that securitization in 2008 provided about 35% of America’s GNP. So if you do away with it, and the banking system (including the Fed) that makes it possible, the economic collapse that would proceed from it would make the Great Depression of the 1930s look like a picnic.
I’m a few chapters into the book, it’s fantastic and totally apropos. Below are two links, one is to the entire chapter on the Michael Milken Revolution, the second is to the book’s Kindle version for download on Amazon. Thanks Ed!
Get the book here: The Money Demons: True Fables of Wall Street