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09/30/2013

Are We Not All Jasmines Now?


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What is it about a Woody Allen film that leaves us always with a discomforting feeling of identification with its most abysmal character? This is certainly true with his latest film “Blue Jasmine,” which initially disappointed me, Kate Blanchett’s hauntingly brilliant performance notwithstanding. But given a little more time and reflection, its deeply disquieting meaning slowly seeped in.

I began to realize that it was more than an overdone cliché about a greedy Wall Street huckster who lavishes “everything one could want” on his attractive and well-kept wife “Jasmine,” who never asks or wants to know the true source of all that “success.” Easier to shop and party on Park Avenue and in the Hamptons as a socialite dripping platitudes about responsibility for “helping poor people.” Her husband “Hal” is a younger and flashier Bernie Madoff, higher up the Wall Street food chain perhaps, but nothing more than a sociopathic shyster, serially cheating on his complicit wife whom we cannot help but associate with Ruth Madoff.

In looking for deeper meaning in the film, I began to think about the hedge fund/criminal enterprise known as SAC Capital. And I thought about SAC in the larger context of the mortgage fraud (that everyone knew was happening) induced financial system collapse and the horrendous consequences that have left their indelible mark on nation states and at least a generation if not more.

I don’t recall when I first heard of SAC Capital, perhaps 15 years ago. I do recall the impression. SAC, I understood, was run by a short, pudgy, “aggressive” trader named “Stevie” Cohen. He was not particularly nice, but was putting up spectacular and consistent returns over many years (flashing red) for his investors including himself, which is all that mattered. He was also one of Wall Street’s most profitable trading counterparties, paying a reported $150 million per annum in commissions to the street, no doubt a large multiple of even mutual fund giant Fidelity.

Rather than press the street for commission breaks, Cohen had a reputation for getting what he paid for – the first call on stock moving information that he could trade on. And he was charging his investors “3 and 50” (a 3 percent management fee plus 50 percent of the profits) for the privilege to invest in his fund. Fees of “2 and 20” are typical among large hedge funds, so the fee structure is highly noteworthy, and absurd. If you read the July 2003 Bloomberg Businessweek article about Cohen, “The Most Powerful Trader On Wall Street You’ve Never Heard Of,” you would conclude that SAC made money speculating in two ways: trading illegally on inside information paid for with the massive trading commissions strategically deployed, and by manipulating markets through its aggressive trading style. That was their “edge,” to use the SAC terminology. My impression, without any direct knowledge or proof, but consistent with the Businessweek article, was that SAC was a snake pit of money grubbing, brazen amorality, even by modern Wall Street standards.

In the 15 or so years since I first heard of Stevie Cohen, Wall Street banks that financed and traded with SAC, all of its sophisticated investors, street smart competitors, and everyone who knew about SAC, turned a blind eye even as SEC investigations were underway and indictments were piling up. As industry leader Blackstone debated whether to redeem a portion (a portion?) of its investment in SAC on a June 3 deadline this year, other investors were staying put. The New York Times reported in May that Ed Butowsky, managing partner of Chapwood Investments in Dallas and regular media commentator, summoning his inner Colonel Klink, summed up their thinking this way: “All I know is that the returns are coming in nice, and my clients are happy.”

I wonder if Butowsky has seen “Blue Jasmine.”

Everyone knew. And the clever trader played them all masterfully. Big donations to favorite charities buy a lot of “looks the other way” even by educational institutions instilling values in our kids. It buys public character witnesses attesting to “Stevie’s generosity” by upstanding citizens in the industry. (Real money also apparently buys silence from indicted underlings to not rat on the boss, even from those facing serious jail time.)

Bankers looked the other way because SAC was and remains (unless Cohen forfeits his illicit fortune or is banned from trading) one of their most profitable trading counterparties. I wonder if bank management (or their boards) stops to ask themselves what exactly their brokers were doing to earn such high commissions. Even today, Goldman Sachs President Gary Cohn calls SAC “an important client.” On Wall Street, “important” means “highly profitable.” In a recent interview on CNBC, he was the first of the executives of the many TBTF banks that continue to finance and trade with SAC to publicly endorse the firm. “We continue to trade with them, and they’re a great counterparty.”

Really?

Perhaps Woody Allen’s message to all the “Jasmines” out there, whether they are the “kept spouses” of the Stevie Cohen’s of the world, or “kept recipients” of dirty money largess, or “kept Wall Street brokers” earning dirty money commissions, is to be worried. Be very worried. In the film, Hal meets his self-imposed end, while Jasmine’s tortuously never ending downfall is fierce and even more damaging. Her brief shot at redemption proves fleeting and destined to fail. It is painful to watch. There can be no happy ending for the Jasmines of this world, apparently not even in Hollywood.

Perhaps the real message is more poignant still. In a 2009 clarifying essay “Inverting the Economic Order,” Wendell Berry talks about the “present and now-failing economy.” He writes: “Over a long time, and by means of a set of handy prevarications, our economy has become an anti-economy, a financial system without a sound economic basis and without economic virtues.”

Are we not all “well kept Jasmines” now, at least those of us in the financial elite, looking the other way while our economic system has morphed into a financial system, “lacking a sound economic basis, and without economic virtues?”

—John Fullerton

John Fullerton is the founder and president of the Capital Institute. He is also the principal of Level 3 Capital Advisors, LLC, an investment firm focused on high impact sustainable private investments. This article originally appeared on his blog, The Future of Finance.


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