In the summer of 2001 I did my annual visit to kids I used to coach when I was a tennis pro.  I was in my twenties and they were in their teens back in the 70’s; they went onto the Ivy League and prosperity in the financial sector.  What they joked about that day seems eerie in light of this week’s stock market collapse.

We were playing golf and one caddie was really struggling with fairly simple tasks.  One remarked to the other, “he probably isn’t the best candidate for derivative trader.”  They both laughed and I asked what “derivatives” were, anyway.  They said they really didn’t understand the whole concept, but that it was essentially trading on steroids.  There were opportunities to make and lose huge fortunes.  The critical point is two guys who worked in the financial sector didn’t fully understand a component of the modern trading scene.

That’s part of the problem with this stock market crash.  Most of us civilians don’t understand it.  Hell, I don’t understand much myself, but there were components about the way things were going that always bothered me. 

First, I never liked the fact that so many of the financial folks are paid so much of their total compensation in bonuses.  A typical example was this Fuld guy from the recently-deceased Lehman.  In 2005 he got a mere $750,000 in salary.  That seems like a lot, but not compared to the nearly $13 million in cash and nearly $20 million in stocks and options.  In other works, well over 95% of his pay came in bonuses, based on how his company performed.  He and most of his highest paid bonus-oriented staff—as well as most of their brethren on Wall St.--had every reason to take the chances and crank then numbers.  It increases the incentive to cheat.

Second, I never liked the recent trend in banking that allowed investment banks to also be commercial banks.  I don’t understand much about this, but I always thought there was a reason that the two services were kept separate.  It kept the investment people on the second floor from putting together deals involving the regular bankers on the first floor.  You put together a bunch of people with the goal of increasing numbers to increase their pay, then combine that with doing business with other people in your own company and I think you have a recipe for large scale cheating. 

In fact, it was the sub prime mortgages issued by the first floor and then bundled into junk bonds by the second floor that sank the housing market and with it Lehman, Merrill, AIG, and by extension our entire financial network.  This grew from greed and it wouldn’t have been possible before 1999.  Worse, it wouldn’t have been possible without the direct actions of John McCain’s chief economic advisor.  John McCain is up to his eyeballs in our financial mess and he probably doesn’t understand it much better than I do. 

Back in the 30’s we created a bunch of safeguards to make sure another Great Depression wouldn’t happen.  Those safeguards defined what sort of banking different firms were allowed to do.  The walls kept us safe from the greed that now plagues us.  Those walls were knocked over by John McCain’s chief economic advisor, Phil Gramm.

You may remember him.  He’s the guy who was supposedly kicked off the McCain team for saying a few weeks ago that we were in a “mental recession” and that the people complaining about the price of gas had become “a nation of whiners.”  That Phil Gramm.  Well, he’s still part of the McCain inner circle and more importantly, he was the guy who created the atmosphere for our current crash. 

Back in 1999 Phil was a Republican Senator and he pushed through his plan as a 200+ page document slipped into a last minute “must pass” piece of legislation.  The Republicans had a stranglehold on Congress and Bill Clinton was distracted by the Lewinski scandal, so the provision got through.  It took a few years of hedge fund operators and Enron shenanigans before the subprime mortgage hit.  Now we’re all screwed and John McCain’s guy Phil Gramm is the man who made it possible. 

You want to talk issues?  Look at your 401K, your pension or your investments.  Everything is worth less and there is one party responsible.  Let’s not give the Republicans any more chances to screw us.  At least not for four years.