This one is for folks graduating from college in 2008…
The 2007 calendar year was one in which America’s financial system more or less collapsed, though we didn’t realize how thoroughly until early in 2008. It was also a year in which Wall Street paid out record bonuses, a total of $38 billion at just a handful of banks (source). One of the firms that paid out $billions, Bear Stearns, essentially went bankrupt last week, but is being bailed out at taxpayer expense (story).
It has gotten to the point where only a fool would refrain from high-risk bets at any large Wall Street firm. If the strategy randomly succeeds, the bankers can transfer $billions into their personal checking accounts as bonuses for a job done well. If the roll of the dice isn’t favorable, some $billions in compensation can probably still be extracted while the general public absorbs the loss through taxes.
[I had my own interaction with Bear Stearns in January 2008. One of their brokers had figured out that I was semi-rich. He sent me an email:
“I wanted to first of all wish you congratulations, and hope that you have a moment to learn about our team here at Bear Stearns. Our group specializes in working exclusively with founders and corporate executives who go through liquidity events.
“From your resume, I have seen the previous accolades and imagine that at some point you have utilized someone to guide you through one of these transitions. However, this also may be a good inflection point where Bear Stearns could act as a good conduit as 2007 has ended and you have sold another business venture where liquidity is created.”
This was shortly after two Bear Stearns hedge funds blew up, wiping out 100 percent of the $20 billion that investors had pledged to their care. Bear Stearns itself had pocketed $billions in fees from these investors in the preceding few years, so all was not lost, but being a Bear Stearns client didn’t seem like a good way to beat the index. My reply:
“Thanks, but I think I did a lot better than Bear Stearns did for its customers last year. Because I wasn’t smart enough to choose or run a hedge fund, I had my money parked in boring Vanguard funds, mostly index funds.”