An Unfair World
While at Continental Illinois, Fastow helped pioneer a system of raising capital by selling notes backed by risky loans. The practice spread across the industry "because it provides an obvious advantage for a bank," noted the Chicago Tribune. "It moves assets off the bank's balance sheet while creating revenue." Continental became the largest U.S. bank to fail during the Savings and Loan crisis.
Based on his work at Continental, Fastow was hired in 1990 by Jeffrey Skilling at Enron Finance Corp.
Now this seems like old news, right? I mean this goes back in the way, way, way back machine to the Savings and Loan Crisis and everybody knows that is just so long ago that we can't possibly hope to remember THAT. Although it is horribly sourced, I urge you to read the wikipedia Savings and Loan Crisis link. I defy anyone to not find similarities.
So having laid the groundwork, I have to ask the question: is a financial meltdown a bug, or a feature? is doing the exact same thing, and expecting different results not a definition of insanity? Or are they doing the exact same thing in order to HAVE the exact same results? Which is more likely, that the S&L crisis was a trial run to see how the winners and losers shook out, or that collective amnesia infected every part of the professional banking and financial world.
Having lost my faith in humanity, I'm not sure which is worse or more frightening, but apparently it is the later.
Prophylactic: the following quote is out of the mouth of the world's largest boob, Tom Friedman:
You know, a question I've been asking myself. Who are the two smartest investors I've ever met in my life? Prince Alwaleed of Saudi Arabia, Warren Buffett of Omaha. Let's look at their behavior.
Last January, Prince Alwaleed bought into Citibank. He put -- he bought in at $30. He thought he'd swallowed the canary, thought he got the bargain of a life. Citibank today? Four dollars. OK?
Six months later -- Warren Buffett was patient. And there's no smarter investor than Warren Buffett. I'm not trying to be critical, but it shows you what's new. He bought into Goldman Sachs at $115. And he got warrants and all this other stuff. Never mind. Goldman Sachs today, in the 50s? I don't know, high 40s?
So, you have to say to yourself, something's going on that the smartest investors in the world didn't see.
Like I said, it's an unfair world.