Deja Vu

June 20, 2008

Seven of Diamonds

Tags:

Bear Stearns,

commerce,

finance,

New York City,

Robert Benchley,

Wall Street

“Prosecutors Build Bear Stearns Case on E-Mails,” The New York Times, June 20, 2008.

In late April of 2007, a senior Bear Stearns hedge fund executive sent an e-mail message to his boss bemoaning a collapsing market for securities tied to subprime mortgages.

Then he went further, showing his panic: “I think we should close the funds now,” he wrote, using his personal e-mail account, referring to the two hedge funds he helped manage.

Three days later, Ralph R. Cioffi and Matthew Tannin, who sent the e-mail message, presented a sunny picture to worried investors without disclosing that the funds were plummeting in value and that Mr. Cioffi had already pulled some assets from a fund.

A little more than a month later, the two funds, filled with some of the most explosive and high-risk securities available, imploded, evaporating $1.6 billion of investor assets and setting off a financial chain reaction that has rattled global markets, led to more than $350 billion in write-downs, cost a number of executives their jobs and culminated in the demise of Bear Stearns itself.

“How to Understand International Finance,” by Robert Benchley.
Between 1914 and 1945, Robert Benchley contributed reams of humor writing to Vanity Fair and The New Yorker. A member of the famous Algonquin Round Table in New York, Benchley eventually found his way to Hollywood, where he won an Oscar in 1935 for his short subject film, “How to Sleep.”

IT IS high time that someone came out with a clear statement of the international financial situation. For weeks and weeks officials have been rushing about holding conferences and councils and having their pictures taken going up and down the steps of buildings. Then, after each conference, the newspapers have printed a lest of figures showing the latest returns on how much Germany owes the bank. And none of it means anything.

Now there is a certain principle which has to be followed in all financial discussions involving sums over one hundred dollars. There is probably not more than one hundred dollars in actual cash in circulation today. That is, if you were to call in all the bills and silver and gold in the country at noon tomorrow and pile them up on the table, you would find that you had just about one hundred dollars, with perhaps several Canadian pennies and a few peppermint life-savers. All the rest of the money you hear about doesn’t exist. It is conversation money. When you hear of a transaction involving $50,000,000 it means that one firm wrote “$50,000,000” on a piece of paper and gave it to another firm, and the other firm took it home and said, “Look, Momma, I got $50,000,000!” But when Momma asked for a dollar and a quarter out of it to pay the man who washed the windows, the answer probably was that the firm hadn’t got more than seventy cents in cash.

This is the principle of finance. So long as you can pronounce any number above a thousand, you have got that much money. You can’t work this scheme with the shoe-store man or the restaurant owner, but it goes big on Wall St. or in international financial circles.

This much understood, we see that when the Allies demand 132,000,000,000 gold marks from Germany they know very well that nobody in Germany has ever seen 132,000,000,000 gold marks and never will. A more surprised and disappointed lot of boys you couldn’t ask to see than the Supreme Financial Council would be if Germany were actually to send them a money order for the full amount demanded.

What they mean is that, taken all in all, Germany owes the world 132,000,000,000 gold marks plus carfare. This includes everything, breakage, meals sent to room, good will, everything. Now, it is understood that if they really meant this, Germany couldn’t even draw cards; so the principle on which the thing is figured out is as follows: (Watch this closely; there is a trick in it).

You put down a lot of figures, like this. Any figures will do, so long as you can’t read them quickly:

132,000,000,000 gold marks
$33,000,000,000 on a current value basis
$21,000,000,000 on reparation account plus 12½% yearly tax on German exports
11,000,000,000 gold fish
$1.35 amusement tax
866,000 miles. Diameter of the sun
2,000,000,000
27,000,000,000
31,000,000,000

Then you add them together and subtract the number you first thought of. This leaves 11. And the card you hold in your hand is the seven of diamonds. Am I right?

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