American Greed: A Personal and Professional Look at How Greed Caused the Great Recession of 2008

Contents

INTRODUCTION

Chapter 1

THE TAIL WAGGED THE DOG

Chapter 2

EVERYTHING BUT THE APPLE PIE

Chapter 3

HEARTACHE

Chapter 4

EDUCATION IS WHAT YOU MAKE OF IT

Chapter 5

THE ROLLERCOASTER RIDE

Chapter 6

RISK AND REWARD

Chapter 7

WE’VE GOT THE WHOLE WORLD

IN OUR HANDS

Chapter 8

THE WAVERING AMERICAN DREAM

Chapter 9

THE GREAT RECESSION OF 2008

Chapter 10

BERNARD L. MADOFF: THE EPITOME

OF AMERICAN GREED

Chapter 11

KAROSHI

Chapter 12

WILL WE EVER LEARN?

Chapter 13

TO BE A KING OR A KINGMAKER?

Chapter 14

LIFE IS ABOUT CHOICES

ACKNOWLEDGMENTS

ABOUT THE AUTHOR

WORKS CITED

INTRODUCTION

THERE WAS A COMMON THREAD in the Great Recession of 2008. It was a theme of abuse, overindulgence, and irresponsibility. We were experiencing a perfect economic storm.

Leading up to this particular recession were steep declines in the housing market combined with the banking system sliding to the verge of collapse. Our news was full of stories about the mismanagement of risk at financial service companies that, nevertheless, paid out huge bonuses to executives, rewarding them for ruining their own companies. Americans were largely overextended, with tremendous amounts of debt on charge cards and mortgages that they couldn’t afford, along with rising unemployment, tightening credit, and increasing expenses such as gasoline, electricity, and food. All of these elements made for the perfect economic storm.

The root cause of all of this? Greed. It finally caught up to America—and the world for that matter. Wikipedia, an online encyclopedia, defines greed as the excessive or rapacious desire and pursuit of money, wealth, power, and even food.¹ It has been debated for centuries whether greed, as one the Seven Deadly Sins, is good or bad.

People like stock speculator Ivan Boesky felt that greed is healthy.² Boesky, known in the 1980s for a Wall Street insider trading scandal, served nearly three years in jail for his dealings. Another infamous character linked to greed in the 80s was Michael Milken. Milken was a financier and philanthropist who, in 1989, was indicted on ninety-eight counts of racketeering and securities fraud. He was nicknamed the Junk Bond King and was the epitome of greed in the later half of the ’80s. Swindlers like Boesky and Milken were glamorized in the movie Wall Street in 1987. The movie starred Michael Douglas as Gordon Gekko, a very successful yet greedy and ruthless stockbroker, who coined the now-famous on-screen quote Greed is good.

As an investment adviser representative for a Fortune 500 company since 1992, I have seen how greed has impacted people’s lives. I have witnessed patterns of abuse, the inability to plan for anything financial or personal, and in some cases, situations of illegalities. By meeting with numerous amounts of people over such a long period of time, I gained firsthand exposure and bore witness to what was happening in a very unique and particular way. I want to emphasize that negligent patterns were not the case with all of my clients or prospects, but it was with the majority.

I began writing this book in February of 2009. At that time, I had 1,300 clients and had met with thousands of prospects over a twenty-year period. People’s experience with investing varied. They were rarely in tune with how much risk was needed for the reward they desired. This was primarily due to naiveté and, in my opinion, laziness, at times. The desire for a high return on their investment without the willingness to take the risk to get that return has burned people throughout our stock and bond market’s history.

Downward turns in our economy don’t happen overnight. What made the Great Recession of 2008 epic was that it was bound not just by an economic downturn but by a metamorphosis in our society as well. There were companies that went bankrupt that had been in business for hundreds of years, and segments of our day-to-day life that were irreparably changed.

Here is a short list of well-known and respected companies that filed for bankruptcy throughout 2008:

The daily newspaper industry in our major cities was on life support; the automotive industry was on the verge of bankruptcy; and giants in the financial services industry were on the brink of extinction. Ponzi schemes surfaced yet again, as they had during the Great Depression and other periods of economic downturn. Pirating on the high seas took over our news headlines, as if we were reading the dailies in the 1700s.

Throughout this book, I will be intertwining my personal experiences with my professional observations of the Great Recession of 2008—what contributed to it and what happened during it as well as after it. My past had such a profound impact on me and my ability to work with thousands of people in assisting them with their financial situations. The pivotal moment in my life and that of my family was the divorce between my mother and father; it was a life-altering event. From my perspective, the divorce was the result of my father’s greed; he was looking for a better way of life than the one he had. Today, divorce is old hat. Children have stepparents and stepbrothers and experience their parents dating other people who have their own children. Children of divorce may be lucky to see one of their parents every two weeks or so.

In this day and age, if you are a deadbeat dad, you are put on the FBI’s most wanted list. It’s very common. However, back in the mid-’70s when I was growing up, divorce was foreign and traumatic. Families were torn apart, and wives were often left alone to handle everything, often with no financial or psychological support. Like my mother, these wives had had little recourse. The law would never enforce a divorce decree, as it does today.

I grew up in Plymouth, Massachusetts, about forty-five minutes south of Boston. When you live in that area of the country, there are two passions that people commonly share: baseball and politics. Of course the Red Sox and the Kennedys were influential in my life, like they were for many other Bostonians. From an early age, baseball touched my life and those of my brothers, because of the camaraderie, the competition, and the spirit of wanting to be a hero. Living in the west section of Plymouth, I played ball in the streets every day with my brothers and our friends. My favorite player was Red Sox great Carl Yastrzemski. He batted lefty, and so did I. He leaned his bat over his head toward the outfield, and I mimicked that stance. He played right field, and that was my favorite position.

Unbeknownst to me, baseball would also have a profound impact later on in my life. I married my college sweetheart Rita, and after we graduated from Bridgewater State College, a small Massachusetts state college, we moved back to where I grew up; west Plymouth. Plymouth was perfect for raising children. The housing prices were reasonable, the schools were good, and the athletics in town were very organized. When my kids were born, from the second they could walk, I would throw a ball with them and show them how to swing the bat in the backyard of the first home my wife Rita and I had bought. Our first home was just blocks from where I had grown up. My daughter Micayla was an excellent softball player, and when she began to play at the age of ten years old, I felt that competitive spirit come back. When she got up to bat, I was so proud, because her stance in the batter’s box was perfect. My son Matthew really excelled at baseball and could throw a ball a mile by the time he was two years old. I had a friend of mine wanting to sign him for a professional contract at that age.

Since the early beginnings of our family, in order to be successful, I had called upon everything I had learned and experienced. My passion to provide for my family and create the best life possible for them overflowed into my business. It was imperative that I exercised the effort to provide for my family while improving the situation of those clients and prospects who allowed me to have a career and not just a job.

Politics was also very important to me. I learned how to lose gracefully and win in a partnership. Early in my political career, I wanted to be the king, but I quickly learned that I excelled at being a kingmaker. It was service through politics in an effort to improve someone’s situation, to give back to our community, and to make everything around me better than when I had grown up. I relished the role of advocate, since the rollercoaster of life I was on could lead to a path of betterment for those around me.

Throughout my financial services career and the interests that I undertook, I called upon those life experiences to improve the situations of many people. During the journey, I witnessed how greed impacted their lives and the decisions they made. That’s what gave me the direction to write this book.

Leverage this book as a road map in planning for anything financial and personal. Find out what is important to you in life, and put an action plan in place to make it come to fruition. Don’t let greed overwhelm your decision making in anything you do. There is good debt and bad debt, good stress and bad stress; once one overruns the other, something is bound to go wrong.

Chapter 1

THE TAIL WAGGED THE DOG

"Never spend your money before you have

earned it."—Thomas Jefferson

THE IMPACT OF ONE SPECIFIC happening often creates a ripple effect, making it into something much larger and often overwhelming. A tsunami is one such earth and weather phenomenon caused by an undersea earthquake. With a massive shift in the earth’s core, a Tsunami can cause damage beyond anyone’s comprehension. These natural disasters instill irreparable damage to a nation’s financial markets, infrastructure, and even human life.

The same can be true when it comes to economies, both here and abroad. When recessions or depressions happen, there is a ripple effect that impacts everything. In particular, this can be said for the Great Recession of 2008. The triggering event that led to the ills of this particular recession was ignited by one thing: greed.

Much like our economy, a tsunami can provide us with warning signs of what is to come. Throughout the Indian Ocean, where many tsunami’s take place, countries have put in place a system of warning buoy’s that could provide enough notice for evacuations. People sometimes take heed of these warnings; some just can’t escape the terror of such a weather catastrophe, while others want to be daredevils and test their fates.

In 2004, one of the most devastating tsunamis took place in the Indian Ocean. It was the day after Christmas in 2004. The epicenter was located off the coast of Indonesia. With crashing waves up to one hundred feet high, this tsunami devastated India, Indonesia, Thailand, and Sri Lanka. All told, over 230,000 people died. It was one of the worst weather-related tragedies ever recorded. Even with the warning system in place, many people were destined to die.

With similar force, the Great Recession of 2008 led to a crashing wave of catastrophes not seen in our history. Industries were permanently changed, millions upon millions of people lost their jobs, families were torn apart, and economies from around the world took full-force trauma from a deep, financial hardship.

The signs were all there—it was years in the making—but most of us ignored them. In 2008, the average balance that Americans had on their charge cards was $10,000. Americans carried an average mortgage of over $200,000. For many years, industries realized dramatic and accelerated growth. Companies recognized profit margins beyond their wildest dreams, and corporate CEOs were recipients of such benefits. Individuals dabbled in the stock market like they had purchased scratch tickets. People lied on their loan applications for larger amounts than they could afford. Mortgage companies and banks accepted too many mortgages with people putting zero money down while others, planning for their retirement, put 100 percent of their 401(k) contributions into their company stock. Many had taken their lives’ savings to trade daily on the stock market and put the pedal to the metal for a shot at the promised land. Whatever could be made in the quickest period of time or what was the easiest way to achieve a goal was what drove individuals’ appetites for greed.

The interest rate or the return on their money was the tail wagging the dog. It was the smallest piece of the puzzle but the one that drove people to the brink. Instead of understanding the risks in order to realize the reward, many lived beyond their means, didn’t plan for the future, and never understood the ramifications.

Our government promoted that the best way for us to get out of the Great Recession of 2008 was to shop. How do most Americans shop? With their charge cards, of course. We were incurring too much debt and not planning or saving for the future. America did not run away from the powerful, economic tsunami or plan around it; America ran right at it, and the tsunami swallowed the country whole.

Chapter 2

EVERYTHING BUT THE APPLE PIE

How much more grievous are the consequences of anger than the causes of it?—Marcus Aurelius

I GREW UP AT A time when the Boston Red Sox nearly won the World Series. In 1975, the Sox played the Cincinnati Reds, known at that time as the Big Red Machine. The Red Sox took the series all the way to the seventh game and eventually lost. That was also the year I went to my first major league baseball game at the renowned Fenway Park. I was nine years old and in the third grade. My father, Melvin Rothberg, was able to get tickets to a game with the Red Sox playing the Baltimore Orioles. We sat on the third baseline, probably twenty or so rows back from the field.

When my father was a teenager, his first job had been hawking popcorn at Fenway. He used to talk of the times when he would see all of the baseball heroes of the 1950s—Ted Williams, Johnny Pesky, and Mickey Mantle, when the New York Yankees came to town. Back then, Fenway Park wasn’t always sold out like it is today.

But on the night of my first game, the stands were filled to capacity to watch famed all-star pitcher, Jim Palmer of the Orioles, face hometown, pitching hero Luis Tiant. Tiant was truly a beloved persona in Boston at the time. With a cigar in his mouth at all times, Luis, who was born in Cuba, was known for his unique style of pitching. When he went back into the end of his windup, he would look to the sky, confusing most batters, and then follow