I.
There was, of course, the guy I was friendly with in college who essentially paid for his entire education through the sale of various pharmaceuticals. He imported the pills from Mexico across the border into Texas where we lived. He had a nice little operation that he ran out of his house. He always had plenty of tablets in reserve, and was rewarded with a loyal customer base. He kept a low profile, but did not live in paranoid, hermetic isolation either. He had a hairline that was prematurely receding. He was short and he wore baggy clothes that made him look shorter. He was almost always grinning.

The inventory would occasionally change—liquid LSD made the rounds at least once—but a person with a taste for proper numbing could always count on the usual stock of Ecstasy, Xanax, Valium, etc. The commodities were quite a sight to see: Oversized Ziploc bags filled with a dizzying collection of tiny blues and whites that he would take out of a drawer and casually drop on his desk while busying himself with something else. It was not a hard sell.

It was also not a real business, at least not legally. Two days before he was set to graduate, several agents from the Drug Enforcement Administration busted into his house and arrested him after—it was later learned—a lengthy surveillance of his operation. His business was wiped out.

I was already out of college by this point but ran into him at a bar in Houston as he was awaiting his court date. I offered him whatever moral support I could muster. He seemed more resigned than concerned. He was drinking and grinning and young enough to start over.

II.
My first job out of college was in 1998 as a reporter at a daily newspaper in Texas City, a refinery town located on the Gulf Coast in between Houston and Galveston. Texas City is, for the most part, an unspectacular place except for its enormous power plants, and its location in Galveston County, a rare Democratic stronghold in a state that bleeds gallons of red.

As for the job itself: I honestly cannot remember a single story I worked on during my tenure there, but I do remember that most of the letters to the editor were written about the local high school football team. I was not paid on salary, but I once calculated it all out and take-home for the year would have been roughly $13,500. That is, if I stayed for the entire year, which I did not. After about nine months, I quit and followed a girl to Boston.

By the way, that newspaper no longer exists.

III.
From the stock market crash on October 1929 through March 1933, over 9,000 American banks failed. Roughly nine million savings accounts—or $2.5 billion in life savings—were wiped out. It has been reported that 34 million men, women and children were without any income at one point during the Great Depression.

Between July 1933 and June 1934 John Herbert Dillinger and his gang are thought to have robbed 10 U.S. banks, netting about $300,000. To much of the public, Dillinger was a folk hero. He was a modern-day Robin Hood for Americans that wanted a shred of retribution against a banking system they believed had cleaned them out.

To U.S. Attorney General Homer S. Cummings and to Bureau of Investigation Director J. Edgar Hoover, Dillinger was Public Enemy Number One. A $15,000 reward was posted for his capture.

But Dillinger was not the only dark idol born out of Depression-era America. The murderous exploits of Bonnie Parker and Clyde Barrow, Pretty Boy Floyd, Baby Face Nelson and Harry Pierpont fascinated a desperate country.

They lived violent lives and died violent deaths.

Dillinger was gunned down outside a Chicago movie theater during an ambush by federal agents. Floyd and Nelson were also shot dead by the FBI. Pierpont was electrocuted by the state of Ohio. Bonnie and Clyde died as lovers on a lonely road in Louisiana with guns in their hands.

Hoover saw the elevation of gangsters into heroes as evidence of a moral rot in America. But in a country gone broke, there are a thousand shades of evil.

“I stole from the banks who stole from the people,” Pierpont once said.

IV.
With the help of $300 million from investors, Samuel Israel III started a hedge fund called Bayou Group LLC in 1996. Along with his associates Daniel Marino and James Marquez, Israel promised investors that the Stamford, Conn.-based fund would grow to $7.1 billion in 10 years.

The fund, however, began losing money almost immediately. In order to conceal the bad trades, Israel and his associates fabricated their profits in fund performance summaries to investors. By 1998, with large losses still mounting, Israel and Marino cooked up a plan to recover the money.

It began by first letting go of their independent auditing firm. Marino then created a fake accounting firm out of thin air called Richmond-Fairfield, which produced fake auditor’s reports, financial statements and performance summaries. The Bayou Group reported a 17.55 percent gain in 1998. In fact, the fund had lost millions that year.

With trumped up statements showing profits, Israel and Marino hoped to raise more money from investors and recover the losses the next year with outsized gains. It didn’t work. Over the next four years the Bayou Group continued to lose millions through bad trades. By 2004 Israel and Marino had ceased all trading and fully dedicated themselves to a failed effort at recouping losses through dubious investments.

Both men were charged with defrauding investors of $450 million and sentenced to 20 years behind bars. The end came in 2005 when, with the company on the brink of collapse, Marino penned a six-page confession and suicide note. “If there is a hell, I will be there for eternity,” he wrote.

On June 10 of this year, the day he was supposed to report to federal prison, Israel’s vehicle was found abandoned on a bridge near the Hudson River in New York. On the hood of the car was found a message scrawled in dust: Suicide is Painless. This phrase also happens to be the title of the theme song from M*A*S*H.

Neither Israel nor Marino followed through on their suicide threats.

V.
On October 14, 2008 the total public debt outstanding in the United States of America was $10,294,404,889,401.47.

VI.
I also worked at a small newspaper in the suburbs just outside of Boston. This was near the turn of the century, when the new economy was driving itself to the edge of the proverbial cliff. But at this point in time the road was still paved gold and the country wrapped itself in the blanket of irrational exuberance. In other words, there wasn’t a whole lot to write about.

I remember a particularly heated war waged by residents against a plan to bring a Dunkin’ Donuts to town. Part of the battle centered on the typical protectionism people in provincial New England towns feel over their space. To this end, the fight seemed somewhat holy: Town people guarding the gate against the franchising of their home. The other part of it was just small town paranoia—how loud will that drive-thru speaker be, exactly?

My starting salary was somewhere in the ballpark of $22,000. I remember being elated over the fact that I had broken the $20,000 barrier. I didn’t feel rich, but the money felt different than any money I had ever made before. It was a salary with benefits and 20 days vacation. It was also an entrance into the world that would someday make me sad.

The newspaper no longer exists. The publisher, who had married into wealth years earlier, sold his business to the Boston Herald, which then immediately folded it. I was offered a job at one of the Herald’s other papers but I declined.

On the last day of the paper’s existence, the editorial staff gathered together in the newsroom and finished off several bottles of liquor. I was drunk when I drove home and then a few months later I moved to New York.

VII.
“I have a sailboat, a motor boat, an apartment, an S.U.V.,” a senior investment banker at a big Wall Street firm told the New York Times. “What could I possibly need?”

It was the last week of December in 2004 and Wall Street bonuses were estimated to total roughly $16 billion for the year. In 2005 they would hit a record $21.5 billion.

On September 15, 2008 Lehman Brothers, founded in 1850, would go bankrupt. On October 11, 2008 the United States government, led by a president from the Republican Party, would announce a plan to partially nationalize the country’s banking system.

The investment banker was mulling over what to do with his extra pay. There was a lot of money to go around.

“Maybe a little Porsche for the Hamptons house, but probably not,” he said.

VIII.
On March 10, 2000 the Nasdaq Composite peaked at 5,046.86, driven by the spectacular growth of technology stocks. It was the beginning of the end. March 10th would come to be known as the day the dot-com bubble burst.

The Nasdaq would lose 78% of its value between March 2000 and October 2002. About $5 trillion in market value from technology companies would dissolve. All of the venture capitalist money, which seemed endless, was hanging itself.

The new economy was dead. But before that, we dreamed of so much money it was scary.

IX.
“The single most critical problem facing this country,” a financial consultant said to me this past summer, “is the elimination of the middle class.”

(I am writing this as protest.)

“The middle class is what makes a democracy work,” the financial consultant said. “Without the middle class, we have the French Revolution.”

X.
A former star bond trader at Salomon Brothers starts up a hedge fund in the manicured hedge fund garden of Greenwich, Conn. It is 1994. He calls it Long-Term Capital and its principals include two Nobel laureates and a former vice chairman of the Federal Reserve. They raise $1.25 billion in capital from investors to begin trading. They develop very complex mathematical models to bet on very complex securities. And they are very successful. They post 40% annualized returns. They are geniuses. They are free-market darlings. At their apex they are managing $100 billion.

What goes up spreads its wings and hangs in clouds. There is no down. The profits are massive. It is the sound of full-throated capitalism working.

And then something goes horribly wrong. Russia defaults on some debt. The ruble loses value. Investors start fleeing risky investments. The geniuses lose $4.6 billion in less than four months. This isn’t happening. It’s all buried in clouds. The Federal Reserve orchestrates a massive $3.6 billion bailout. Smart people everywhere think it’s the right thing to do. The fund is too big to fail, they say. Its death is too horrible to even think about, they say. The entire economy would disappear in its smoke and mirrors, they say. This isn’t happening.

Except that it is. It’s fool’s gold. And then it’s gone. And Wall Street learns its lessons. Nothing like this will ever happen in the future. The smartest investors in the world will never again be so easily fooled. The end.

Copyright Last Exit 2008