Friday, October 03, 2008

Ode to Tom Petters

Given the recent arrest of Tom Petters, I thought this repost would be very befitting for the latest "high flier" who now has to have the "Trophy Wife Chat." Enjoy jail time Tom!

Like most other people, I'm livid over the housing debacle and the prospective bail out. And in times like these where the rest of us are facing a recession, a loss of a job, or poverty because of a group of greedy scum sucking parasites, I find it helpful to point out the occasional thing that might bring a bit of happiness or humor into our lives (or permit us pure, vicious schadenfreude in watching these scumbags get what they deserve). And one of those thing is the "trophy wife talk."

You see, there this "talk" being held in thousands of luxurious suburbanite McMansions across the US and it's the "Honey, let me explain to you the difference between debt and equity spending" talk. This talk is where the powerful and successful investment banker, commercial banker, real estate developer (fill in the blank) has to come home and explain to his little trophy wife the difference between debt and equity spending.

The reason this talk is necessary is because despite them being a "successful" real estate developer, the truth of the matter is all they did was borrow other people's money and live off of it. And now that the market is collapsing and their empire is crumbling, they now have to shuffle back home in shame and explain to their ditzy wives why when they left for work in the morning they were a high flying, SUV driving, investment banking real estate mogul, but now upon their return are bankrupt, scumbag losers.

You see, real SUCCESSFUL MEN don't have to have this talk. Because we, no matter how small or insignificant our career or job may be, earn this thing called "profit." We earn more than we make. We go to our jobs, be it a high flying surgeon or a burger flipper at McDonald's, we get our pay check and we spend less than what we earned. And while some of us may only make $35,000 a year, that is infinitely more than what this plethora of real estate developers, investment bankers, and mortgage brokers made, simply by the fact it's a positive number.

But the real shame these faux business"men" face is that they were never able to make a profit in the first place. They were never able to get it economically "up." And the only way they could make it was by borrowing money. They're too shallow to admit it, but they never turned a profit. They never produced a penny of wealth. They don't even approach us in terms of being real men with real jobs who do real work.

Ahhh, but the irony doesn't stop there. For you see, these egomanics not only found nothing wrong with borrowing money to survive, but found nothing wrong with borrowing millions of dollars to live a luxurious lifestyle they never had the wherewithal to EARN.

Real estate developers are a perfect example. I don't know how many stories I could tell you of the "multi-millionaire" real estate developer who was some big shot out there who thought he was king sh!t. They all drive Beamers. They all own multi-million dollar homes on the lake and they all have drop dead gorgeous wives. But when the market started to crumble, they became desperate. And the reason they because desperate is because they had borrowed so much money to afford these unsustainable lifestyles, even with the profits they had before, they could not keep up the charade.

Now many of them would try. Again, I don't know how many real estate developers I had in my bank back in 2005-2006 that were trying to borrow any amount they could get. They would lie on their personal financial statements, grossly exaggerating the value of their real estate empire (thus allowing them to borrow even more money) so they could get the funds to continue living their faux jet set lifestyle. But in the end, it would catch up with them, for ultimately, no matter how big their operations were, those operations weren't profitable. It was just like the US auto industry. It doesn't matter how "big" GM is, it's still a lousy, money losing company.

But here is why the "Trophy Wife Chat" is all the more necessary.

Trophy wives don't know the difference between debt and equity spending.

When "investment banking man" met his floozy of a wife at the bar he didn't tell her what his "adjusted gross income" was, because there was none. When the "real estate mogul" met his soon-to-be eye candy wife at the club, he didn't tell her what his "net income" was, because there was none. Both of them just bragged, "well I work on multi-million dollar deals." "I'm a multi-million dollar real estate developer." And the reason why is that the typical trophy wife doesn't know the difference between sales and profits. The typical trophy wife actually thinks you are a millionaire when you say you "own a $4 million house" but have $4.2 million in mortgages against it.

Ergo, the typical trophy wife cannot discern between the money you spend on them on whether it is borrowed money (debt) or money you actually made (equity).

And key to understand this, is they don't care. As long as you spend the money on them, whether you earned it or not, is completely irrelevant to them.

And thus all the more shock when this "chat" occurs.

For to whet your schadenfreude appetite I have seen this happen multiple times. As the housing market crashed, I have seen at least 10 "highly successful (ahem) "men" forced to sell their luxurious mansions and move into a lesser zip code. I even remember one desperate big shot insisting that on all the paper work we had, that we list the luxurious town of "Edina" instead of where he really moved to (the much less posh town of Richfield) because he didn't want people to know he moved out of Edina. The blow to their egos was so crushing, so shameful, so rude-awakening-ish that it should at least provide some of you a bit of solace.

But the ultimate payoff is to know the conversation that must have been had and is being had across the nation. To be a fly on the wall when these fat, gluttonous, embezzling, dirtbag scumball schmutzes who dared to live off of the rest of us to the tunes of millions, had to go home and explain to their moronic wives why they had to;

1. Sell the house
2. Move to a lesser neighborhood.
3. Sell the Lexus, the Beamer, the Mercedes and buy a Buick
4. Pull the kids out of private school
5. Cancel the trip to Arizona
6. Sell the house in Arizona
7. Oh, and by the way the feds might be coming knocking at the door
8. Do your mom have a place we can stay?
9. What do you mean "divorce?"

has to at least make some of you feel better.

For I've said it before, and I'll say it again, we may not be rich, but we are real men and women who are really independent. We are better than them.

And if you need something of a boost like the above to get you through the day and put a smile on your face again, please consider buying my book. Plenty of more stories and some of my finest work.


Anonymous said...

Fair Enough,

But isn' real estate development, (done right & honestly ) as valid as anything else?

I mean you borrow X million, spend it on land, materials, design & labour, inc. your own. You get some houses on nice lots for the purpose of selling the development for $ (X + Y) million so you can pay back X and keep Y.

How is this technically different from Corporation Q borrowing X million, building a factory, and earning $ (X +Y) million, so they can pay pack X, and keep the Y for distribution to the grateful shareholders.

In both cases you may guess wrong and Y is very small ,or worse , negative.

Of course, I am assuming you aren't being idiot, in your estimations of market, etc...

Hot Sam said...

I love your stories. I wish we had a gloat club to find these people and laugh at them.

In 2003 I wanted to buy a house. I had the income, but the market was being stupid and I don't try to win in that contest.

I've been a renter my whole life. Instead of buying a house I paid off all my car and furnitue debt. I was credit card debt free until my wedding which will soon be paid off.

My only significant debt is student loans, which I think was a wise investment.

It's nice having a positive net worth. If I could opt out of social security and save for my own retirement with that money, I'd be set.

Anonymous said...

Thanks, Cap'n, I've been in need of a cheering-up. I'm just a dumb engineer, working for MegaCorp, with my wife working for PrivateSchool, for the past umpteen years. We bought an affordable house here in So. Mpls and have spent the past 16 years paying down a 30-year, fixed-rate mortgage in 11 years. We have no debt, and a little money in the bank, and thought we were being prudent and sensible.

Now I find that the asshats that bought $750,000 houses on a $30,000/year income with nothing down are going to be bailed out by the fed-dot-gov sticking it's massive tax crowbar into our bank accounts (or by simply inflating our dollars until they're more worthless than they are now).

That makes us feel really good about being responsible human beings. As Rand said, we're being punished for our virtues, while they're being rewarded for their vices.

Politician, rope, tree...some assembly required.

The Krowbar said...

Hear, hear, from a fellow, hard-working Conservative man.

The Krowbar said...

My wife is hot, but she works hard, as well. Debt spending isn't something I have to explain to her.
What I do have to explain is how anyone could think any other way than do we.

bwbandy said...

Nice read. I agree with everything you say.

I have this pet theory. Most people that become moderately successful and scrapes together a certain amount of cash wants to be a developer. I have dealt with guys who own pizza parlours, teachers, farmers, etc. who then want to build and sell condos or houses. Some we finance, some we don't.

Problem is a lot of these guys have no clue what they are doing. Timelines are usually unrealistic, there are usually cost overruns, sales do not happen as fast as projected. There is this attitude that it is easy to build and sell something. And yes, I have seen a not of questionable net worths. If you want to be a developer or builder do not run out of cash because so many things can happen.

I will be starting your book as soon as I finish some other commitments. Looking forward to it.

Anonymous said...

I'm thinking this "We are better than them" theme has potential to become another book.

Anonymous said...

Great Rant!

(But the important thing is, you're not bitter.)

Anonymous said...

Now I find that the asshats that bought $750,000 houses on a $30,000/year income with nothing down are going to be bailed out by the fed-dot-gov sticking it's massive tax crowbar into our bank accounts (or by simply inflating our dollars until they're more worthless than they are now).

Do they not still lose their house? I thought the bailout was for the bank that foreclosed and now has an asset worth less than the mortgage they wrote against it.

VancouverGuy said...

Somehow all investment bankers and real estate developers spend more than they earn? And all of them make what they earn through borrowed money?

Nope. I am sure it would be fantastic for most people if everyone who worked 80-100 hours a week as an investment banker never really earned anything and just borrowed their way to the top as they greedily advised companies on massive mergers or acquisitions! And yet it isn't true.

Investment bankers and commercial bankers and real estate developers don't do any real work?

Mate, you're leaning a little bit too much on your rage and not enough on capitalism. First, most investment and commercial bankers work for someone else, and are therefore employees, not people who "never make a profit." If they didn't make a profit, people would not pay them. And don't say that they made bad bets and lost everyone all their money: there are a few people who work in mortgage securitization, and everyone else does other stuff. And real estate developers are just being entrepreneurs, and they don't deserve your scorn just because they may fail at it.

Please stop painting everyone with the same brush. Those of your readers who don't know any better will believe it.

Captain Capitalism said...

Vancouver Guy,

Yes, I'm sure most of my readers know I am not speaking of all investment bankers or commercial lenders when I "release the hate." There were some good bankers both in commercial and investment banking.

It's just the only ones having to have the trophy wife chat tend to be the i-bankers, developers, and the likes of Tom Petters.

Right now, I've seen nothing but good bankers remain while the majority of the filth that plagued the system have been fired or resigned (or arrested).

In the meantime, I will keep my ire up because the nepotistic, cronyistic system promoted the unqualified and connected and the current economy is the consequence of inferior talent being hired.

Anonymous said...

Not that I disagree with much that you wrote, but didn't Tom Wolfe cover this in "Bonfire of the Vanities" in - when? - 1987. It was a simpler time, but the theme was still the same - an investment banker who makes over $100,000/year, and is still going broke. Of course, today, that figure is probably closer to $1 million, but when you think two kids in private school at $25k each, the obligatory nanny at $30k, paying leases on a Mercedes and a Lexus ($30k), a mortgage on the Greenwich home ($50k), a second place in the Hamptons ($40k), two vacations (skiing and sun - $20k), upkeep of the trophy wife and/or trophy mistress ($50k), dining out, food, utilities, property taxes - there's not much left out of your after-tax income. I agree these clowns are all living above their means, but if you're living in that environment the social pressure to keep up is enormous, and the trophy wife will make life a living hell at home if he doesn't. I mean, if you decided to buy a Buick, you'd get bitched at every time you got in it.

And, many of the bonuses were not paid out in cash, but in company stock, valued at the elevated levels of 2006-7. Those Bank of America, Merrill, and Citi guys are all seeing their stock revalued to single digit ranges. The Lehman guys got nothing. So a lot of those purported millions have disappeared. Yes, some of the guys were scum, but others were just doing what they were told - build their book, bring in the revenues, and it looked like everything was working. Oops.

Anonymous said...

I agree 100%. Most men will do anything to get hot poon...including ruining their lives!