September 18, 2018
Ten years ago this week, Lehman Bros. went bankrupt. Lehman was not the first domino, but it was the first too-big-to-fail financial firm to fail. Its demise inspired the government to act so as to prevent others, and out of that act of creation emerged today's chaos.
The economic crisis of 2008 is well retold by economic historian Adam Tooze in his new book "Crashed: How a Decade of Financial Crises Changed the World." I haven't finished it; it runs over 700 pages. And I won't be finished with it even after I finish it. As Tooze points out, "A ten-year anniversary of 1929 would have been published in 1939." Just when Germany invaded Poland to start World War II. "We are not there," he writes ominously, "at least not yet."
All this can be hard to stomach, but I, being Italian, was raised to find comfort in food.
M.F.K. Fisher, when asked why she wrote about food instead of power, security and love, answered this:
It seems to me that our three basic needs, for food and security and love, are so mixed and mingled and entwined that we cannot straightly think of one without the others. So it happens that when I write of hunger, I am really writing about love and the hunger for it, and warmth and the love of it and the hunger for it . . . and then the warmth and richness and fine reality of hunger satisfied . . . and it is all one.
It is all one. Finance is but an expression of power and security, and food and finance have shared history's table since its beginning. In his book, "Against the Grain," James C. Scott shows why grain, rather than, say potatoes or other vegetables, became the staple agricultural product of early states. Grain grew in predictable seasons, in visibly open fields, and could be dried and stored in fungible quantities. That meant it could be taxed, traded, and lent. It was the germinal stuff of finance. But sowing and harvesting grain in quantity required a lot of hands, so forced labor -- slavery -- had to be invented. The laborers got enough grain to live and reproduce. The king got the surplus, and with it the power to decide who would serve and who would eat.
New York City's many eateries serve a lot more than grain these days, though often it is the fermented grain they serve at their bars that make them profitable. Forlini's is down in lower Little Italy close by Manhattan's state and federal courthouses. For decades it's been the hangout of judges and lawyers lunching while on trial, and afterwards of lawyers and clients celebrating victories and drowning defeats. I ate and drank there many times as a young trial lawyer, and I still do whenever I'm in the courts.
What is new is that the place has been found -- at night long after the courts have closed -- by a much hipper crowd. It's become an in-place for millennials, and after hours they pack its back rooms searching for an "authentic" New York. https://www.nytimes.com/2018/09/14/nyregion/forlinis-instagram.html. These young people are refreshingly self-aware. One patron said of another, "I follow that guy on Instagram. He's going to think he looks cool every time he walks past us. But who even is he? I'm pretty sure he does nothing. He's Instagram famous. He's just one more kid with an Instagram account." Another of the Instagram famous ordered a dish of pappardelle Bolognese just to take a picture of it; he didn't even eat it.
That self-aware patron didn't mention that she and her cohorts owe over $1.5 trillion in student loans, over 10% now delinquent. Or that only 25% of the country's jobs even require a college degree, or that the wages paid for the rest have not grown in decades. But let's look on the bright side: Unlike a house, an education can't be foreclosed on! Every defaulting lit major will remember her Shakespeare long after her lenders' promissory notes dissolve and leave not a rack behind.
She did complain bitterly of having to pay New York-sized rents for a few closets in Brooklyn, and not having the income to pursue other options. That's a glimpse of her starker reality. Still, she and her friend were glad that at Forlini's they could at least meet people who weren't annoying "finance bros."
Having represented quite a few finance bros, I know what she means. But to see finance bros full-frontal, you need to go uptown to the newly reopened Four Seasons.
Co-owner Julian Niccolini recently reminisced how the great restaurant felt when Lehman collapsed. https://www.nytimes.com/2018/09/12/business/dealbook/wall-street-great-recession.html. Executive assistants called all morning to cancel reservations. "Everybody thought that it would never end, and everybody was drinking the most expensive wine on the menu," Mr. Niccolini said. "And then that day happened, and it was like the end of the world." But for those at the top of the brohood, the apocalypse was short-lived. "Everything became the same again, because these people have money," Mr. Niccolini said.
Today they have even more of it. At the new Four Seasons, "Everybody wants to pick their own table," said Mr. Niccolini. "You know what that means? They are saying: ‘I have more money than you. I have more power than you. I am in charge.' It's about money. It's about power. It hasn't changed. In fact, it's getting much worse."
If the truth were known, many of these uber finance bros would to be eating at Forlini's -- while being prosecuted! I know they won't be, but I still wonder if they feel uncomfortable and disconcerted, even a little. Do they worry, as they rate each other's tables, that the weight of student loans is preventing millennials from starting families and buying homes? Or that wage earners and nations alike can only get by on borrowed money? Or that almost half of corporate debt is barely better than junk-rated? Including that of most of the companies that produce the cheap fracked oil we depend on, but who can't seem to turn a profit? Or that every single bit of it rides on interest rates that have nowhere to go but up?
We all know a doom is coming, as sure as we know that what goes up must come down. But for now, we revel, each in our own way, staking out tables at the Four Seasons or posting pictures of pasta at Forlini's. It is the lark before the storm that will again blow our revels into air, into thin air.
ABOUT THE AUTHOR
Aegis J. Frumento
Stern Tannenbaum & Bell
Co-Head, Financial Markets Practice
380 Lexington Avenue
New York, NY 10168
Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters. Mr. Frumento has also represented clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents.
Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.
He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.
NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.