Ivy League Loan Sharks or How Wall Street Screws Everyone

It's time for another true tale of Wall Street shenanigans. Learn how two Wall Street operators have changed the financial landscape, made themselves billions and set the stage for a another global meltdown. 

Like they say, you can't make this shit up. 

Transcript

Season 1; Episode 8

Ivy League Loan Sharks or How Wall Street Screws Everyone

Hey listeners.

Welcome to another episode of Twisted Views.

I guess it’s time for another true tale about Wall Street shenanigans. Like they say, you can’t make this shit up.

Once upon a time there was a very rich businessman named Wilson. He was a partner at the investment firm, Black Rock, which is how he became very rich. 

Wilson’s life was perfect. His adoring and rail thin wife did charity work and road dressage, often competing in horse shows around the county, while his two fetching daughters attended an exclusive private school in Switzerland. They all lived in a beautiful center hall colonial on 10 lushly landscaped acers in Greenwich, owned a ski chalet in Park City, and an apartment in Paris. 

Wilson loved to shop in London and bought his suits at Huntsman on Saville Row, his shoes a John Lobb and shirts from Turnbull & Asser. 

With his Ivy League education, be-spoke British style, straight nose and firm chin, Wilson was the number one producer at Black Rock, bringing in deals worth billions each year, earning him colossal bonuses. It was said that he could talk flies off a pile of dog shit.

But Wilson had one very big, very worrisome problem. He wasn’t a billionaire. And this bothered more than anything. More than when the delivery of his new Porsche GT3 RS was delayed by three whole days. More than when his personal trainer came down with COVID and died. More than when he had to break in his new John Lobb cap toe oxfords. Even more than when his wife turned 40. 

One day, Wilson took a break from work to go for a walk. He was pondering the horrible possibilities of never becoming a billionaire and lost track of where he was walking, accidently wandering into a less than pristine neighborhood. 

The streets were lined with all sorts of businesses that Wilson had never patronized, even in his poor undergraduate days at Columbia. First, he passed a pawn shop, then a check cashing store and finally stopped in front of a pay-day loan operation. 

When he walked inside the pay day loan store, to ask for directions back to the safety of Park Avenue, he was struck by what he found. There was a long line of low wage workers taking out small, short term, sky-high interest rate loans, to cover daily living expenses. Only to repeat the process when their next paycheck arrived. 

He realized immediately that this practice would only exacerbate their financial difficulties, binding them to the loan operation for a very, very long time.

And Wilson also realized that he now had the key to becoming a billionaire. 

Two days later, Wilson met a friend for lunch. His name was Josh and he as a partner at Goldman Sachs. They had met in graduate school, and despite becoming very rich, Josh also suffered from the same affliction as Wilson - non-billionaire disease. 

Wilson explained what he had observed at the pay day loan store. Josh was intrigued, after all, his parents owned a string of pawn shops in Queens where he had grown up, so he was familiar with the concept of profiting from the plight of others in highly unregulated and morally questionable businesses.

And while that was the holy grail of Wall Street practice, Josh didn’t see the scale, the heft, the path to billionaire status. A chain of pay-day loan stores? That was the equivalent of being a well-dressed loan shark.

But Wilson had a plan. 

Instead of individuals, why not lend money to businesses, risky businesses, troubled businesses, businesses who were willing to pay exorbitant interest rates in order to get their hands on some quick short-term cash. 

“But that sounds just like a bank.”  Josh protested. “A sleazy bank, but a bank none the less.”

“Well, yes and no.”  Wilson replied. “There’s another part.”

The second part of his idea was to raise the capital from giant pension funds, bloated investment portfolios and greedy insurance companies, not individuals like banks do. And, this is the best part, raising the capital from private sources meant no public reporting of their activities, plus it allowed them to sidestep all the pesky regulators like the FDIC, SEC and even the FBI. 

“Brilliant.” replied Josh. 

“Yes.” Wilson said. “Like a bank. But not a bank. A whole new thing. A sort-of bank.”

But what it really sounded like was a license to print money. Music to the ears of any Wall Street operator. 

So, they resigned from their jobs, raised $40 Billion in capital and founded, Chum Financing. 

And in a few short years changed the world of private lending.

And became billionaires.

But no one on Wall Street makes billions of dollars completely reinventing a market without being noticed. 

And following a trend is one thing that Wall Street is very, very good at. Jumping on the bandwagon as it were. 

So, “sort-of banks” became the hot new thing.

And today, the “sort-of bank’s” are doing over $2 trillion and growing like mad. They’re making humongous loans with other people’s money to shaky companies.   

What could go wrong when you make risky loans to sketchy businesses? These are smart guys, right? Ivy league pedigrees. Upstanding members of the community. Responsible family men.

It’s not like they’re loan sharks with wads of cash and short tempers.

Well, you might ask, what happens when the marry go round stops spinning? You know. The economy slows or the Fed fucks with interest rates or Donald Trump starts a war with China? 

Wall Street and the regulators have a fancy name for it - it’s called contagion.

Or you can use other metaphors, like domino effect or house of cards.

Remember Michael Milken and junk bonds? How about the mortgage meltdown of 2008? 

Of course, regulators are now very worried. That’s their job. Organizations like the SEC, FDIC, International Monetary Fund, and the Federal Reserve are looking into it. Examining it very closely. Even Congress is investigating. And you know how sharp those guys are. 

And believe it or not, even some of the big bankers are saying it could be dangerous to the economy, could even trigger another global melt-down, but they’re just pissed off and jealous because they didn’t get invited to the party.

And maybe so. 

But don’t worry about Wilson and Josh. They sold Chum for a butt-load of money and took their chips off the table. They’re kicking it with a bunch of new toys: jets, mansions, sports teams and maybe even new trophy wives.

So, how’s your 401K doing? 

Thanks for listening.