The most important part of troubleshooting complex systems is understanding a single root cause will manifest itself in many ways. This rule doesn't only apply to engineered systems like jet aircraft or nuclear power plants; it also applies to human organizations and even entire societies. In fact, just such a root cause explains not only today's enormous and unprecedented concentration of political and financial power in the United States, but the 2008 financial crisis as well. This root cause is the completely false sense of omnipotence, self-importance and entitlement among the country's elite, as well as the nurturing of these beliefs at Ivy League colleges and other elite universities. This root cause is founded on a lie - that today's ruling financial and political classes are better than then rest of us. In this week's article this lie will be exposed by simply comparing two photographs.
Goldman Sachs' IPO and Wall Street Having the Best People
This sense of omnipotence and self-importance operates at the level of instinct among its adherents. Evidence of this is provided by Henry Paulson. In his post-financial crisis memoir, On the Brink, Henry Paulson provides a useful day to day summary of what occurred during the crisis, particularly when the crisis really gained momentum in the summer of 2008. On September 18, 2008 Paulson briefed President Bush and Congress on what would become the 'Troubled Asset Relief Program' (TARP). Paulson admitted to Bush that TARP was essentially a Wall Street bailout. (1) When briefing Congress on the proposed plan, Paulson bristled at the suggestion of caps on Wall St. compensation and claimed - amazingly it hardly needs to be added - that Wall Street needed to pay what it did in order to ensure it had the "best people." (2)
So just exactly who are these 'best people?" Figure 1 provides a fairly representative cross-section. The photo was taken on the day Goldman Sachs first traded as public company. Pictured in the photo are the following (left to right);
John Thain - co-Chief Operating Officer, (MIT, Harvard), Dunce #46
Esta Stecher - co-General Counsel, (Columbia Law School)
Steve Friedman - Former Senior Partner, (Cornell, Columbia Law School), Dunce #22
Richard Grasso - NY Stock Exchange President, not a Goldman Sachs employee
David Viniar - Chief Financial Officer, (Harvard)
Chris Cole - Head of Financial Institutions Group, (Princeton)
Dan Jester, Treasurer, (No Ivy League Degree)
John Thornton - co-Chief Operating Officer, (Yale, Harvard)
Henry Paulson - Chief Executive Officer (Dartmouth, Harvard), Dunce #38
FIGURE 1: Goldman Sachs Goes Public
The total compensation for the people in this photo is likely in excess of $1-billion. Some additional 'accomplishments' of the people in this photo;
- In 2007 - a year which Merrill Lynch lost billions - John Thain made $83-million as Merrill CEO. (3)
- In 2008 Steve Friedman apparently used his position of NY Fed Board Chair to profit from his knowledge of NY Fed President Tim Geithner's then secret decision to pay AIGs CDS counterparties - in full. Included in these counterparties was Goldman, and Friedman, Goldman's ex-CEO, makes millions on the stock.
- In 2003 Grasso earned over $140-million as chairman of the NY Stock Exchange. Not only was the salary outrageous, so was the fact that this salary came in the wake of the Enron and WorldCom scandals.
- John Thornton would leave Goldman and become chairman at Barrick Gold, the world's largest gold mining company. He would earn tens of millions as Barrick stock plummeted and traded at multi-decade lows.
- Henry Paulson - a good guess for his total compensation at Goldman? the neighborhood of $500-million.
The Wild Weasels
On July 24, 1965 the air war in Vietnam and air combat more generally underwent a watershed change. On that day, three batteries of Soviet-built and Soviet-manned SA-2 surface to air missiles (SAMs) each fired three-shot salvos at a flight of four USAF F-4C fighter planes. All of the F-4s suffered damage but the the F-4C flown by Ross Fobair and Richard Keirn was shot down. Keirn, who was also shot down as a B-17 pilot over Germany, would survive and become a prisoner of war in Vietnam. Fobair on the other hand never ejected. His remains would be returned to the US in 2001.
The Air Force and Navy were largely caught flat-footed by this development. While SAMs had shot down two U-2 spy planes, they had never been employed in a battlefield environment. The Air Force worked feverishly to come up with a solution to the problem posed by SAMs. What they came up with was the Wild Weasels.
SAMs are radar controlled; an operator must provide updated guidance instructions to the missile as it flies to the target. Tracking an aircraft with radar can be likened to trying to find someone in a darkened room by turning on a flashlight. Turning on the flashlight allows you to see in the dark, but it also allows everyone hiding in the dark to see you. The concept behind the Wild Weasels was as simple as it was brazen. Weasel aircraft would allow themselves to be targeted by enemy radar. By doing so, they would then employ their AGM-45 Shrike missile. The Shrike was an anti-radiation missile and would follow a radar beam to its source. The main drawback to this strategy was the limited range of the Shrike. While the Shrike was hard-pressed to engage targets five miles away, an SA-2 missile could engage targets more than twenty-five miles away. The dangers inherent in this strategy were obvious. In fact, when Jack Donovan was briefed on the Wild Weasel mission, he howled in derision, 'You gotta be shi**in' me!' The acronym YGBSM would become a fixture of Wild Weasel squadron patches from then on. See Figure 2.
Figure 2 - Wild Weasel Class III-2
Wild Weasel III-2: Photo from First In, Last Out: Stories by the Wild Weasels (4)
Standing left to right; Capt. Tom Pyle (POW), Capt. Bob Marts, Capt. Norb Maier (shot down, recovered), Capt. Mike Gilroy (shot down, recovered), Capt. Bobby Martin, Capt. Ed Larson (shot down, recovered), Maj. Gene Pemberton (KIA), Capt. Buddy Reinbold (wounded)
Kneeling left to right; Capt. Bob Sandvick (POW), Maj. Curt Hartzell, Maj. Ed Rock, Maj. Joe Brand (KIA), Capt. Ben Newsom (KIA), Maj. Glenn Davis, Capt. George Metcalf, (Missing) Maj. Don Singer (KIA)
The obvious risks notwithstanding, aircrews from all over the Air Force volunteered. The casualties suffered by Wild Weasel crews as tactics were developed were enormous, again see Figure 2. However, by the end of the war, the success rate of SAMs against aircraft was greatly diminished. In 1965 it took an average of ten SA-2 launches to shoot down an aircraft; by 1972, it took more than thirty launches. As impressive as this accomplishment was, the Wild Weasels would also help hasten the end of the Cold War.
In June 1982, Israel launched Operation Peace for Galilee, the invasion of Lebanon. (5) A key aspect of the initial assault was destroying nineteen Syrian SAM batteries. With the SAMs destroyed, Israeli aircraft would be better able to provide close-air-support to ground forces as well as engage Syrian MIG fighter planes. Largely using tactics developed by the Weasels in Vietnam, as well as the greatly improved AGM-78 'Standard' anti-radiation missile and the purpose-built F-4G jet, the Israeli's soon made short work of the SAM sites. Without their protective SAM umbrella and with their radio communications jammed, Syrian MIGs flew aimlessly. In aviation terminology, MIG pilots had no 'situational awareness.' On the other hand, Israeli commanders had a complete picture of the air battle from E-2C Hawkeye aircraft. At exactly the right moment, flights of four F-15s and F-16s were vectored towards the Syrian aircraft. In short order, eight-two MIGs were shot down without the loss of a single F-15 or F-16.
Though the battle was between Israel and Syria, it had the full attention of the Soviet Union. Soviet military doctrine held that quantity could always trump quality. (In World War II, the Soviets likely produced at least 50,000 T-34 tanks. In contrast, Germany produced about 9,000 of its most widely produced tank, the Mark IV.) The Bekka Valley Air War as it came to be called, greatly unnerved Soviet military leadership. With the total destruction of the SAM batteries and MIG aircraft without the loss of any Israeli aircraft, the Soviets realized they faced a technological gap that could not be breached with numbers. It was this recognition, along with many others that were to follow, that led first to Mikhail Gorvachev's perestroika movement and, eventually, the total collapse of the Soviet Union.
So, the next time a Treasury Secretary says the 'best people' work on Wall Street or a Washington DC insider claims it makes perfect sense for enormous political power to be concentrated among a handful of Ivy League educated career politicians and their K-Street apparatchiks, think of these two photos.
September 27, 2020
Sugar Land, TX
PS - As always if you like what you read, please consider registering with the site. It just takes an e-mail address, and I don't share this e-mail address with anyone. The more people who register with the site, the better case I can make to a publisher to press on with publishing my book! Registering with the site will give you access to the entire Confederacy of Dunces list as well as the Financial Crisis timeline. Both of these are a treasure trove of information on the crisis and the long-running problems that led to it.
Help spread the word to anyone you know who might be interested in the site or my Twitter account. I can be found on Twitter @The92ers
1. Henry Paulson, On the Brink, Business Plus, New York, 2013, p. 256 (...In asking for this, we would be bailing out Wall Street."
2. On the Brink, p. 260 (I knew compensation was too high industry-wide, but I couldn't change that. We needed to be competitive if we were going to have the best people.")
3. "Former Merrill CEO Thain Resigns From B of A, msnbc.com News Services, January 23, 2009
4. Col. Edward T. Rock, USAF (Ret), First In, Last Out: Stories by the Wild Weasels, Author House, Bloomington, IN 2005, p. 233
5. The discussion here is not an endorsement of the invasion. At the time, President Reagan was concerned what an invasion could ultimately produce and asked Israel Prime Minister Menachem Begin to "do what you can to avoid military steps that could lead to a widening of the conflict and even greater casualties." (Letter Reagan to Begin, June 6, 1982 https://www.jewishvirtuallibrary.org/prime-minister-begin-exchange-of-letters-with-u-s-president-reagan-june-1982) Some evidence that Reagan's instincts were proved right is provided by Hezbollah. Hezbollah, probably Israel's most intractable present-day enemy, began in the immediate aftermath of the invasion.