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Alice in Numberland

There are days when the downturn feels curiously like we’re Alice in Wonderland, falling down the rabbit hole, with numbers swirling dizzyingly about.

From the largest Ponzi scheme ever, to taxpayer bailouts of countless irresponsible companies, to mind-boggling bank losses, to ludicrous bonuses paid to undeserving executives, we are barraged by figure after staggering figure. What’s more, there is no end in sight to this numerical syndrome. Luckily, you don’t have to be an accountant to tally the numbers–the Mad Hatter would probably be more fitting–simply because they aren’t meant to be added up.

Let’s start with one of the worst, but certainly not the biggest, numbers of all.  Bernie Madoff “made off” with $65 billion–that’s $10 billion more than the entire GDP of Iraq and 5 times the GDP of  now bankrupt Iceland. Even the Ponzi’s early 20th century namesake, Charles Ponzi, only bilked $15 million from his investors. If there were a ‘Lifestyles of the No Longer Rich but Now Infamous’, Madoff would surely be its poster-child.

Post Madoff, the chips have continued to fall, and the numbers have continued to grow, as other elaborate swindles are exposed. Investors in Agape World of Long Island stand to lose $370 million. Then there’s the $8 billion Ponzi scheme allegedly run by Houston billionaire R. Allen Stanford–mere pennies compared to Madoff’s fraud.

.......................................................... WSJ's Simon Constable wonders, What's a TRILLION?

The figures are often so huge, they begin to take on mythical proportions. The original bank rescue package, the so-called Troubled Asset Relief Program, was billed at almost $1 trillion. That looked like a pretty gigantic number, so much so that Congress had to fight over it, for days. It did not include the trillions of dollars being pumped into the system by the Fed, the FDIC and the Treasury.  The “real” bailout cost being thrown around is approaching $10 trillion.

But who’s counting? Just last week the Fed announced plans to buy another trillion in debt and securities from the marketplace. On Monday, the Treasury Department announced its long-awaited $1 trillion plan to partner with private investors and buy toxic assets from the crippled banks.  Trillion, the magic number.

It is hardly surprising, with all these magical trillions, that this humungous bailout is unprecedented in our history. The nearest parallel, the Reconstruction Finance Corporation (RFC), formed by the government in 1932, doled out a paltry $1.3 billion (equivalent to $200 billion today) in loans and capital to banks. And this was during the Great Depression. The good news is that most of that money was repaid. Today, with the financial system teetering and the bailout bills mounting, we can only hope to be so…fortunate.

Not only is there an abundance of numbers to keep us busy in this recession, these numbers have a peculiar characteristic. Call it “numbers creep.” It’s a bit like “war creep” in Vietnam, only here we’re given a number which is later replaced by a much larger number. What’s creepy about it is that we feel sullied by the number, like we’ve been duped. We’re not convinced that the new, bigger, number is the right way to go.

Take AIG, our favorite corporate enemy du jour. AIG has been pledged $170 billion in government aid so far. Remember when the initial estimate seemed astonishingly high at $65 billion? That $170 billion presumably includes the $165 million of  what beleaguered AIG chief Edward Liddy termed “distasteful” retention bonuses paid out over the weekend of March 14 to employees in the financial products division. The total of the unsavory bonuses though is an even more unsettling $220 million–and so the numbers creep. Ironically, Liddy is only getting paid $1 a year.

But that’s only the latest compensation scandal in this numbers-obsessed recession. A few months ago there was an uproar over Merrill Lynch former CEO John Thain’s purported request for a $10 million bonus. Apparently Thain felt he actually deserved $10 million for driving Merrill, on its knees, into the arms of Bank of America. Less than a month later Merrill announced an astounding record quarterly loss of $10 billion. But the pretext for giving Thain the boot was not the offensive multimillion bonus number, or even the more offensive quarterly loss number. Instead it was Thain’s outrageously extravagant office renovation that forced his resignation. That’s right, in the throes of Merrill’s woes, Thain deemed it appropriate to spend over $1 million redecorating the corner suite, replete with an $87,000 rug and a $1,400 waste basket.

It’s not just the massive numbers that have become a hallmark of this recession. On the other end of the numbers spectrum, Citibank, AIG, Fannie Mae, Freddie Mac and others have been virtually reduced to penny stocks. The puny numbers can be as disturbing as the oversized ones, signifying as they do that our one-time beacons of corporate America are basically worthless. Were it not for the New York Stock Exchange relaxing its listing rules in February to accommodate this stark reality, Citi would have been de-listed when it “broke the buck” on March 5th, trading for the first time in its 197-year existence below $1. This twist of  numerical fate was not lost on the late night talk show hosts, for whom Citi became the butt of many $1 jokes.

So we spiral down this numbers-riddled hole, wondering, like Alice, what looms ahead. We are startled by worsening unemployment, last at 8.1 percent. We are heartened when stocks rise, as they have over the past several trading sessions. Because, in addition to feeding on all the other outlandish figures, we have become avid stock watchers, scrupulously recording the daily ups and downs of the markets. Whatever happens, whether this recession deepens or abates, however many trillions of dollars in federal aid are dispensed, whichever mighty corporate titans survive or fall, we will be riveted–by Numberland.

Tags: Alice in Wonderland, bailout, business, economy, Great Depression, TARP, Wall Street