Summer 2004
By 2004, the bursting of the dotcom bubble was a distant memory. Back in 2001, over $5 trillion in hypothetical market value had been destroyed, and yet, sentiments seemed to already be fully recovered from that devastation. The underlying problems with the economy were never identified and the mantra remained—“In Alan Greenspan we trust.” He responded to the audience like a good performer and proceeded to talk down interest rates by almost a quarter over the course of a year. It successfully sent stocks on a tear from their October 2002 lows.
The academics did a bang up job of explaining the turnaround. They claimed lower interest rates allowed more people to borrow money to buy things, which would lead to companies making more things and then in turn hiring more people to make those things. The increased hiring would boost wages and allow those consumers to pay off the debts they incurred by doing their economic duty. Thus, the virtuous cycle of consumer spending was supposed to bring the economy back to the nebulous, “potential” level of GDP growth. Though it was not immediately obvious how the real economy could be “fixed” through what basically amounted to interest rate manipulation, the Dow Jones seemed to confirm the academics’ theories. I was more than happy to leave what was good for the economy to the experts in their ivory towers. When you’re busy reaping the coincident rewards of having significant savings to invest for the first time, in the middle of a secular bull market, it’s not hard to look the other way.
I had accrued those savings by completing an internship at a Big 4 Consulting firm during the summer. The company had recently separated from the audit side of the business due to Sarbanes-Oxley and rebranded after the Enron scandal (the one where the auditing team helped the energy giant conceal unprofitable operations and evidence of financial fraud in order to secure lucrative contracts for the consulting arm of the firm). I took the offer because I dreamt of a jet-setting lifestyle and meetings with Fortune 500 executives, but instead I met the reality of expense report Tuesdays, obsessive airline mile accounting and goal-seeking project deliverables. In case you haven’t heard of the term before, goal-seeking is the practice of accepting a certain conclusion and massaging the data to fit it. Consulting was my first exposure to a phenomenon that now seems universal in a world obsessed with precisely measuring the immeasurable. Things like the size of the economy, the number of unemployed, and the amount of price inflation, measured from millions of data points, down to the decimal point. Think about it, when you measure a number in the trillions and say that it increased by two percent, you’re within the statistical margin of error. You might as well have said nothing at all. But that’s neither here nor there.
The mandate of the project to which I was assigned, was to determine whether the Chicago-based insurer that hired us needed to purchase new software to manage their policies. We already knew, of course, that the answer was a resounding yes. Managers at the insurance company needed evidence to present to the board which supported their desire for a shiny new toy. Plus, the recently hired CIO wanted to leave his mark and it was the only software he had implemented before, so the recommendation was a no-brainer. The underlying politics became apparent within a few weeks, so I asked my Senior Manager:
“Rob, what’s the point of all this? They’ve already gone through the whole proof of concept for this software and invested millions in preparing their infrastructure for it. Why do they need us when they’ve already decided what to do?”
Rob was an affable fellow, and I realized very early on from my fellow interns’ stories how fortunate I was to have him as my project lead. He was round, balding and wore only Brooks Brothers iron-free shirts, like many consultants who had adapted to life on the road. He looked 50 even though he wasn’t a day over 35. Rob seemed to sincerely enjoy my naïve questions, and felt his humorous honesty would endear me to the career path he had chosen for himself.
“Son, this is a service industry. The service we provide is the absolution of responsibility, kind of like the insurance company itself. When a management team wants to be one or two degrees separated from the consequences of their decisions, they bring us in. That way if the project fails, the blame goes to the consultants, not the decision makers.”
Content with the answer, I let the issue go. We made some final revisions to our nifty graphics and wrapped up the day to grab a taxi to Gibsons on Rush Street. Rob walked down the bar and ordered us a couple bourbons. I was eager to please so I pretended to enjoy the whiskey without any ice or chaser.
“If only the shareholders knew they were funding our extravagant lifestyle just so a bunch of pussy executives could have job security.”
Rob took a long sip from his whiskey, actually enjoying it, then replied, “Hey, better shareholders than taxpayers. I’ve been on State and Federal projects and it’s no different. Well, they’re even more lax with the expenses, but the core philosophy is the same. At least shareholders have a choice, taxpayers… not so much.”
“Amen to that,” I said as we finished our drinks. I tried to conceal the pained look on my face.
Near the end of my internship, I received an offer to continue full-time after graduation. I had developed a camaraderie with Rob, so I was honest when he asked if I planned to accept.
“Rob, I learned a lot here, and working with you has been great, but I don’t think I will. I chose International Relations because I want to help people, contribute to society in a positive way. I’ve been working on an application to a World Bank fellowship and if that doesn’t work out I think I’ll go on to get a Master’s. I just think institutions like the IMF and World Bank will bring my interest in finance and economics together with my desire to make a contribution. So many of the world’s problems can be solved economically, you know?”
He smiled in a way that simultaneously appreciated my sincerity and mocked my naiveté. It would be a smile I wore often in the years ahead.
“Of course. You’ve gotta make your own choices in life cause you’re the only one who has to live with ‘em. But do me a favor, think it over, you don’t have to give an answer to human capital until November.”
A couple weeks later, the project was over, with predictable conclusions and a beautiful presentation to back them up. My final day on-site, Rob handed me a package wrapped neatly in recycled brown paper.
That Rob really was a sly bastard. Instead of arguing with me about my future plans, he presented me with a book that would dramatically alter the trajectory of my life. That book was Confessions of an Economic Hitman. The premise of Confessions is that the sponsors of organizations like the IMF and World Bank, primarily Western nations, gain a foothold in developing countries by giving loans to poor governments, so provincial politicians can pursue their ambitious infrastructure projects. The contracts for the projects naturally go to companies like Halliburton and Bechtel, which brings the loaned money right back into western coffers, while saddling the host country with a pile of debt. When the debt inevitably becomes unserviceable, the coalition of lender nations gain influence over the fiscal and monetary policy of the developing nation, opening it up to Western corporate interests with forced privatizations and the sale of national assets. Over the course of the book, Perkins describes his involvement in perpetuating this insidious sort of imperialism, one that eschews traditional armies in favor of bureaucrats, accountants and financiers, in Panama, Colombia, Ecuador, Iran and more.
Obviously the chapter on Colombia stood out to me. There, John’s employer Chas. T. Main, Inc (MAIN) tasked him with drafting financial documents that would justify “exceedingly large loans” to the government since MAIN had already been awarded contracts to build hydroelectric facilities and electrical distribution systems in the country. The hydroelectric dam would provide thousands with electricity but it would also flood the lands worked by the Indians and mestizos. Given the political situation at the time, they were left with no option but to organize guerillas to fight back. John would go on to meet a local in Baranquilla who expressed her sympathies for the rebels, much like Isabella had to me. She justified their training by Russians, saying “they [needed] to learn about modern weapons and how to fight the soldiers who’ve gone through [American military] schools.” She was referring to mercenaries the Western organizations hired to protect their foreign investments. It was here that John had his own crisis of confidence, and the parallels struck me deeply.
Reading that book at that particular juncture was one of those moments you reflect on later in life, when you’re awed by the infinite string of coincidences that conspired to get you to where you are. I finished the book and it left me disheartened. It was only back at home, when my mother asked me what I planned to do with my savings that I snapped out of my funk. Figuring out what to do with the money gave me a new problem to solve and I began researching investment options with a voracious appetite. It was but the start of my torrid love affair with money.