Masters Series: The Ethos of 'Getting Yours'

Editor's note: We continue our "Masters Series" with a two-parter from Stansberry & Associates founder Porter Stansberry.

Our goal with the weekend Masters Series is to bring Digest readers the world's best insights on investments, economics, politics, and history. Recently, we've featured work from some of our friends in the investment and publishing industry. This week, we're taking a step back and sharing one of our own…

What you are about to read is one of the most important... and controversial... pieces Porter has ever written. Our feedback mailboxes were jammed for weeks after he first published it. We consider it an instant classic.

In the first of our two-part series – excerpted from the December 2011 Stansberry's Investment Advisory – Porter discusses the corruption and trickery in America's political system. It has reached unprecedented levels… with well-connected financiers making a fortune as U.S. taxpayers get hosed.

Porter considers this "the most outrageous example of graft and corruption" he's ever seen. We bet you weren't even aware it had happened…

The Ethos of 'Getting Yours'

By Porter Stansberry

Americans know, in their bones, that something terrible is happening.

Maybe you can't articulate it. Maybe you don't have the statistics to understand exactly what's going on. But my bet is, you think about it a lot.

For me, a poignant moment of recognition came this month.

Bloomberg news published an article based on confidential sources about how Henry Paulson – the former CEO of Goldman Sachs and the Republican U.S. Treasury secretary during the financial crisis – held a secret meeting with the top 20 hedge-fund managers in New York City in late July 2008. This was about two weeks after he testified to Congress that Fannie Mae and Freddie Mac were "well capitalized."

I knew for a fact that what Paulson told Congress wasn't true. I wrote my entire June 2008 newsletter detailing exactly why Fannie and Freddie certainly had billions of dollars in losses that they had not yet revealed to investors – $500 billion in losses, at least. There was no question in my mind… both companies were insolvent – "zeros," as I explained.

And yet, in front of Congress, the U.S. Treasury Secretary was saying exactly the opposite. Either I was a liar... or he was.

Then... only a few days later... what did Paulson tell those hedge-fund managers?

He told them the same thing I had written in my newsletter. He told them the opposite of what he'd said publicly to Congress. He told these billionaire investors that Fannie and Freddie were a disaster... They would require an enormous, multibillion-dollar bailout... The U.S. government would have to take them over... And their shareholders would be completely wiped out.

Here you had a high-government official explicitly lying to Congress (and by extension, the general public), while giving the real facts to a group of people who represented the financial interests of the world's wealthiest folks. The story didn't come to the public's attention for two years.

This was the most outrageous example of graft and corruption I have ever seen. Certainly it involves more billions of dollars in misappropriated value than any other similar story I can recall. These managers had the risk-free ability to make tens – if not hundreds – of billions of dollars by using derivatives to capitalize on what they knew was the imminent collapse of the world's largest mortgage bank.

Who picked up the tab? You know perfectly well: It was you and me, the taxpayers.

(One of the investment managers present at this meeting was Steve Rattner, who by that point was already deeply involved in another bit of graft: his efforts to bribe New York state pension-fund managers for large investments into his hedge fund… from which he earned perhaps as much as $100 million. He later settled the charges for a mere $10 million shortly after Andrew Cuomo was elected governor of New York.)

The Bloomberg story about a crooked Treasury secretary handing a room full of crooked billionaires inside information worth billions of dollars hardly caused a ripple. As far as I know, no actions are being planned against Henry Paulson or any of the hedge-fund managers involved. No other major media outlet picked up the story. I saw nothing about it from the Department of Justice or the Securities and Exchange Commission.

What does that say about our country when even the most egregious kind of corruption – involving hundreds of billions of dollars – is simply ignored?

It seems like everyone in our country has lost his moral bearing, from the highest government officials and senior corporate leaders all the way down to schoolteachers and local community leaders. The ethos of my fellow Americans seems to have changed from one of personal integrity and responsibility to "getting yours" – the all-out attempt, by any means possible, to get the most amount of benefits with the least amount of work.

You can see this in everything from the lowering of school standards (revising the SAT) to the widespread use of performance-enhancing drugs in professional, college, and high school sports. Cheating has become a way of life in America.

Editor's note: Something has gone wrong with America. Something that's critical to our national prosperity... something that jeopardizes the future for our children and ourselves. Something that threatens both the financial order (like the stock market) and the political order… Learn more about it – including a solution most Americans refuse to even consider – here.