Lessons in Debt from the Wolf of Wall Street

Jordan Belfort – the Wolf of Wall Street – managed to cram a lifetime of experiences into a very short period.

Rags to riches. Freedom to incarceration. Sobriety to drug dependency. Naïve salesman to master conman. Morality to immorality. You name it and Belfort probably experienced it in the heady period of his life.

The lessons to be learnt from Belfort’s life of excess are many. In my opinion they are a reflection of the world we find ourselves in today.

  1. Rags to Riches – Until you travel to a third world country it is difficult to appreciate how truly fortunate we, in the Western world, really are. The West’s ‘rags to riches’ story began over 200 years ago – see chart below from JP Morgan.

click to enlarge

After the Second World War, the momentum behind the economies of the Western world (US, Europe, Japan and Australia) went into overdrive. The West enjoyed a lifestyle (courtesy of the industrial revolution, the ‘sheep’s back’ and access to cheap oil) that was the envy of billions of impoverished people.

The ordinary person observing Belfort’s life of privilege most likely also envied his apparent success.

With the benefit of graphic hindsight we know Belfort’s lifestyle was funded by OPM (other people’s money).

Applying the same retrospection, the graphs of debt clearly tell us that since 1980 the Western world’s envied lifestyle has been progressively financed by greater amounts of OPM. Private and public debt levels have risen to highs way beyond those reached prior to The Great Depression.

The seeds of success sown by the post-Second World War productivity were long ago replaced by choking vines of financial creativity.

Artificial wealth creation via rampant debt-funded consumption of cheap imports now constitutes the Western world’s concept of a higher standard of living.

This distorted view of ‘riches’ is what central bankers and politicians are so desperately trying to ‘recover’ to.

Imagine the outcry if Belfort tried to ‘recover’ his previous life of ‘riches’.

  1. Freedom to Incarceration – The world I grew up in was fairly straightforward. You saved up to buy ‘things’. To be eligible to purchase a house you disciplined yourself to accumulate a 20% deposit. There was a sense of control and freedom in this straightforward approach to handling your finances.

The current level of personal debts (mortgages, credit cards, HECS, consumer lines of credit) has turned individuals into captives of the financial system. Many households are only a payday or two away from insolvency.

The following chart from the Australian Financial Services Authority shows, over the past decade, the increasing level of Debt Agreements entered into by Australians.

chart showing the increasing level of Debt Agreements entered into by Australians
click to enlarge

The debt dependent economic model the West has created as its growth model, has committed far too many households to a life sentence of debt servicing. The tougher economic times that I fear are lying in wait for us are destined to tighten the chains of debt captivity in the private sector.

  1. Sobriety to Drug Dependency – The post-Second World War economy, under the stewardship of the frugal Great Depression generation, grew steadily on the back of genuine productivity and demand. The financial sector was a facilitator of deposits and prudent lending.

From 1980 onwards, the global economy (under the influence of the Baby Boom generation) became increasingly more dependent on debt – the steroid of choice for economic growth. The financial sector – the debt pusher – has grown to such an extent they have earned the moniker of ‘too big to fail’.

The system is now so hooked on debt the US Federal Reserve is injecting $75 billion each month into the system to keep it upright.

The temperance of the Depression era generation is but a distant memory.

  1. Naive Salesman to Master Conman – Bankers were once the pillars of conservatism in society. They were inherently cautious and prudent. Bankers were among the most trusted professions in society. By today’s Wall Street standards the bank manager of yesteryear would be considered a relic and figure of ridicule.

Today’s central bankers are the master (or mistress) of double speak and delusion by illusion. Greenspan, Bernanke, Draghi, Yellen et al choose to ignore the devastation cause by their incompetence – housing bubble, what housing bubble? Subprime contained, you bet. QE to infinity creating a share bubble? No can’t see that.

This cohort of academic incompetents uses the power of their offices to continually mask the reality of the situation. The fact their utterances are taken so seriously is an indication of their ability as master confidence tricksters.

When the share market suddenly decides enough is enough on the post-GFC fraudulent economic recovery, the credibility of the central banker conman will be shot to bits.

Sadly, like the victims of Belfort’s deception, it will be too little and too late to recover from the devastating financial losses.

  1. Morality to Immorality – The gradual creation of wholesale welfare dependency by successive power seeking governments has been a gross act of immorality.  The plethora of welfare payments has only been made possible due to higher tax revenues from GDP growth (achieved by ever-increasing levels of private debt).

Family payments; disability support pensions; sickness allowances; child care benefit; paid parental leave; unemployment benefits; age pensions etc. etc. etc.

All the above welfare options and more have been dangled as vote chasers over the decades. Abuse and dependency become bedfellows of an overly generous welfare system. Once established these taxpayer funded handouts become an entitlement rather than a privilege.

Personally, I find it immoral that politicians (of all stripes) eager to prolong their taxpayer funded careers, indenture future generations with obligations that condemn them to a life of servitude financing the lifestyle of the preceding generation(s).

With the economic growth engine spluttering, tax revenues are falling. Hopefully this trend continues and forces the current generation to take ownership of the far too generous welfare issue. Taking responsibility for our decades of indulgence would be a step in the right direction to minimise the tax liability of future generations.

Everybody, sooner or later, sits down to a banquet of consequences‘ – Robert Louis Stevenson

Belfort certainly learnt this lesson. After a decade of indulgence, Belfort hit the reset button on his life – he sobered up, spent time in prison and now lives a far less hedonistic lifestyle as a motivational speaker.

The bond or share market has its finger poised to hit the reset button on the Western world’s economic model of indulgence and debt dependency.

Sooner or later (and my guess is sooner) either or both of these markets are going to implode. When they do, our lifestyles and expectations will, like Belfort’s life, become much more modest.


Vern Gowdie+
for The Markets and Money Australia

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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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