Sunday, March 16, 2008

The Shell game they call Wall Street

“Banks and brokerages are a house of cards built on the confidence of clients, creditors and counterparties,” Mr. Trone said. “If you take chunks out of that confidence, things can go awry pretty quickly. It could happen to any one of the brokers.”
From: NY Times - Online Edition 3-16-2008

Indeed, investors are taking a grim view of the prospects for other investment banks like Lehman Brothers and Merrill Lynch. Managers of hedge funds and mutual funds say the problems at Bear confirmed their worst fears about the brokerages — that they have relied too much on leverage and have done a poor job managing the risks they took on during the boom.
From: NY Times - Online Edition 3-16-2008

All of a sudden the dirty little secrets Wall Street does not want their clients to know seem to be falling out of the closets, in an avalanche of epic proportions. The side bets, the hedging, the leverage and the deals, which just boarder on legal and legit, will all stack up as kindling for the fire that burns many and sadly part of that many will be those of us who play by the rules and are trying our best to build wealth, save for retirement since social security is going to be a total bust for us Gen Xers and hopefully put our kids through college.

Wall Street is the Vegas which likes to hide behind the air of refinement. It is gentrified. Deals are not done in dark poker rooms, but rather in boardrooms and five star restaurants and private clubs. While the rest of us slowly and over time listen to our brokers and mutual fund representatives and pace ourselves and save slowly and steadily for retirement and college funding - the big fish, the sharks of Wall Street - the guys who take home the serious six figures plus bonuses every year - they are greedy - they want the quick fix, the pay off.

I also would humbly submit that they need their fix. For them the money is important, I will not lie to you - they are motivated by money - but I think there is more to it. They have the money situation well in hand. Stan O'Neill rode Merrill Lynch to the top - he made some huge changes and was nearly at the top of the world - only to get greedy and sink his own ship by engaging in some very suspect business practices. Alas he is not alone. Not in the least. Even the good guys get caught in the same kind of trap. Elliot Spitzer, the famed litigator and now former governor of New York, got caught up in the vortex of unchecked power.

The kind of power that seems to make men drunk and then stupid. I am not judging Spitzer on his use of call girls or his being unfaithful to his wife. Both of those actions I think are a symptom of the problem. Nor am I particularly judging Stan O'Neill for being underhanded and trying to pull a fast one - although as a share holder I am a bit miffed! I am judging their addiction to the rush that the wheeling and dealing must bring. For them the fast ones - the "Big Deal" is their smack - they mainline it with a hunger that cannot be sated. As time goes on they need more and more Power to get the same HIGH!

I am highlighting their actions as a symptom of the problem afflicting so many people, men and women who hold power. At a certain point - enough is enough. Our society is seriously lacking in the HONOR department. Certain things are not done - because they are not right. When one holds large amounts of power there is the sister obligation of responsibility. HONORABLE men and women know how to balance the two.

It is wrong to flirt with financial ruin - as in the Bears Stern, just because there are deals to be made and you have a history of being able to pull a rabbit out of a hat. It was wrong of Stan O'Neill to go behind the back of the Board of Directors and seek to gain personally by doing so. It was wrong of Elliot Spitzer to be involved in illegal actives while on the other hand holding others to a higher standard.

We are a society driven by more and more and more. More and More and More. While on one hand it is good to be goal oriented and it is good to have the drive to be better - that charging drive must be checked with some compassion, some common sense and some HONOR. There should be consideration for the greater good. Are ALL stakeholders going to be well served by the deals in questions. Are the profits to be made real and sustainable? What is the down side? The real downside - not the downside, which gets discussed.

While living through the Enron disaster while working at Firm X - I had hoped that people would learn a real lesson - illegal and shady deals will bite you in the butt every time. Karma will take her due - and often in the worst possible way.

The problem is - it is the little guy who ends up paying the most.

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