Wednesday, June 15, 2011

An Inside Job - A look at how broken Wall Street is...

H picked this movie and we watched it Sunday night. If you follow my Twitter Stream, you likely know I was pretty fired up. For those of you new to the blog, I worked for Merrill Lynch. I held a series 7 license (which is issued by the NASD - a self regulatory body) and I now have an MBA.

I have been critical of Wall Street and US corporate practices for years. Even though I used to read the Wall Street Journal and Barron's cover to cover, I had no idea, until I watched this movie, that many of the key players and architects of the 2008 Wall Street Meltdown, are now serving in President Obama's cabinet or on various economic counsels. They aren't in jail, which is where they should be, they are now, currently making money, writing rules or more correctly prohibiting rules from being written, which could realistically prohibit this kind of criminal conduct from happening again.

I remember listening to this interview with Obama during the blooming crisis and thinking, yes that is what we need. Finally, someone who is going to limit the fox guarding the hen house practices. I was wrong. He did nothing, actually he did worse than nothing, not only has our President not pushed for targeted reform, he has put in positions of power some of the key players, who either should have done more to prevent this implosion or who were active participants in the implosion, those who profited from the implosion, into key power posts.

Furthermore - one of the reasons this should be unacceptable to all of us, is WALL STREET is a rigged game. I will tell you how Lehman and Merrill and AIG, ended up with investment grade credit ratings of AAA and A2, it is because it is a secret society based on the you scratch my back, I will scratch your back. The regulators are FRIENDS with the heads of these investment banks, as the film points out, the cycle of regulator, to BIG NAME BANK POWER BROOKER, to BUSINESS SCHOOL PROF is a vicious cycle, throw in board member or two and you have profitable cycle for these clowns.

Just as the narrator in this clip points out, it was not true that the regulators were aware of this mess, they weren't aware because they weren't looking. They trusted their friendships and likely were grooming those friends for future personal gains, like jobs and board appointments when their stint as a public servant was complete. What was good for the US tax payer and investor was the last thing on their minds.

Now I am sure you are all wondering - what is a CDO or a CDS and why is Susan all upset that they were being rated AAA and why is this such a big deal.

I will tell you, or more correctly I will let this movie clip sum it up for you...

I used to work with some debt and here is the deal AAA is the best rating, CREDIT RATING (think credit score) a company or in the debt world - Issuer can get. Government securities are AAA. Investment grade paper is in the A ranges. Anything less than that and it gets riskier. Anything much less than a B, and it is junk... Not as in no one should buy it, but junk as in, it is low rated paper, HIGH SPECULATIVE. You might get rich with junk bonds, but you might also lose the entire investment. Junk Bonds are not for pension funds or little old ladies. Junk Bonds are alot like the roulette table in Vegas.

These credit swaps - were less than junk. They are crap. As the clip points out - the underlying mortgages were high risk mortgages, made to people, who were likely not going to be able to make the payments and with no equity in the house, it was like renting and they would just walk away. This is what happened. This is not a AAA rated recipe for investment success.

The entire movie made me hopping mad, but I honestly think this is one part that really made me crazy.

Credit ratings are NOT just OPINIONS. They are a basis for entire system of investment. They define what is salable to certain segments of the investing public. More than once I or one of my colleagues got called on the carpet for selling someone a bond, with a questionable credit rating, based on some industry agreed upon conventions. I mean in the manager's office, defending my choice. Once, the sale was voided and the lose in price from day one to day two came out of my paycheck. I have known brokers who have been fined or lose their jobs for selling customers securities, which were deemed unsuitable, based on credit ratings. They are not just opinions.

It is my opinion that these lying sacks of shit, should all be on a garbage barge in the North Atlantic. These Credit Swaps were a HUGE ponzi scheme and we threw Madoff in jail for life and in the grad scheme of things he was but a bank robber in a sea of what amounts to full on, systemic and planned fraud. Not one of the architects of this mass implosion, which was felt around the world, has gone to jail, gone to trial. Likely they are all still working on Wall Street in some capacity.

This is wrong. The feds took down Eliot Spitzer, I think, in part to shut him up. What he did was wrong, no doubt, but no different from what Wall Street power brokers have done for years. Is it really any surprise to anyone, that the defacto "red light distract" of NYC is so bloody close to Wall Street? The issue is Mr. Spitzer burned through his cache of power, while the Wall Street hot rods still hold all the power, up to and including the President of the United States of America.

Something must be done to prohibit regulators from moving into business schools, to corporate boards and high level investment bank positions, people who once held high level positions in investment houses have no business being regulators. It is a fraternity (with a few woman thrown in), with secret handshakes and armies of lawyers, who do not have the public's good at heart, they want to enrich themselves.

And we the tax payers - gave them more money to play with...

No comments: