Last week, I wrote this post about the ARS settlement reached by Merrill Lynch, Citigroup and UBS.
In that piece, I wrote,
"Buyers of financial service products, especially 'structured' products, should know the intrinsic value and risks of such products on their own. They should not simply trust an institutional salesperson to tell the the truth- the whole truth.
Buyers of ARSs were defrauded- this is clear. They were lied to regarding how liquid the instruments would be, and that the added yield over money market instruments was somehow riskless.
But, really, in the end, should they not have known enough to ask questions? Like,
"But, how can they have a higher yield with no added risk? Surely, there must be something about them that is riskier? What is it?"
When you read about retail customers losing millions of dollars in these ARS investments, don't you wonder how they could be sufficiently intelligent to amass that much money, only to be so easily hoodwinked by some financial schlockmeister spinning tales to separate them from their hard-earned money?"
Thus, yesterday's Wall Street Journal article concerning Goldman Sachs' refusal to repurchase ARS securities sold to their clients is an exception to the recent trend among banks which sold this toxic dreck.
According to the Journal article,
"Wealthy clients, institutions and corporations have been largely left out of those pacts."
And, knowing Goldman's clientele to be much more high-end than the other banks, I can understand their reticence to reimburse sophisticated investors- especially institutional ones.
The Journal article exemplifies a former INtel and Dell senior executive, one Carl Everett, as having become disillusioned with Goldman's failure to rescue his position in ARSs. The piece doesn't mention his net worth, nor the face value of his ARSs. One somehow suspects that they would qualify Mr. Everett as a 'sophisticated' investor.
Which brings me to a hilarious companion piece in the same WSJ edition.
It seems that James B. Stewart, a regular investment columnist who writes "Common Sense," lost his. He spent yesterday's column bitching about his lack of satisfaction as a 'victim' of the ARS mess.
Stewart alleges,
"It's not like we were clamoring to buy these securities. Like other victims I've heard from, I got a call urging me to take advantage of an offer that was being extended to valuable clients."
For more on this, see my prior, linked post, for my story of the early days of CMOs and their buyers.
But, back to Mr. Stewart. For someone so lofty as to write a column in the WSJ on investing, wouldn't you think he would know better than to offer an excuse like the above for purchasing ARS notes? Really- something for nothing, James?
Free extra returns, just for 'valuable clients?'
I have to laugh, because I've never bought any structured finance instrument in my life. The market-making assurances on these instruments are simply not to be believed.
Anyone with any experience in securities markets would know this.
Should James B. Stewart even be writing a weekly investing column for the WSJ, if he was taken in by such a simple ruse as the ARS game, and went for the old 'something for nothing' con?
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