Friday, September 26, 2008

The Most Outrageous Myth...

Yesterday I wrote this post about what I consider to be some of the significant myths surrounding the current US financial services sector debacle.

Since I published that post, I heard one more myth I feel it is important to expose and refute. The exact language was uttered by the Democratic junior windbag (Senator) from Ohio.

Herewith is my additional myth...

Myth #6: "Wall Street" let us down and broke the public trust. Doesn't "Wall Street" owe the American people an apology (and that pretty much IS a direct quote from this windbag) for creating this mess by being greedy?"

No, it absolutely does not. The lesser-regulated, free-wheeling world of investment banking, hedge funds and private equity are all a recognized equivalent of the Wild West, financial style.

It's buyer beware, pure and simple. For every seller of a toxic, mortgage-backed CDO or dubious swap, there is a willing buyer who thinks s/he is getting the better of the exchange.

Nobody who owns a CDO or credit default swap was forced, at gunpoint, to buy it. Nobody kidnapped the buyer's children and held them for ransom until s/he bought the toxic financial stuff.

No, each party felt they were getting a better deal than their counterparty. There is nothing to apologize for. Shareholders knew, or should have known the type of firm in which they were investing. That goes for union pension funds, too.

Simply put, to the rube Ohio windbag, there IS no trust on Wall Street. That's why exchanges require collateral, as do swaps deals. You only have what you can grab from escrow.

This is how we have built our non-commercial bank financial sector. We want innovation and efficiency. To get that, we have to allow what is basically a free-for-all, free-fire zone of finance. Trading in instruments, securitizing, buying and selling said securitized fixed income instruments, is for professionals.

Any professional at an investment bank, asset management firm, investment committee of a trust or pension fund who says they got taken, didn't understand the risks, or otherwise ducks responsibility, is lying.

Where, I ask are all the originators or buyers of CDOs and swaps at Merrill Lynch, Lehman, Bear Stearns, Morgan Stanley, Goldman Sachs, Wachovia, Citigroup and BofA? At all the various asset management firms or hedge funds which bought the same instruments?

As I wrote here recently, your first mistake, Mr. Brown, is to associate the word "trust" with securities origination, sales or trading.

So, no, do not expect any apologies from anyone working on "Wall Street" for what has happened. They were all just doing their jobs. Some did them better, and some did them worse, than others. Mostly, a lot of risk managers did lousy jobs. Now, many of them don't have those jobs anymore.

As to the first causes of this mess, Windbag Brown, as I wrote here and here, look to Bill Clinton and Bob Rubin, and to your own House....errr....Senate......for demolishing Glass-Steagall and explicitly turning a blind eye to Fannie's and Freddie's practices and growth, while taking their campaign fund cash.

Will you or any of your colleagues apologize to the rest of us Americans for what you did in this mess, Senator Brown?

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