The lead staff editorial in Thursday's Wall Street Journal provides a nice overview of what's wrong with federal regulation of the banking and securities sector.
The piece details how, once Jon Corzine became CEO of MF Global, the Fed reconsidered and reversed its earlier decision to deny the firm its request to become a primary dealer.
The Journal notes that MF Global had posted six losses in the past seven quarters, but drew no extra regulatory scrutiny. It was more than halfway through that period when the Fed granted MF Global its primary dealer status.
What the editorial explains, correctly, I believe, is that it's not quite correct to simply say that Dodd-Frank and the overall federal regulatory scheme worked, because MF Global failed without larger consequences or incidence. But the apparent misuse of customer funds, and outsized position risks taken by the firm, were completely overlooked by regulators.
Isn't that what the system is supposed to prevent? The actual illegal and overly risky types of actions which MF Global is suspected to have taken?
Gensler recused himself from the case, which tells you how much this is all about crony capitalism, which the Journal contends. Either Gensler shouldn't have had to recuse himself, or he should have admitted the cronyism back when Corzine took the helm of MF Global.
It's tempting to write off the MF Global collapse as a one-off, smallish, successful proof of Dodd-Frank. But, in reality, it's proof that our federal financial system regulations don't seem to have clear-cut objectives, or, quite likely, if they do, are not capable of actually implementing them and protecting anyone or anything- not customers, shareholders or the larger US financial system.
Showing posts with label Brokers. Show all posts
Showing posts with label Brokers. Show all posts
Monday, December 05, 2011
Wednesday, September 10, 2008
On Auction Rate Securities & Brokerages
I have written five pieces on the subject of auction rate securities, the latest one found here, less than a month ago. In it, I related the humorous and shocking revelation by James Stewart, a financial advice columnist for the Wall Street Journal, that he, too, was a victim of these instruments. In my post, I wrote,
"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."
Now, in an article from the weekend edition of the WSJ, we learn just how misguided and gullible Stewart really was for believing the 'valued customer' hokum.
Here are some of the choicer passages from the Journal's recent piece,
"For years, financial advisers promoted auction-rate securities to clients, friends and even family. Now, in the latest twist of the roiled credit markets, some brokers are siding with customers who allege that the securities weren't as billed. They were widely pitched as higher-yielding alternatives to easily bought-and-sold, super-safe money-market mutual funds -- but investors like Mr. Pellizzetti have been trapped in them since February, unable to cash out at full value after the market for auction-rate securities collapsed.
The auction-market crisis appears to be slowly working itself out. In recent weeks, most of Wall Street's biggest brokerage firms, including UBS, have agreed to buy back more than $40 billion of auction-rate securities from their clients, including individuals, charities and small businesses. Some have reached pacts with state and federal authorities to resolve probes into their sales, while other investigations continue. The pacts may help investors like Mr. Pellizzetti get their money back.
In the wake of all this, a behind-the-scenes debate is unfolding about the role played by brokers. Even as the auction market burgeoned to $330 billion in recent years, many brokers knew little about its inner workings, according to regulatory documents, lawsuits and interviews with brokers and their clients. Does that make financial advisers victims, too, if they reasonably relied on their firms' descriptions of the products, however thin they were? Or are securities brokers obligated to learn as much as they can about any investment they pitch, ensuring they themselves fully understand what they are selling?
Tamar Frankel, a professor at Boston University School of Law, says brokers' legal liability is a bit of a gray area, but her opinion is that a broker is obligated to learn about what he sells. "If he sells poison, he's got to know."
In interviews conducted by Massachusetts regulators and included in the state's complaint against UBS, a UBS financial adviser, Leonard Burd, acknowledged receiving no training on the securities other than marketing materials posted on UBS's intranet, and said he didn't read those materials or know of any risks before UBS pulled out of the market in February.
"All I knew" was that the auctions "worked in my career for 10 years seamlessly, and I had no understanding as to the backdrops of it at all," said Mr. Burd in the interview. Reached by phone, he said attorneys didn't want him to speak to the media.
"According to Mr. Pellizzetti's son, internal UBS sales meetings described any chance of auction failure as 'remote & temporary' explaining that at worst any illiquidity would be resolved" in the very next auction for that security, the claim alleges. After his son left UBS, Mr. Pellizzetti continued to purchase the securities through another UBS broker, the claim says.
One factor in financial advisers' willingness to promote the securities may have been the richer commissions they brought. At UBS, for instance, financial advisers received a portion of the 0.25% reward received by their firms for managing the securities, while no commission was available for putting the same investors in UBS's standard money-market fund, according to the Massachusetts complaint.
UBS denies that its advisers had an incentive to put clients into auction-rate securities.
Some brokers apparently did dig deeply enough to figure out that the securities were problematic. The Massachusetts complaint against UBS cites Jan. 10 emails from Sarah M. Sullivan, a financial adviser in Boston, to a senior manager explaining her reluctance to pitch the securities to clients who wanted alternatives to low-yielding money-market funds.
She had just listened to a conference call by UBS auction-market specialists aimed at boosting sales of the securities, according to the complaint. "We continue to be frustrated by the lack of information that they are providing to us," she wrote. She said she would be particularly concerned about putting any client into the securities just ahead of the April 15 tax-filing deadline. "If there is a failed auction, the client may not be able to access the funds. The bottom line is that rather than moving more cash into [the securities] we will probably be liquidating them for many clients."
She concluded: "Given the strange and difficult environment, it is imperative that we are fully aware of the risk we are taking. We do not want to imperil any relationships over something as 'simple' as their cash investments."
A follow-up email from the senior manager instructed a colleague to "get one of your people on the phone with Sarah ASAP so we can provide the appropriate color." The complaint doesn't detail Ms. Sullivan's subsequent actions. A spokesman for Mr. Galvin, the Massachusetts' regulator, said the state wouldn't comment beyond what is in the filings. UBS declined to elaborate or make Ms. Sullivan available for an interview."
My reason for presenting these extended passages is to refute some truths implied by the WSJ's financial columnist, James B. Stewart.
To wit, I contend that, in reality, you should believe that your broker is NOT:
a) well-informed and educated about what s/he is peddling to you.
b) truly interested in your economic welfare first, before their own.
c) unmotivated by commissions on what they sell you.
When you hear the phrase 'valued client' from a broker, run, do not walk, the other way. Hang up the phone, close and delete the email.
From the Journal's extensive article on the UBS case involving auction rate securities, we see that many brokers simply have no idea of the nature and behavior of many financial instruments which they sell to clients, once those instruments go beyond basic equities, debt and simple money market accounts.
Investor beware.
"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."
Now, in an article from the weekend edition of the WSJ, we learn just how misguided and gullible Stewart really was for believing the 'valued customer' hokum.
Here are some of the choicer passages from the Journal's recent piece,
"For years, financial advisers promoted auction-rate securities to clients, friends and even family. Now, in the latest twist of the roiled credit markets, some brokers are siding with customers who allege that the securities weren't as billed. They were widely pitched as higher-yielding alternatives to easily bought-and-sold, super-safe money-market mutual funds -- but investors like Mr. Pellizzetti have been trapped in them since February, unable to cash out at full value after the market for auction-rate securities collapsed.
The auction-market crisis appears to be slowly working itself out. In recent weeks, most of Wall Street's biggest brokerage firms, including UBS, have agreed to buy back more than $40 billion of auction-rate securities from their clients, including individuals, charities and small businesses. Some have reached pacts with state and federal authorities to resolve probes into their sales, while other investigations continue. The pacts may help investors like Mr. Pellizzetti get their money back.
In the wake of all this, a behind-the-scenes debate is unfolding about the role played by brokers. Even as the auction market burgeoned to $330 billion in recent years, many brokers knew little about its inner workings, according to regulatory documents, lawsuits and interviews with brokers and their clients. Does that make financial advisers victims, too, if they reasonably relied on their firms' descriptions of the products, however thin they were? Or are securities brokers obligated to learn as much as they can about any investment they pitch, ensuring they themselves fully understand what they are selling?
Tamar Frankel, a professor at Boston University School of Law, says brokers' legal liability is a bit of a gray area, but her opinion is that a broker is obligated to learn about what he sells. "If he sells poison, he's got to know."
In interviews conducted by Massachusetts regulators and included in the state's complaint against UBS, a UBS financial adviser, Leonard Burd, acknowledged receiving no training on the securities other than marketing materials posted on UBS's intranet, and said he didn't read those materials or know of any risks before UBS pulled out of the market in February.
"All I knew" was that the auctions "worked in my career for 10 years seamlessly, and I had no understanding as to the backdrops of it at all," said Mr. Burd in the interview. Reached by phone, he said attorneys didn't want him to speak to the media.
"According to Mr. Pellizzetti's son, internal UBS sales meetings described any chance of auction failure as 'remote & temporary' explaining that at worst any illiquidity would be resolved" in the very next auction for that security, the claim alleges. After his son left UBS, Mr. Pellizzetti continued to purchase the securities through another UBS broker, the claim says.
One factor in financial advisers' willingness to promote the securities may have been the richer commissions they brought. At UBS, for instance, financial advisers received a portion of the 0.25% reward received by their firms for managing the securities, while no commission was available for putting the same investors in UBS's standard money-market fund, according to the Massachusetts complaint.
UBS denies that its advisers had an incentive to put clients into auction-rate securities.
Some brokers apparently did dig deeply enough to figure out that the securities were problematic. The Massachusetts complaint against UBS cites Jan. 10 emails from Sarah M. Sullivan, a financial adviser in Boston, to a senior manager explaining her reluctance to pitch the securities to clients who wanted alternatives to low-yielding money-market funds.
She had just listened to a conference call by UBS auction-market specialists aimed at boosting sales of the securities, according to the complaint. "We continue to be frustrated by the lack of information that they are providing to us," she wrote. She said she would be particularly concerned about putting any client into the securities just ahead of the April 15 tax-filing deadline. "If there is a failed auction, the client may not be able to access the funds. The bottom line is that rather than moving more cash into [the securities] we will probably be liquidating them for many clients."
She concluded: "Given the strange and difficult environment, it is imperative that we are fully aware of the risk we are taking. We do not want to imperil any relationships over something as 'simple' as their cash investments."
A follow-up email from the senior manager instructed a colleague to "get one of your people on the phone with Sarah ASAP so we can provide the appropriate color." The complaint doesn't detail Ms. Sullivan's subsequent actions. A spokesman for Mr. Galvin, the Massachusetts' regulator, said the state wouldn't comment beyond what is in the filings. UBS declined to elaborate or make Ms. Sullivan available for an interview."
My reason for presenting these extended passages is to refute some truths implied by the WSJ's financial columnist, James B. Stewart.
To wit, I contend that, in reality, you should believe that your broker is NOT:
a) well-informed and educated about what s/he is peddling to you.
b) truly interested in your economic welfare first, before their own.
c) unmotivated by commissions on what they sell you.
When you hear the phrase 'valued client' from a broker, run, do not walk, the other way. Hang up the phone, close and delete the email.
From the Journal's extensive article on the UBS case involving auction rate securities, we see that many brokers simply have no idea of the nature and behavior of many financial instruments which they sell to clients, once those instruments go beyond basic equities, debt and simple money market accounts.
Investor beware.
Tuesday, June 24, 2008
You Read It Hear First...... Reuniting Commercial & Investment Banks
Late in March, I wrote this post concerning the ultimate result of the Fed's decision to open the discount window to investment banks. In that post, I wrote,
"Looking beyond simply Bear Stearns, can anyone truly justify the existence of all four of Goldman Sachs, Merrill, Lehman and Morgan Stanley? Especially in the modern world of large private equity firms and hedge funds? The former provide additional underwriting, M&A advisory and asset management, while the latter focus on providing trading capacity and investment management.
Other than emotional reaction of former employees seeing their old firm's name vanish, what would be different if one or more of those names were bought by or merged with a commercial bank?
Contrary to Andy Kessler's view, in the Wall Street Journal this past January, about which I wrote here, it's unlikely now that an investment bank will do the buying. With their high leverage and dependence upon commercial banks for funding, I suspect the investment banks are the more vulnerable. Now having access to the Fed discount window, it's only a matter of time before the regulators get around to levying a new regulatory framework on the investment banks."
In today's Wall Street Journal, Dennis Berman writes, in an article entitled, "Maybe It's Time To Put the Banks And Wall Street Dealers Back Together,"
"Speculation has in recent weeks mounted that one of the Street's brokers may even buy a commercial bank. Whether true, the rumors speak to three deep changes under way.
First, looming Federal Reserve assistance and regulation could force brokers to keep reserve ratios similar to that of deposit-taking banks. Second, short-term bank funding now is regarded with suspicion. It is capable of being yanked at a moment's notice, sending a bank such as Bear Stearns to the brink of bankruptcy (it is now part of J.P. Morgan Chase). Third, the securitization markets also have contracted, which is in turn forcing the investment banks to shrink their balance sheets.
In theory, these problems are all solved by putting a large, plodding typical bank -- with stable deposits and returns -- next to the more-speculative realms of investment banking and trading.
Citigroup, the prime "universal bank" sounded good in theory, too. It has performed miserably since its creation after Congress rolled back the Depression-era limits a decade ago. That misses the relative success of J.P. Morgan Chase and Bank of America, the country's two other big universals."
I'd disagree with Berman's evaluation of Chase's and BofA's 'relative success,' as I described the entire publicly-held financial sector's woeful performance in yesterday's post.
But Berman has finally arrived at the same conclusion I did last three months ago. He further observes,
"Three or four years out, the investment-banking model is coming to an end," says Brian J. Sterling, co-head of investment banking for boutique adviser Sandler O'Neill & Partners. "If it walks like a bank and quacks like a bank, it's going to have capital ratios like a bank." "
No argument from me. In fact, I concluded that March post with these thoughts,
"A natural consequence to this will probably be even more smart financial services people migrating back to the privately-financed arena. Just like consumer goods merchandising has the 'wheel of retailing,' whereby new entrants compete at the low-cost end of the market, as existing players migrate upwards in terms of quality, service, selection and price, so, too, it seems, will financial services now have its own version of this 'wheel.'
Only in financial services, the 'wheel' is between publicly- and privately-held concentrations of capital and risk management. Again, viewed from afar over decades, the story of commercial and investment banking for the past forty years has been a gradual selling of transactions, asset and risk management businesses at their 'tops,' as formerly-private banks of both stripes went public, followed by managerial ineptitude, decline in risk management, and excesses in pursuit of growth via more risk.
Now that the public is absorbing the brunt of the losses, via equity ownership of these firms, the logical next step is for the better executives to join the early-adopters in forming new, or joining existing private equity and hedge fund shops."
It seems nearly everybody missed the real event of late March. It wasn't helping Bear Stearns avoid the unraveling of its entire book of credit default positions. It was the opening of the Fed window to investment banks, and the inevitable changes in regulation and/or capitalization requirements that will follow.
Yes, you read it here first. Three months ago.
"Looking beyond simply Bear Stearns, can anyone truly justify the existence of all four of Goldman Sachs, Merrill, Lehman and Morgan Stanley? Especially in the modern world of large private equity firms and hedge funds? The former provide additional underwriting, M&A advisory and asset management, while the latter focus on providing trading capacity and investment management.
Other than emotional reaction of former employees seeing their old firm's name vanish, what would be different if one or more of those names were bought by or merged with a commercial bank?
Contrary to Andy Kessler's view, in the Wall Street Journal this past January, about which I wrote here, it's unlikely now that an investment bank will do the buying. With their high leverage and dependence upon commercial banks for funding, I suspect the investment banks are the more vulnerable. Now having access to the Fed discount window, it's only a matter of time before the regulators get around to levying a new regulatory framework on the investment banks."
In today's Wall Street Journal, Dennis Berman writes, in an article entitled, "Maybe It's Time To Put the Banks And Wall Street Dealers Back Together,"
"Speculation has in recent weeks mounted that one of the Street's brokers may even buy a commercial bank. Whether true, the rumors speak to three deep changes under way.
First, looming Federal Reserve assistance and regulation could force brokers to keep reserve ratios similar to that of deposit-taking banks. Second, short-term bank funding now is regarded with suspicion. It is capable of being yanked at a moment's notice, sending a bank such as Bear Stearns to the brink of bankruptcy (it is now part of J.P. Morgan Chase). Third, the securitization markets also have contracted, which is in turn forcing the investment banks to shrink their balance sheets.
In theory, these problems are all solved by putting a large, plodding typical bank -- with stable deposits and returns -- next to the more-speculative realms of investment banking and trading.
Citigroup, the prime "universal bank" sounded good in theory, too. It has performed miserably since its creation after Congress rolled back the Depression-era limits a decade ago. That misses the relative success of J.P. Morgan Chase and Bank of America, the country's two other big universals."
I'd disagree with Berman's evaluation of Chase's and BofA's 'relative success,' as I described the entire publicly-held financial sector's woeful performance in yesterday's post.
But Berman has finally arrived at the same conclusion I did last three months ago. He further observes,
"Three or four years out, the investment-banking model is coming to an end," says Brian J. Sterling, co-head of investment banking for boutique adviser Sandler O'Neill & Partners. "If it walks like a bank and quacks like a bank, it's going to have capital ratios like a bank." "
No argument from me. In fact, I concluded that March post with these thoughts,
"A natural consequence to this will probably be even more smart financial services people migrating back to the privately-financed arena. Just like consumer goods merchandising has the 'wheel of retailing,' whereby new entrants compete at the low-cost end of the market, as existing players migrate upwards in terms of quality, service, selection and price, so, too, it seems, will financial services now have its own version of this 'wheel.'
Only in financial services, the 'wheel' is between publicly- and privately-held concentrations of capital and risk management. Again, viewed from afar over decades, the story of commercial and investment banking for the past forty years has been a gradual selling of transactions, asset and risk management businesses at their 'tops,' as formerly-private banks of both stripes went public, followed by managerial ineptitude, decline in risk management, and excesses in pursuit of growth via more risk.
Now that the public is absorbing the brunt of the losses, via equity ownership of these firms, the logical next step is for the better executives to join the early-adopters in forming new, or joining existing private equity and hedge fund shops."
It seems nearly everybody missed the real event of late March. It wasn't helping Bear Stearns avoid the unraveling of its entire book of credit default positions. It was the opening of the Fed window to investment banks, and the inevitable changes in regulation and/or capitalization requirements that will follow.
Yes, you read it here first. Three months ago.
Monday, May 21, 2007
Foreign Stock Brokers
Saturday's Wall Street Journal's Money & Investing section greeted me with an article that I had to start twice to be sure I was reading it right. Suffice to say, it lent more credence to my business partner's belief that the Journal's expansion to a weekend edition has seriously diluted the quality of its columns in that edition.
A guy named Jeff D. Opdyke wrote this piece, extolling the virtues of investing in overseas individual equities using foreign brokers.
According to Opdyke, many "bigger and more important markets" now include: Hong Kong, Auckland, and Cairo. Other markets one may ostensibly access from these include Shanghai, Shenzhen, UAE, Oman, Morocco and Turkey.
Apparently, liquidity and market manipulation are no longer considered risks in these outposts of capitalism. Forget about mutual funds that invest in foreign equities. Or the foreign exposure to be gained by investing in US global large-cap companies.
Further on in the piece, Opdyke warns of various risks, like one-day, 15% drops in the Thailand market due to government currency restraints, foreign exchange value risks, and unexpected closing of outfits like the Beirut exchange for days.
Honestly, I cannot understand who this article helped. Anyone with sufficient money to be able to, as Opdyke writes, "lose a chunk of it if their investments fall apart several time zones away while they are asleep," probably already uses a foreign country mutual fund. Those people would tend to understand these undiversifiable risks. That is why you pay professionals to enter markets like these.
Those who can't afford that, probably shouldn't know any more which helps them to hurt themselves. Frankly, the average retail investor in the US who already uses a broker is being sufficiently badly-served. Why compound the pain by introducing them to the same scourge in overseas markets?
I don't know anyone who still uses, voluntarily, a full-price, full-service retail broker. Between mutual funds and discount, execution-oriented brokers, the role of the stock broker in America is finally diminishing. Information is plentiful and cheap, if not free, while transactions costs are low and self-trading technology is excellent and likewise inexpensive.
When the service-oriented brokerage model is finally near extinction in the US, why is this Journal writer hyping its use in markets that are of far less quality and reliability than the American equities markets that already can deliver so much loss and pain to the average retail investor? This strikes me as, at best, irresponsible journalism and, at worst, reckless in inviting investors to lose even more money on specious investments beyond the reach of recovery for American investors.
A guy named Jeff D. Opdyke wrote this piece, extolling the virtues of investing in overseas individual equities using foreign brokers.
According to Opdyke, many "bigger and more important markets" now include: Hong Kong, Auckland, and Cairo. Other markets one may ostensibly access from these include Shanghai, Shenzhen, UAE, Oman, Morocco and Turkey.
Apparently, liquidity and market manipulation are no longer considered risks in these outposts of capitalism. Forget about mutual funds that invest in foreign equities. Or the foreign exposure to be gained by investing in US global large-cap companies.
Further on in the piece, Opdyke warns of various risks, like one-day, 15% drops in the Thailand market due to government currency restraints, foreign exchange value risks, and unexpected closing of outfits like the Beirut exchange for days.
Honestly, I cannot understand who this article helped. Anyone with sufficient money to be able to, as Opdyke writes, "lose a chunk of it if their investments fall apart several time zones away while they are asleep," probably already uses a foreign country mutual fund. Those people would tend to understand these undiversifiable risks. That is why you pay professionals to enter markets like these.
Those who can't afford that, probably shouldn't know any more which helps them to hurt themselves. Frankly, the average retail investor in the US who already uses a broker is being sufficiently badly-served. Why compound the pain by introducing them to the same scourge in overseas markets?
I don't know anyone who still uses, voluntarily, a full-price, full-service retail broker. Between mutual funds and discount, execution-oriented brokers, the role of the stock broker in America is finally diminishing. Information is plentiful and cheap, if not free, while transactions costs are low and self-trading technology is excellent and likewise inexpensive.
When the service-oriented brokerage model is finally near extinction in the US, why is this Journal writer hyping its use in markets that are of far less quality and reliability than the American equities markets that already can deliver so much loss and pain to the average retail investor? This strikes me as, at best, irresponsible journalism and, at worst, reckless in inviting investors to lose even more money on specious investments beyond the reach of recovery for American investors.
Tuesday, October 11, 2005
In Further Praise of Sell-Side Analysts
How could I overlook this week’s gyrations in GM’s stock price as a result of the Delphi Chapter 11 filing on Saturday? A great topic for today’s musings. I won't even belabor my own comments within the past week regarding how long Detroit would be without one less free-standing auto manufacturer.
I guess I don’t understand our brilliant Wall Street analyst corps.
GM and Delphi are two of the largest US firms in a very prominent economic sector. Delphi’s spinoff from GM is recent and very public. Both companies’ economic woes have been well-covered in the press, never mind by analysts, for months.
So how can it be that Delphi’s filing could cause a 10% drop on the open of GM’s stock by today’s market close? Isn’t the analyst’s job to divine these things a priori, by dint of her/his superior knowledge, skill and familiarity with the companies and situation at hand? Could the bankruptcy filing really have been that much of a surprise? Even CNBC’s “Squawk Box” reported that Steve Miller, head of Delphi, had explicitly warned of filing for Chapter 11 protection several times recently. This, they noted, was not something he had ever done when leading the turnaround at Waste Management.
It seems to me that this situation, the linked and troubled fortunes of GM and its one-time subsidiary, Delphi, illustrates how poorly the analyst community typically performs. I don’t see analysts as any better at covering this developing situation than the business media, such as CNBC or the Wall Street Journal. It reminds me of the oft-repeated quote attributed to Thomas Jefferson regarding a choice between government with no free press, or a free press with no government.
Give me the media every time.
I guess I don’t understand our brilliant Wall Street analyst corps.
GM and Delphi are two of the largest US firms in a very prominent economic sector. Delphi’s spinoff from GM is recent and very public. Both companies’ economic woes have been well-covered in the press, never mind by analysts, for months.
So how can it be that Delphi’s filing could cause a 10% drop on the open of GM’s stock by today’s market close? Isn’t the analyst’s job to divine these things a priori, by dint of her/his superior knowledge, skill and familiarity with the companies and situation at hand? Could the bankruptcy filing really have been that much of a surprise? Even CNBC’s “Squawk Box” reported that Steve Miller, head of Delphi, had explicitly warned of filing for Chapter 11 protection several times recently. This, they noted, was not something he had ever done when leading the turnaround at Waste Management.
It seems to me that this situation, the linked and troubled fortunes of GM and its one-time subsidiary, Delphi, illustrates how poorly the analyst community typically performs. I don’t see analysts as any better at covering this developing situation than the business media, such as CNBC or the Wall Street Journal. It reminds me of the oft-repeated quote attributed to Thomas Jefferson regarding a choice between government with no free press, or a free press with no government.
Give me the media every time.
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