Wall Street issues report, concludes: "Oops! Our bad!"

According to the New York Times, a group of Wall Street executives have released a report detailing what went wrong and steps they can take to prevent it from hapening again. OK, quit laughing.

According to the article: 

"Wall Street failed to anticipate how wide-reaching problems with mortgage bonds would spread into seemingly distant corners of the financial markets, the report said. Awash in easy money, banks doled out credit without sufficiently charging for the risk. Wall Street also created complex structures that masked connections between asset classes as well as compensation incentives that pushed traders to take risky steps for short-term gain. The industry’s failings have now translated into pain for the broader economy, the report said."

Ya’ think?

The article goes on to make what I see as a claim so based in a combination of arrogance and cluelessness as to stagger the mind.

"In a cover letter to Treasury Secretary Henry M. Paulson Jr., the group attributed some of the crisis to human psychology.

“The root cause of financial market excesses on both the upside and the downside of the cycle is collective human behavior — unbridled optimism on the upside — and fear — bordering on panic — on the downside,” the letter said. The panic underlying the collapse of the investment bank Bear Stearns was clearly on the minds of executives as they worked on the report."

So, it’s OUR fault that we buy into the marketing that Wall Street sells us that we can be millionaires by investing the “right” way? It’s OUR fault that we panic when we see our retirement nest egg shrinking away and want to do something to stop it? It’s OUR fault that Wall Street’s unbridled greed grew even larger when they discovered the loophole that made predatory lending legal, thus bringing in billions more in fees and commissions? It’s OUR fault that regulations are not strong enough to prevent Wall Street from taking advantage of the general population that is just trying to have a secure future and own their own home?

It reminds me of the scene in the movie “Wolf” where Jack Nicholson has Michelle Pfeiffer lock him in a cage so when he turns into a wearwolf, he doesn’t hurt anyone. “Please regulators, lock us in a cage before we convince more people to trust us with their money!”

We make the point in “Crazyman’s Economics” that one of the reasons Wall Street has been able to con people out of their money time-and-time again is that they convince us that when we lose money, it’s OUR fault because we didn’t make the right decision. The quote above says the same thing.

"The report suggests that the industry create a way to close-out trades, should another major financial player face trouble. It also said the markets may be more “accident prone” because of new ways of doing business like Wall Street’s loan packaging, in which banks that originate loans to consumers then repackage them to sell to investors. And it listed the ability to make bets against credit — a trade that made some investors rich — as a possible cause of market instability."

I’ll add another old and out-dated pop-culture reference when I say this reminds me of the old Steve Martin bit where he says the use of the words “I forgot” is a great way to avoid responsibility: “I’m sorry, I forgot that robbing a bank was a crime.” The report should have said: “We’re sorry, we forgot that issuing billions of dollars with no way to repay them was wrong.”

"Mr. Corrigan said he knows the report presents a challenge, but that Wall Street firms need to adopt more of a spirit of “financial statesmanship.”

If ever two terms don’t belong together, it’s “Wall Street” and “Financial Statesmanship.” It’s like linking “Professor” and “Paris Hilton.” Never happen. Ever.

I don’t know what this so-called “report” was supposed to achieve, except that certain media types (*cough* Jim Cramer *cough*) will hail this as a new beginning and a sign that Wall Street is concerned with doing the right thing.

Don’t believe it.

Not even for a second.

Please buy our book, join our cause, and let’s make sure Wall Street doesn’t continue to get away with this!




it's all in your head

The root cause of financial market excesses on both the upside and the downside of the cycle is collective human behavior — unbridled optimism on the upside — and fear — bordering on panic — on the downside

According to the New York Times, this was in the cover letter to Treasury secretary Paulson.

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Gotta buy your book. and see what that's about.

....my opinion?

The state of the science of economics is just pre-Kepler. There are revelations coming, provable stuff, which will show that the reality is that having a 'financial advisor' or hiring folks to 'invest for you...' is akin to the elaborate rituals of the Roman Augurs as they rooted around in the guts of bulls and goats.

That things which people believe are possible are not and that much of what people actually believe about how modern markets is just bullshit.

The Maestro should be proof enough but....

Seriously, I'm a trying to get enough time together to do a solid post on what I'm talking about. I may need a tin-foil hat but what I've been reading is very interesting indeed.

And of course it's all your fault you wanted to buy a house but corporate America was no way gonna pay you enough to do so.

They spent all their cash on CEOs.

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'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'