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Is It Time To Give Wall Street A Sopranos Style Intervention?

October 26, 2010 By

Steve Dibert, MFI-Miami

The other morning while I was eating my eggs and venison hash, I was watching reruns of The Sopranos on the A&E network.  It was the episode when the whole crew decides that it may be time to do an intervention with Christopher about his heroin addiction after he killed Adrianna’s dog by sitting on it.  The intervention then escalated into a Quentin Tarantino version of The Waltons.

While watching this mayhem unfold, I began to realize that greed is as much of an addiction as cigarettes, drugs and alcohol.  The actions of Wall Street over the past 25 years could be classified as an addiction.

A generation of Wall Street hot shots drew inspiration from characters from movies, namely Gordon Gekko from Wall Street and Tony Montana from Scarface both of which were written by Oliver Stone.  Unfortunately, what these Gordon Gekko or Tony Montana wannabes took away from these morality plays was not the morality, but the sin.  They took Gordon Gekko’s line of, “Greed is good” a little too seriously.

Unlike these hotshots, I paid attention to Sister Margaret in 3rd grade catechism when she waved her yardstick while grilling into our heads with her Gaelic accent that greed, as one of the seven deadly sins, could be as addicting as alcohol or drugs.   Like a drug or alcohol addiction, the addiction doesn’t become noticeable until after the party is over and the person stumbling around intoxicated breaking furniture and lampshades really isn’t all that funny.

When the party of the housing market ended in 2007, Wall Street like an addict attempted to keep the party going only to make a bigger mess.  Then proceeded to blame everyone but themselves for the mess.

First, they blamed the mortgage brokers who sold their products for them and the public and the mainstream media bought it.  Wall Street was so convincing that this crisis was the fault of unscrupulous mortgage brokers that Consumer Law Specialists like Elizabeth Warren bought into it.  Job postings on Monster.com and in newspapers across the US actually read, “Former mortgage brokers or loan officers need not apply.”

Then Wall Street blamed the appraisers and the real estate agents.  Now, three years later, it’s the ‘deadbeat’ homeowner.

So before Wall Street can make total buffoons out of themselves by claiming demonic possession or being poisoned by alien anal probes, I think its time to dust off a copy of the Twelve Step Program from when I attended an AA meeting about ten years ago and was asked not to come back.

As I began reading the pamphlet, I was amazed at how relevant this is this really is to the way Wall Street is acting.

  • Step 1 – We admitted we were powerless over our addiction – that our lives had become unmanageable
  • Step 2 – Came to believe that a Power greater than ourselves could restore us to sanity
  • Step 3 – Made a decision to turn our will and our lives over to the care of God as we understood God
  • Step 4 – Made a searching and fearless moral inventory of ourselves
  • Step 5 – Admitted to God, to ourselves and to another human being the exact nature of our wrongs
  • Step 6 – Were entirely ready to have God remove all these defects of character
  • Step 7 – Humbly asked God to remove our shortcomings
  • Step 8 – Made a list of all persons we had harmed, and became willing to make amends to them all
  • Step 9 – Made direct amends to such people wherever possible, except when to do so would injure them or others
  • Step 10 – Continued to take personal inventory and when we were wrong promptly admitted it
  • Step 11 – Sought through prayer and meditation to improve our conscious contact with God as we understood God, praying only for knowledge of God’s will for us and the power to carry that out
  • Step 12 – Having had a spiritual awakening as the result of these steps, we tried to carry this message to other addicts, and to practice these principles in all our affairs

But before Wall Street can begin their Twelve Step Program. We as a society need to do an intervention and that won’t be easy considering we have been enabling Wall Street for more than a generation.   Americans individually have morphed into all five children from Charlie and the Chocolate Factory. As long as we were getting plasma TVs and overpriced McMansions we turned a blind eye to their uncontrollable desire for greed.

Tough love is why I was asked not to return to AA.   Apparently, at AA, it’s not okay to tell a recovering alcoholic to be a real man and to quit whining about his problems and then proceeded to ask him if he needed a feminine hygiene product.  Although the AA people weren’t amused, the guy later approached me in the parking lot, shook my hand and thanked me for opening his eyes.  Wall Street needs some tough love.  A tough love intervention is the only way to get Wall Street under control.  Wall Street must be brought under control and as Americans we have an obligation to save it from it’s own demons and uncontrollable desires.

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Count on Sequels to TARP

October 3, 2010 By 1 Comment

Gretchen Morgenson, NY Times

THE government is pulling a sheet over TARP, the Troubled Asset Relief Program created during the panic of 2008 to bail out the nation’s financial institutions. With the program’s expiration on Sunday, we can expect to hear lots of claims from the folks at the Treasury that it was a great success.

Such assertions would be no surprise from a political class justifiably concerned about possible taxpayer unhappiness, the continuing economic turmoil and the midterm elections. But if we have learned anything during this crisis, it is that the proclamations emanating from the Washington spin machine must be taken with an extra-hefty grain of salt.

Consider the claims made last summer that the Dodd-Frank financial reform act reduces the threats that large, interconnected banks pose to taxpayers and the economy when the banks are deemed too big to fail. Indeed, as regulators hammer out the rules governing derivatives transactions, it’s evident that the law has created a new set of institutions that will almost certainly be deemed too important to fail if they ever get into trouble. And that means there won’t really be an effective way to keep those firms from taking big, profitable, short-term risks that are dumped on the taxpayers when the bets fail.

Our roster of bailout candidates includes the clearinghouses, created under Dodd-Frank, that are meant to increase the oversight of derivatives trading. Because most derivatives transactions are expected to go through these clearinghouses, they will be “systemically important” under the law. As such, Dodd-Frank specifically provides that “in unusual or exigent circumstances,” the Federal Reserve may provide such entities with a financial backstop, including borrowing privileges.

Remember this: Financial backstop is just another term for a taxpayer bailout. And the major banks and brokerage firms are the members of the clearinghouses, so a backstop would essentially be for them.

According to the Bank for International Settlements, the entire derivatives market had a gross credit exposure of $3.5 trillion at the end of 2009. Obviously, even a small fraction of that amount could represent a sizable call on the taxpayers if a clearinghouse hit the skids.

So much for eradicating too-big-to-fail.

That’s not to say there aren’t upsides to clearinghouses. First and foremost, they will improve transparency in this huge market, requiring participants to disclose how much they have at stake financially. Regulators didn’t have such reports in the recent crisis and were severely hampered by the fact that derivatives trading existed largely in a black box.

In times of trouble, clearinghouses also allow hobbled firms to unwind and quickly reassign their positions to other, healthier players. Another good thing.

Read more here: http://www.nytimes.com/2010/10/03/business/economy/03gret.html?_r=1

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In This Play, One Role Is Enough

August 15, 2010 By 1 Comment

Gretchen Morgenson, NY Times

MEET Brad Miller, a Democratic representative from North Carolina who was elected to Congress in 2002, talks straight and understands how big banks can put consumers at peril.

He is worth getting to know, not only because of his deep concern about the foreclosure epidemic, but also because he has made a compelling recommendation to level an exceedingly tilted playing field in mortgage finance.

Depending upon your perspective, Mr. Miller is either the right man in the right place on Capitol Hill — if you’re a consumer — or a threat to the status quo.

A lawyer who worked on consumer protection issues in North Carolina, Mr. Miller is not new to battling banks. In March 2009, along with Representative William D. Delahunt, a Democrat from Massachusetts, he proposed the creation of an independent consumer agency; it became a part of the recent financial overhaul. This past March, Mr. Miller introduced a bill that would eliminate one of the most pernicious conflicts of interest in banking today: the dueling roles played by the big mortgage servicers.

These companies — the biggest are Bank of America, JPMorgan Chase, Wells Fargo and Citibank — operate as the back office for the mortgage lending industry. In good times, their tasks are fairly simple: they take in monthly mortgage payments and distribute them to whoever owns the loans. In many cases, large institutions like pension funds or mutual funds own the mortgages, and servicers are obligated to act in their interests at all times.

When borrowers are defaulting in droves, as they are now, loan servicing becomes much more complex and laborious. Servicers must chase delinquent borrowers for payments and otherwise manage these uneasy relationships, possibly into foreclosure.

Read more here: http://www.nytimes.com/2010/08/15/business/economy/15gret.html?src=twt&twt=nytimesbusiness

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The Rise and Fall of Bear Stearns

June 28, 2010 By 1 Comment

Alan “Ace” Greenberg, the Wall Street firm’s defiant former CEO, discloses his regrets, his beef with mortgage brokers, and why he thinks financial reform isn’t necessary.

From Newsweek

Wall Street—according to former Bear Stearns CEO Alan “Ace” Greenberg—used to be a gentlemanly place where Midwestern boys made good, partners carpooled together to downtown offices, and the keys to success simply meant selling poor-performing stocks quickly.

Greenberg puts forth this utopian history in his new book, The Rise and Fall of Bear Stearns, which he co-wrote with Mark Singer following the collapse of the storied bank. Greenberg recently sat down with NEWSWEEK’s Nancy Cook at his new office on the third floor of JPMorgan, the financial firm that acquired Bear Stearns in May 2008. There Greenberg talked about his regrets, his beef with mortgage brokers, and the reasons why financial reform is unnecessary. Excerpts:

Do you regret anything about your time at Bear Stearns?
No, I don’t. There’s very little in my whole life that I’d do over again. There were a lot of forks in the road, and most of the time I took the correct one. Certainly at Bear Stearns, I think that I didn’t make many mistakes. But, you know, you have to keep in mind that the only people who don’t make mistakes are the ones who don’t do anything. After the collapse, I think there were three people working on books. All of them wanted my cooperation. Then when the books came out—I’m not blaming the writers—but their sources were just so far off base that it was sickening. It was then that I said, “I have to set the record straight for me, my children, and my grandchildren because this is just not what happened.” My book has accomplished that purpose, as far as I’m concerned.

Do you feel like you, as a businessman, learned anything following the financial collapse?
Nothing that I didn’t know before.

You have a really interesting line in the book in which you talk about how presidents of companies never really know what goes on. Can you elaborate?
I don’t care how much you watch things or how acutely involved you are, there are probably bad things that happen. We had three people whose job was to constantly check on people, but their job wasn’t to check on the purchasing department. They were to supposed to check on the traders. I hate to say it, but every firm that has a purchasing department [should] beware. They are presented with so many opportunities to do wrong. The only way you can protect yourself would be to fire everyone who works in the purchasing department.

Read more here: http://www.newsweek-interactive.com/2010/06/22/the-rise-and-fall-of-bear-stearns.html?from=rss#

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