Legal War on Wall Street Chicanery Isn’t Finished
May 23, 2011
Three years after Congress promised answers in the big banks’ roles in the financial scandal, there are none – only questions.
However, New York Attorney General Eric Schneiderman is investigating Wall Street’s role in the mortgage quagmire and housing bubble, according to published reports. Mr. Schneiderman wants documents from Bank of America, Goldman Sachs and Morgan Stanley.
Even as a free-market advocate, I remain troubled by several unanswered questions:
- The banks’ roles in the role that led to the housing bubble?
- Regarding securitization details, the merging of countless bad home loans into securities, which were sold to investors – insurance companies, mutual funds and pension funds?
- Were the banks really that incompetent or was it a case of ethics?
- What will be done to prevent the future devastation of investors?
- What will be done to stop all the illegalities, including the robo-signing in the foreclosures of homeowners?
- What about a moral compass to halt the practice of giving multi-million dollars to employees at firms bailed out by taxpayers?
Ineffective Feds
“These days the Justice Dept. and the Securities and Exchange Commission are investigating Wall Street with tactics, such as wire taps, usually reserved for professional criminals and terrorists,” blogged Dr. Peter Morici, a business professor at the University of Maryland, and a former Chief Economist at the U.S. International Trade Commission.
“Apparently, those agencies recognize what Treasury and the Federal Reserve simply won’t admit – insider trading, robo foreclosures and peddling dodgy securities to unsuspecting investors are good old fashioned fraud,” he wrote. “Like the corruption tolerated by Third World autocrats, those practices handicap American capitalism in global competition and undermine prosperity.”
He cited the subpoenas for executives at Goldman Sachs and SAC Capital advisors.
“Punitive settlements and convictions-resulting from investigations into insider trading at Galleon and SAC, shoddy mortgage foreclosure practices at Bank of America, and shady marketing of mortgage backed securities at Goldman Sachs-ultimately, would curb cynical behavior and ever bigger paydays on Wall Street, and improve returns for stock investors,” he asserted. “As importantly, it would redirect American capital and talent toward more productive, jobs-creating purposes.”
Stocks as investment
Dr. Morici indicated stocks aren’t an optimized investment.
“In February 1998, the S&P 500 first closed above 1000-since corporate profits are up about 210 percent but equities less than 35 percent,” he recalled. “Corporate profits rose 6 percent annually but investing in stocks paid a disappointing 2.3 percent a year.”
Why else?
“Buying stocks doesn’t seem to pay, because too much of the profits created by innovators with ordinary investors capital is captured by hedge funds, Wall Street trading desks, private equity houses, aggressive M&A shops, and then paid to Wall Street executives and traders,” he wrote.
Dr. Morici suggested an eye-opening thesis.
“In the drive for ever bigger compensation packages, Wall Street’s best and brightest violate boundaries of ethical behavior and the law,” he explained. “Not all of our problems can be laid on Wall Street’s steps, but its culture of entitlement and sharp practices impose enormous burdens.
“The carnival culture on Wall Street is attracting too many young people to business schools to study economics and finance, instead of pursuing physics and engineering,” he added. “That’s why the best business schools are overwhelmed with applicants from Connecticut and California, while engineering colleges depend on students from China and Asia, who will then return home to compete with American businesses.
Wall Street paychecks
He believes that the obscene Wall Street paychecks hurt individual shareholders and pension funds, alike.
“The absence of significant appreciation in equities for more than a decade means that many retirees dependent on IRAs and other defined contributions vehicles can no longer live comfortably, and many baby boomers who have been pushed into such pension vehicles can’t retire,” he wrote. “Their money may be working hard, but only for Wall Street titans and not for them.”
He maintains the financial chicanery costs jobs.
“These days, too much money and talent are directed to financial engineering-efforts to design the next complex derivative-and not enough is going into physics and real engineering-designing electric cars, new materials, and products and services that will define U.S. global competitive success and prosperity for the next 25 years,” he maintained.
“Increasingly, venture capital and stock investors look abroad for the best returns, and this deprives small and moderate sized U.S. companies of capital needed to expand and invest in new ideas and create jobs,” he added.
Conclusion
So, what can Mr. Schneiderman, the Justice Department, and the Securities and Exchange Commission accomplish – while the Treasury Dept. and Federal Reserve appear incoherent?
“Prosecuting Wall Street will do a lot to curb abusive practices and excessive compensation, make stocks and IRAs sensible investments, redirect capital and talent into productive purposes, and get the American growth machine back on track for our children and grandchildren,” concluded Dr. Morici.
Agreed. At one time, my free-market philosophy would have differed on this scandal. But not now. The economic liberty of countless people is at stake.
From the Coach’s Corner, Dr. Morici’s analyses are regularly published in this portal’s Economic Analysis Op Ed section.
Here are links on the background of the financial scandal:
- Will Goldman’s Scandal Prompt Cultural Changes on Wall Street?
- Sen. Cantwell Is Right to Question Risky Derivative Dangers, Geithner
- Is it Time to Police Pay at Wall Street Banks?
“There is two things that can disrupt business in this country. One is war and the other is a meeting of the Federal Reserve.”
-Will Rogers
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
Will Goldman’s Scandal Prompt Cultural Changes on Wall Street?
There were reasons for financial reforms.
On the same day that Congress passed sweeping financial-reform legislation in 2010, Goldman Sachs & Co. agreed to pay $550 million to settle fraud charges. The charges accused Goldman of fraud in mortgage investments. That includes $300 million in fines assessed by the Security and Exchange Commission – the largest in SEC history.
The remaining balance of $250 million went to the victims.
You might recall that Goldman’s mortgage-related investments were designed with participation by a Goldman client, Paulson & Co. Paulson bet those investments would not succeed, and they didn’t.
Goldman was forced to assess its procedures in such financial mortgage deals. The catalyst was the investments that cost investors nearly $1 billion, but the deal netted Paulson huge sums of money. It was also part of the mega mortgage meltdown that helped to exacerbate the nation’s economic downturn.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert Khuzami, the SEC’s enforcement director.
A federal judge in New York will rule on the settlement.
The case against Goldman gathered steam when a published report added impetus to fraud allegations against Goldman. The Sacramento Bee alleged Goldman secretly worked to dump “billions of dollars in risky mortgage securities and buy exotic insurance” in anticipation of the housing bubble. But the report said Goldman hid its actions from the Securities and Exchange Commission for nine months in 2007 (“Goldman didn’t disclose its subprime mortgage hedges”).
At issue: Opponents eventually proved that Goldman’s gambling was so relevant – investors would not have bought Goldman’s offerings.
The furor over that controversial 2007 mortgage derivatives deal still underscores the fear of many Americans that the market is rigged against them because Wall Street is a haven for questionable behavior.
The Security and Exchange Commission’s triumph over Goldman’s handling of the collateralized debt obligation (CDO) in subprime mortgages showed the Wall Street sheriff is back and is flexing some muscles.
Furthermore, Goldman’s failure to disclose that a hedge fund manager, John Paulson, helped select the underlying securities and then bet against them to make more than $1 billion is bad enough.
It’s looked even worse after Bloomberg reported Goldman knew it was under investigation for nine months but failed to disclose the investigation in their financial reports to investors.
Such omissions triggered the shareholder legal action.
The resulting headlines are reminiscent of the financial-greed scandals involving the 1980’s shadowy behavior of convicts Mike Milken and Ivan Boesky, as well as the principals at Enron and Worldcom.
Several questions have arisen:
- Is the SEC action really the tip of the iceberg of upcoming legal challenges?
- Will it lead to a stock market correction?
- Will it end the entitlement attitudes seemingly held by many investment bankers?
- Will it improve the culture in the financial sector?
This case was an ideal situation for New York’s litigious community.
It led to a decline of Goldman shares – 13 percent – as well as the shares of other financial companies trading in CDOs, including Deutsche Bank AG, Morgan Stanley, Bank of America (the parent of Merrill Lynch) and Citigroup.
In addition, a Chicago online publication, ProPublica, reported on questionable bets by Magnetar and allegations of conflicts of interest by the latter three financial firms. Magnetar denied culpability and none of the three banks denied or commented on the allegations.
Indeed, the same day that the SEC acted against Goldman, a Dutch bank leveled similar charges against Merrill Lynch. Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, or Rabobank, cited Merrill Lynch in a $1.5 billion CDO.
Sadly, regarding Wall Street’s entitlement attitudes and culture, the consequences might not be severe enough to prompt an attitude adjustment.
Not to be cynical, here’s the bottom-line question: Are there enough moral compasses on Wall Street to put a stop to the chicanery? Probably not.
From the Coach’s Corner, for more on Sen. Cantwell’s efforts, see “Sen. Cantwell Is Right to Question Risky Derivative Dangers, Geithner.”
“The saddest thing I can imagine is to get used to luxury”
-Charlie Chaplin
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
30 Time Management, Stress Reducing Skills
You might not be convinced the U.S. is embarking on an economic recovery. Many economists have called it a jobless recovery, but with respect for their opinions, the phrase is actually an oxymoron. How can it be characterized as a true recovery with so many people out of work?
Further, despite the unemployment rate decreasing, there are many indicators that show the unemployment is inaccurate. Record numbers of baby boomers have been forced to accept early Social Security payments at age 62 because they can’t get a family wage job. Forty-six million Americans are on food stamps — a record high. Millions of workers don’t show up in the data because they can’t get work and their unemployment payments have expired.
The economy will continue to be difficult with many economic stress factors.
They include:
- Tight credit
- Layoffs
- Rapacious behavior by many credit card companies
- Natural disasters
- Home foreclosures
- Bankruptcies
- Healthcare costs
- Declining profit
- College tuition costs
And such factors make businesses reluctant to take bold measures to invest in their future with needed equipment, marketing and training of their workers. It’s time for performance solutions.
Start by reducing stress and saving time. Why?
Executives and workers, alike, feel powerless over most of stress factors. Indeed, the 2007 American Psychological Association study, “Stress in America,” had some startling conclusions. The study is relevant many years later.
For example, 74 percent cited work stress, 73 percent had money worries and 66 percent complained about their workloads.
Pressure turns into stress for many.
Trauma in your personal life can affect your business and career. Short of psychotherapy or meditation, time-management skills are a solution.
Here are 30 ways to reduce stress:
- Identify your stress factors and take steps to eliminate them. Whether it is nasty surprise letter from the IRS, credit-card company predatory behavior, or a complaint from your best customer, do what you can to solve the problem quickly so you can move forward. Paraphrasing a philosophy of former President Gerald Ford, clear the table and move forward.
- Know your capabilities and limitations. Don’t take on too much.
- Find a trustworthy person with whom you can vent and give you empathetic feedback when asked.
- Understand when you need to say “no.”
- Get refreshed by taking regular breaks, vacations, recreation and exercise. And when you can, a simple walk will work wonders.
- Set time limits and goals for meetings.
- Review your long range goals. Frequently during your work day, ask yourself: “Is this helping me to reach my goals?”
- Record and analyze how you spend your time.
- Make sure the first hour of every day is the most productive. Tackle the hardest task first. The rest of the day will seem like a walk in the park.
- Practice excellence in every responsibility. Do the very best you can and you will prevent regrets.
- Do everything gently. As famed entertainer Hoagy Carmichael once said, “Slower motion gets you there faster.”
- Remember: If you don’t take the time to do it right, when will you have time to do it over?
- Instead of “post-it notes”, put all the necessary folders away in the appropriate file drawers. Once the clutter is off your desk, the “to do” list serves as the master organizer.
- Look for progress – not perfection.
- Plan your time. Make your “to do” list by Friday for the following week. If you’re in sales, have your list ready by Thursday.
- Review the next day’s schedule before going home each night.
- Prioritize your work: A, B, or C. Your A duties get done first – immediately.
- Learn how to structure your e-mail system for maximum efficiency.
- Eat the right foods for sustained energy.
- Get enough sleep. If you feel tired by mid-day, ask your doctor for a sleep study. Insomnia and sleep apnea routinely lead to high blood pressure and even strokes.
- Make your work fun.
- Learn from baseball player Ichiro and do stretching exercises.
- Listen to the right music. For many successful people that means classical music.
- Look around to help someone who is less fortunate. Volunteerism is gratifying.
- Learn breathing techniques.
- If you commute to work, consider mass transit and take a good book to read.
- Review inspiring thoughts, such as “No matter what, there are no big deals.” Taking the emotional sting out of your reactions to events will help. Learn to respond, not react.
- Develop positive affirmations about yourself, keep your notes handy, frequently review them and rehearse them in front of the mirror.
- Remember, the remedy for depression is action.
- Become more active socially. Yes, that’s a time management skill. If you are not alone, you are not lonely. Loneliness contributes to stress.
Get busy and you’ll soon feel ready to take on the world and head toward to profits. Start investing in your future with needed equipment, marketing and training of workers. And talk with your public officials about policies that will improve the nation’s economic health and create jobs.
From the Coach’s Corner, for related career tips: 10 Strategies to Overcome Stress and Energize Your Career
“Take rest; a field that has rested gives a bountiful crop.”
-Ovid
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.