We Won't Get Fooled Again (Hopefully)

I freely admit I harbor an extreme amount of unhealthy resentment and anger over the financial crisis of 2008-2009.

As someone who has been affiliated with the financial services industry for many years, I think I have the right and the in-depth knowledge to be justified in those feelings.

And I will sign up for some of the blame myself, as someone involved with the industry, as a voter, and as a sometimes less than perfectly careful user of financial services. (I can take some solace in the fact I worked for several years on the "democratization" and publicity of ETF's for the retail investor, which I believe levels the playing field somewhat. The widespread acceptance of ETF's, despite some of their side effects, allows more retail investors to easily hedge their portfolios and even make some money in a down market).

But there is plenty of blame to go around, ranging (as you well know) from virtually all financial institutions, to many branches of the government, to past and present administrations, to consumers, to the electorate and to investors of every shape and size.

Three things in particular continue to bother me:

• My belief that the crisis was largely "preventable" in many many ways, or at least that the most damaging effects could have been mitigated
  
• The utter lack of accountability to date
  
• And perhaps most importantly, the lack of change in attitudes, behavior and regulations to prevent it from happening again

There were several headlines in the past two weeks which all feed into this general theme and I would like to connect the dots just a bit:

-- "As Citi Revives, CEO Pandit Earns Big Pay Package". It was announced this week that Vikram Pandit was voted a $23.2 million "retention package" in addition to his hefty "regular" salary and annual bonus. Pandit did work for a little over a year for a token $1.00 in the face of Congressional bailout criticism, but was scarcely hurting given the $80 million he received in 2007 from the sale of his Old Lane Partners investment firm to Citi. Long-term shareholders might not agree on the "excellent" progress Citi has reportedly shown.

-- "LinkedIn IPO Soars, Surpassing Wildest Street Expectations". You have read and heard enough about this already, I know. One statistic in particular got my attention. At current price levels, the company is valued at something like $90 per user, while earning about $.09 per user. Yes, investors are paying up for future growth, but that seems perhaps just a bit excessively optimistic.

-- "Too Big To Fail Premieres Monday May 23 on HBO". A lot of hype in the media about the cable movie based on Andrew Ross Sorkin's bestseller. Paul Giamatti as Ben Bernanke and Ed Asner as Warren Buffett. (Google 'Too Big Too Fail' Cast to see amusing side-by-side photos of the full cast and their real-life counterparts).

I attended a book-signing and Q&A talk last year given by Mr. Sorkin and there is no doubt the book is brilliant and the movie should be the same. But frankly, I could not even make it all the way through the book-- reliving the events in full detail was too depressing.

-- "Galleon Verdict Stuns Hedge Funds". Now, why would or should that be the case? Did someone at a hedge fund before the verdict think insider trading was OK? I know, the headline really refers to the successful use of wiretapping in the gov't prosecution and the fears at hedge funds that "innocent" conversations could be misconstrued in the future. Right.

-- "DOJ and SEC To Probe Goldman Sachs On Lying and Defrauding." You know this story as well, with GS being accused of misleading clients on mortgage-backed securities and then "hedging" the truth in Congressional hearings.

-- "Congress Playing Chicken With Debt Ceiling Debate".

-- "SEC Charges UBS With Fraudulent Bond Bidding Practices" and "Frontpoint To Shut Most Funds After Insider Trading Charges".

So, what is the point here? Simply that we continue to see the all too familiar themes of:

• Excessive Wall Street pay packages and all that that can bring.
  
• "Bubbles" again being created right before our eyes.
  
• Taxpayers and retail investors as always going to the rear of line.
  
• Congress focused on politics as usual rather than seeking solutions.
  
• And investment firms and hedge funds continuing to play by their own rules. Thankfully on this front, the SEC and other regulatory bodies are finally attempting to assess some accountability.

Why does any of this matter you ask? Isn't the financial crisis in the rearview mirror and the stock market almost all the way back? It's all good, no?

Well, no. I will not insult your patience or intelligence with a litany of the long-term lingering effects of 2008-2009, on both a macro and micro basis. But there are certain elements of that story I would like to address at another time, taking a look at the various constituencies who will take a very long time to "recover" and some who perhaps never will. They may surprise you.

But not all is gloom and doom. Congratulations on surviving Saturday's 5:59:59 EST "End of the World". However, I now see that the date has been revised and now the "Real End" will be on October 21st. And we will still have to deal with the December 21, 2012 Mayan prediction of the end of civilization.

Here is my one small question. Through and including Saturday, several "End of the World" websites I checked were still listing events and schedules for next week and some were requesting mail-in donations. I found that interesting.

 

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