It used to be that if you were into the soap opera scene you just turned on your television from early to mid afternoon and watched your favorite shows. Well, now we have the all day variety and it is based in none other than our nation’s capital, Washington, D.C. It truly was most interesting in that today’s show began mid morning and lasted well into the evening. The employees of a major Wall Street powerbroker got to play starring roles before a national audience, if you were tuned into a cable network such as CNBC. Oh, and let’s not forget the Tony award winning senators, such as Carl Levin, who got to use the airtime as a bully pulpit for their personal agenda’s.
Let me be clear that I am not trying to defend the parties on either side of the table. For my take, I admit, that it is quite disappointing that a highly reputable firm has tarnished their image quite badly. At the same time, though, to listen to the condescending nature of the political hierarchy that we elected to office is also quite frustrating. Without question, the matter, with the firm facing an SEC fraud charge, makes for great political drama as the issue of the “tightening” of Federal Regulation on Wall Street tries to work its way through the Senate chambers. Once again we have a partisan political process that shows little room for negotiation.
As I started to mention, it is disturbing to recognize that this premier Wall Street investment bank has changed much of its business model to become more of what can be characterized as a riverboat gambler. There was a time when business institutions sought out the services of this prestigious Wall Street firm to help them raise capital through such means as an initial public offering. For a company to have its fund raising efforts directed by this firm was a most prestigious undertaking with an extremely high probability of success.
Maybe the change started after the firm decided to abandon its partnership status and went public in 1999. Now, in order to produce profits acceptable to the investment community of shareholders, it needed to compete more aggressively with other major financial institutions. The highly profitable IPO and mergers and acquisitions market unfortunately closed down after the tech bubble burst in the early 2000’s. So the business emphasis turned to “trading” securities. By 2006 its current CEO took over as head of the company and brought along his experience from the trading side of the firm. The world of derivative trading, the source of current charges, became a much larger contribution to business profits.
So today, we were able to watch the soap opera play out. Politicians got to verbally lash out at various company representatives accusing them of treating clients not as customers, but as mere objects for profit. In turn, those same representatives seemed to maintain their composure and defended their actions with a defense that much of their business has the purpose of being a market maker and not acting as an investment advisor. That should remind folks of the philosophy of caveat emptor!
