Regulation, Reform, and lots of shame on wall street

Rep. Barney Frank, Chairman of the House Financial Services Committee wants more regulations for wall street, and to pass laws “addressing” executive compensation.  I’m guessing “address” here means limit.

Obama’s ‘banking czar’ Paul Volcker has his reform proposal, and it seems everyone in the country who doesn’t make as much money as wall streeters or bankers wants them to make less.

I think truly those people would probably be happy if they made more, but since most of us  don’t see million dollar bonuses in our futures, we think about how much those guys are making.  Especially since most of them are still making it and some of us are making nothing.

We have a couple of issues here – everyone is unhappy, and with reason, over what the financial markets have managed to do to us, and at the same time, do for them.

So lets look again at what they did:

At the most simplistic level:

1. They came up with dozens of ways to make money – they came up with new products to sell to everyone from other investment banks to institutional investors, to those people who had never paid a bill in their life, but still wanted to own their own homes.
2. They did this with encouragement from the Clinton Administration (changes to Fannie/Freddie guidelines to assist more people into home ownership)
3. They did it with help from the Federal Reserve (who kept credit really really cheap, not just for institutions, but for EVERYONE in the country)

Am I okay with it?  Hardly.  My life has been turned inside out.  But I believe that the people who are trying to FIX this problem don’t understand exactly how we got where we are. 

Read any book written on Lehman Brothers, they’ll all tell you that Lehman Brothers Chairman and CEO Richard Fuld – who by the way made over $30 million the last year his company was still breathing – didn’t understand the markets and what his people were doing to them and doing with them.  

And not to just pick on Dick Fuld (although a lot of people will agree with me that he deserves it), Long Term Capital Management’s John Meriweather wasn’t aware that his traders were hanging him out to dry.  That was the first of the almost crippling blows to the economy. 

And it should have been the first red flag that maybe, just maybe, leveraging capital (someone else’s capital) to the tune of 40 to one may have been more than just a bad idea.

I don’t think it is possible for people completely outside the hallowed money walls to get to the root, fix it, and keep the US afloat while they do it.  Hell, the Fed and the SEC weren’t doing anything when those guys were playing fast and loose with our lives and our livlihoods, how can Senators and Congressmen begin to get a grasp now and figure it out, then make the necessary corrections?

I read in THE WEEK’s Confidential Intelligence Briefing (touted as some of the most intriguing information and opinion printed in THE WEEK in the last year):

 

A new study revealed that “functional psychopaths” make better investors, [and] CEOs … than normal people because they lack normal human emotions.

I don’t know who did the study, and I don’t care.  It makes a good story, doesn’t it?  And those Wall Street Guys that dreamed up those products, sliced and diced credit derivatives, and sold them off in a thousand different directions, they made great investors, didn’t they? Most of them? The ones we’ve heard about?  They made money for themselves and for the financial institutions for whom they worked. Trouble is, they made if off the backs of their countrymen, and the backs of half the world, and that’s not okay with us.

But I fear the worst from those who run out screaming now that they will fix this and fix that. Why didn’t they notice when it was happening? Why didn’t anyone get a handle on it then?

And, really, how’d they get so much smarter here lately?