Wednesday, November 18, 2009
Wall Street: Resourcefulness, Intelligence & Greed
Have you ever had someone say to you "let's get together"? At the time that they said it, you knew they didn't mean it, but it sounded nice nevertheless. Well, that's the way I feel people talk about competition. They like the way it sounds, but they really don't mean it. I know we all have our stories of where we saw pure competition take a back seat to winning. The stories of sports competitions that saw individuals cheat would easy fill a book. But cheating does not just occur in sports. Cheating occurs in business as well, where the rewards can make someone very rich.
Greed is alive and well around the world. It would be ridiculous to pretend that greed only exists on Wall Street among those plying their talents in the trading rooms of the investment securities firms that are left standing. But given the history of money and banking, underwriting and peddling securities, that reasonable and intelligent people would come to the conclusion that: it is not the tools of the business that are bad, but rather the way those tools are used.
I come back to the mortgage-backed bond because I think it is an excellent example of how technology has permitted great strides in the financing of homes and the growth to our economy and home ownership. By bundling mortgages and securitizing them into mortgage-backed bonds, the market can bring borrowers and lenders together. However, if there is cheating in this process, the bonds will eventually fail and the bond market will have a meltdown as no one will know which mortgage-backed bonds are good.
The history of investment banking in the United States is a history of resourcefulness, intelligence and greed. The object of the Federal Government, in my opinion, is to permit resourcefulness and intelligence to exist while at the same time using regulation, transparency and enforcement to control greed. It worked for many years, but the money made on Wall Street got so big that buying the Government was not out of the realm of possibilities. Let us hope that the new regulations will protect the investor while at the same time permitting our economy to grow. Credit in the 21st century is the currency of choice, and without credit the economy will suffer. But, without meaningful regulation to check greed, we are all headed back down the same road again.