For most of our lives bankers have been represented to us as conservative creatures, dressed in pin-stripe suits, nary to part with a dollar and certainly adverse to taking any risk. This image was cast in our movies, television, and novels. Unfortunately, with events playing out as they are today, this carefully-crafted stereotype couldn't be further from the reality.
Mr. Drysdale, who managed Jed Clampett's millions in the Beverly Hillbilly's television show of the '60s is just that -- a TV character. If you look back over the last few decades it has all been a facade, and the government has participated in this fraud by loosening banking laws and allowing these institutions to wander farther and farther from rational and safe behavior in pursuit of the highest returns they could get without limit.
If you are old enough, you might remember back three decades when the banks were seeking these high returns in South America, when inflation and interest rates tempted them and they all took a big bath. Then a decade later in 1989 the commercial real estate market collapsed amid over-valuations, and many banks and thrifts collapsed along with them...right into the arms of the Federal Government, which was forced to take them over with yet another bailout. This took about five years to turn around and things were brighter by early 1995.
But just four short years later, in October 1998, after first foolishly chasing foreign market returns, followed by once again making the aforementioned valuation and over-development mistakes, we learned that the new culprit -- extreme leverage -- was the boogyman that brought down the Nobel laureates of Long Term Capital Management (LTCM). Alan Greenspan was so concerned that this company might cause a global financial catastrophe that he assembled a group of the nation's largest financial institutions along with federal support to bail them out and "take them out" -- sheer genius!
This brings us to the present, where we find that the Federal Government has let the banking industry -- from top to bottom -- mortgage brokers and banks all the way up to our largest investment banks and rating agencies -- do whatever they wanted to, with very little oversight or guidelines. Once more the industry is seeking relief. It wants the Government (read: John Q. Public) to bail it out once again.
While my editors have given me complete freedom to express my ideas with very few limits, they will not let me use the language that I feel most appropriately describes the slipshod and disgraceful behavior of the banking industry and the Federal Government's lack of governance.
This goes beyond government oversight. Consider that just last week the Board of Directors of Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C) asked for and received the resignations of their Chief Executive Officers Stanley O'neal and Chuck Prince for having "run the ship aground." It is amazing to me as investors we put money into institutions based on the limited public information from which we must depend, but that the boards of these institutions do not even know what's going on and do not wake up until the public disclosure of tens of billions of dollars in losses can be cloaked no longer. This is truly obscene.
It would not be fair to portray the entire industry as bad apples although the largest of them reside in the Big Apple. There are many banks that have not strayed from their core long term businesses pursuing higher returns and assuming the commensurate higher risk. However, it seems it is a matter of degree and not complete abstinence. The banking industry is in the midst of mind boggling fiasco AGAIN and we can be sure that there is more bad news to come. The most important thing to remember going forward is that BANKERS ARE NOT CONSERVATIVE... they just dress that way.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
11-07-2007 @ 5:10PM
Mort said...
You are right on! Corruption in banking is coming to light. Looks like lots more to come. 2008 ought to very interesting for American markets...
11-07-2007 @ 5:17PM
CrossProfit said...
"If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people."
-- Thomas Edison, The New York Times, December 6, 1921
Now add the following;
"If the American people ever allow private banks to control the issuance of their currencies, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their prosperity until their children will wake up homeless on the continent their fathers conquered." -- Thomas Jefferson.
The whole housing debacle is the outcome of both of the above. The government did its part; issuing treasuries. The banks did their part; creating housing inflation. So I guess now it is time for housing deflation and for the children to wake up homeless.
Both Edison and Jefferson hit the nail on the head.
Disclosure: This is the opinion of a CrossProfit analyst and is the consensus at CrossProfit.com.
http://www.crossprofit.com