Todd Harrison: "Adding Insult to Injury"
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Todd Harrison: "Adding Insult to Injury"
"Freaky Friday Potpourri: Adding Insult to Injury"
Todd Harrison
Dec 12, 2008 10:15 am
" New scandal erupts in already marred market
"All you have is your name and your word."
--Ruby Peck
My grandfather taught me that there are three foundational elements to any successful relationship, be it business, family or friendship.
They are honesty, trust and respect.
If any one of those bonds were broken at any given time, the underlying dynamic would never be the same.
If more than one were breached, the odds were stacked against you.
If all three were violated, it would be game over, time to punch out and put a fork in any remnant faith.
Our concerns in the financial space have been highlighted for many moons. In June 2007, when the banking index was 65% higher than current levels, we scribed After the Gold Rush when mainstay averages were at all-time highs, M&A was on a trillion-dollar run rate and Blackstone (BX) billions were being minted.
We offered that "The financial sector currently represents roughly 21% of the S&P, not including "financials in drag" such as General Electric (GE) and General Motors (GM), which derive a large portion of their earnings from finance based operations."
"The natural question is therefore begged," we continued, "do you need exposure to the banks and brokers? It would appear that, given our finance-based economy and the risk of higher rates, investors are already there in spades."
Fast forward to the following fall, we cast a glance at the ivory towers at Wall and Broad and asked ye faithful to not hate the player, but hate the game. And I quote:
"What’s clear is that changing the costume in the corner office won’t turn the trick. Stan O’Neal, Chuck Prince and Warren Specter are all smart guys that played the same game as everyone else. They just haven’t played it as well as their contemporaries and have been held to task in kind.
We saw similar stories manifest when the tech bubble burst and corporate malfeasance morphed into a modern-day witch-hunt. That's not to say these guys are Kozlowski or Ebbers or Lay. Their antics perpetuated fraud as opposed to a universally accepted, albeit misunderstood, systematic process.
But the structural imbalances, hidden risks, counter-party collateral exposure and embedded insecurities aren’t one-and-done write-downs. That’s not how the knitting is weaved with $500 trillion dollars of derivatives in play. In fact, one could argue that the inherent learning curve needed to unwind these interdependencies will allow the issues themselves to manifest.
The frightening part of these modern day sequels is that the same greed and reward-chasing behavior that was responsible for the universal acceptance of risk has again been so readily embraced. It is that story itself—the twisted tale of misguided agendas—that is the common thread of these seemingly disparate plots.
Trick or treat, my friends, and be wary of the bad apples. For when we bite into the forbidden fruit, we’re liable to find the pin that pricks collective psychology and leaves us all howling at the moon."
The carnage we’ve since seen has been beyond mainstream imagination. Bear Stearns, Fannie Mae (FNM), Freddie Mac (FRE), AIG (AIG), Lehman Brothers, Washington Mutual, IndyMac, Wachovia Bank (WB), Citigroup (C) and other once impenetrable institutions seized up and set into motion a derivative contagion that has threatened the very existence of the capital market construct.
We used the analogy that the financial dike was springing holes at a furious pace and only so many fingers were available to plug them.
With our collective hands, feet, heads and heavy hearts pressed hard against the wall of worry with hopes of stemming the crimson tide, the very last thing we needed was a kick to the groin.
Move Over, Shoeless Joe Jackson
It was well past 2:00 AM as our train made its way through the dark northeast corridor towards New York City. The Minyanville brass, having journeyed to our nation's capital for a high profile dinner meeting only hours earlier, was on our way home to finish up the freaky week.
As my team tried to steal a few winks, slackers they are, I reached for my laptop to get a fresh read on the world. Tenacity has always been the backbone of success but 2008 has tested our collective resolve in ways most could have never imagined.
You gotta want it. You really gotta want it.
The news, as is the norm these days, was putrid.
Bank of America (BAC) would slash 35,000 staffers over the next three years.
General Motors, Chrysler LLC and Ford (F) are being fitted for toe tags, casting a shadow across the entire automotive food chain.
And then I saw it.
Bernie Madoff, the former Nasdaq Stock Market chairman, was arrested and charged with securities fraud in what investigators called a Ponzi scheme that could cost investors more than $50 billion dollars.
Fifty billion dollars.
Remember what I said about not hating the player, hating the game?
Wall Street, already painted with a blame brush, is about to be tarred, feathered, rolled in honey and roped to an oak tree infested with fire ants on a 120-degree day.
Like many of my contemporaries, I didn’t know Bernie Madoff personally but I certainly heard of him. He was a pioneer on Wall Street, starting in 1960 with $5000 and creating the 23rd largest market-maker on the NASDAQ, handing about 50 million shares per day.
He was one of those steady stalwarts, or so I heard, the Lou Manheim of our A.D.D. immediate gratification generation.
What we now know is that he allegedly took fresh investor inflows and paid other investors false returns, a scheme that seemingly went undetected by regulators for many years. This is not only a black mark on the free market system, or what’s left of it, it’s a stain on the reputation of those who were supposed to police it.
Faith in the system and the credibility of financial regulators are fragile, at best. As social mood and risk appetites shape financial markets, we need to respect this fresh flaw in an already risky environment.
This scandal, if true, is on par with the greatest frauds in banking history, if not bigger.
Indeed, Boesky, Eggers and Kozlowski never chaired the very institutions they threatened to destroy.
As Mike O’Roarke of BTIG noted last night, history, while not always repeating, often rhymes. On March 10th, 1938 Dick Whitney, the former President of the NYSE and the hero of the Crash of 1929, was indicted for fraud after he bilked his firm, friends, relatives, wife and charities of millions to support a lavish lifestyle.
We can only hope the Madoff Massacre marks a similar stake in the timeline of our current crisis.
Hope, as we’re apt to say in the ‘Ville however, rarely qualifies as a viable catalyst.
The ramifications of this situation may not be measured today as there are multitudes of crosscurrents vying for mind share. What's clear, however is that it's going to be a long time before trust and faith is restored between traditional financial intermediaries.
Welcome to the New World Order, where you're a reflection of the company you keep and protected by the community that surrounds you.
I don't know about you but for my money, I sure am glad that I'm a Minyan.
Good luck today.
R.P."
(in www.minyanville.com)
Todd Harrison
Dec 12, 2008 10:15 am
" New scandal erupts in already marred market
"All you have is your name and your word."
--Ruby Peck
My grandfather taught me that there are three foundational elements to any successful relationship, be it business, family or friendship.
They are honesty, trust and respect.
If any one of those bonds were broken at any given time, the underlying dynamic would never be the same.
If more than one were breached, the odds were stacked against you.
If all three were violated, it would be game over, time to punch out and put a fork in any remnant faith.
Our concerns in the financial space have been highlighted for many moons. In June 2007, when the banking index was 65% higher than current levels, we scribed After the Gold Rush when mainstay averages were at all-time highs, M&A was on a trillion-dollar run rate and Blackstone (BX) billions were being minted.
We offered that "The financial sector currently represents roughly 21% of the S&P, not including "financials in drag" such as General Electric (GE) and General Motors (GM), which derive a large portion of their earnings from finance based operations."
"The natural question is therefore begged," we continued, "do you need exposure to the banks and brokers? It would appear that, given our finance-based economy and the risk of higher rates, investors are already there in spades."
Fast forward to the following fall, we cast a glance at the ivory towers at Wall and Broad and asked ye faithful to not hate the player, but hate the game. And I quote:
"What’s clear is that changing the costume in the corner office won’t turn the trick. Stan O’Neal, Chuck Prince and Warren Specter are all smart guys that played the same game as everyone else. They just haven’t played it as well as their contemporaries and have been held to task in kind.
We saw similar stories manifest when the tech bubble burst and corporate malfeasance morphed into a modern-day witch-hunt. That's not to say these guys are Kozlowski or Ebbers or Lay. Their antics perpetuated fraud as opposed to a universally accepted, albeit misunderstood, systematic process.
But the structural imbalances, hidden risks, counter-party collateral exposure and embedded insecurities aren’t one-and-done write-downs. That’s not how the knitting is weaved with $500 trillion dollars of derivatives in play. In fact, one could argue that the inherent learning curve needed to unwind these interdependencies will allow the issues themselves to manifest.
The frightening part of these modern day sequels is that the same greed and reward-chasing behavior that was responsible for the universal acceptance of risk has again been so readily embraced. It is that story itself—the twisted tale of misguided agendas—that is the common thread of these seemingly disparate plots.
Trick or treat, my friends, and be wary of the bad apples. For when we bite into the forbidden fruit, we’re liable to find the pin that pricks collective psychology and leaves us all howling at the moon."
The carnage we’ve since seen has been beyond mainstream imagination. Bear Stearns, Fannie Mae (FNM), Freddie Mac (FRE), AIG (AIG), Lehman Brothers, Washington Mutual, IndyMac, Wachovia Bank (WB), Citigroup (C) and other once impenetrable institutions seized up and set into motion a derivative contagion that has threatened the very existence of the capital market construct.
We used the analogy that the financial dike was springing holes at a furious pace and only so many fingers were available to plug them.
With our collective hands, feet, heads and heavy hearts pressed hard against the wall of worry with hopes of stemming the crimson tide, the very last thing we needed was a kick to the groin.
Move Over, Shoeless Joe Jackson
It was well past 2:00 AM as our train made its way through the dark northeast corridor towards New York City. The Minyanville brass, having journeyed to our nation's capital for a high profile dinner meeting only hours earlier, was on our way home to finish up the freaky week.
As my team tried to steal a few winks, slackers they are, I reached for my laptop to get a fresh read on the world. Tenacity has always been the backbone of success but 2008 has tested our collective resolve in ways most could have never imagined.
You gotta want it. You really gotta want it.
The news, as is the norm these days, was putrid.
Bank of America (BAC) would slash 35,000 staffers over the next three years.
General Motors, Chrysler LLC and Ford (F) are being fitted for toe tags, casting a shadow across the entire automotive food chain.
And then I saw it.
Bernie Madoff, the former Nasdaq Stock Market chairman, was arrested and charged with securities fraud in what investigators called a Ponzi scheme that could cost investors more than $50 billion dollars.
Fifty billion dollars.
Remember what I said about not hating the player, hating the game?
Wall Street, already painted with a blame brush, is about to be tarred, feathered, rolled in honey and roped to an oak tree infested with fire ants on a 120-degree day.
Like many of my contemporaries, I didn’t know Bernie Madoff personally but I certainly heard of him. He was a pioneer on Wall Street, starting in 1960 with $5000 and creating the 23rd largest market-maker on the NASDAQ, handing about 50 million shares per day.
He was one of those steady stalwarts, or so I heard, the Lou Manheim of our A.D.D. immediate gratification generation.
What we now know is that he allegedly took fresh investor inflows and paid other investors false returns, a scheme that seemingly went undetected by regulators for many years. This is not only a black mark on the free market system, or what’s left of it, it’s a stain on the reputation of those who were supposed to police it.
Faith in the system and the credibility of financial regulators are fragile, at best. As social mood and risk appetites shape financial markets, we need to respect this fresh flaw in an already risky environment.
This scandal, if true, is on par with the greatest frauds in banking history, if not bigger.
Indeed, Boesky, Eggers and Kozlowski never chaired the very institutions they threatened to destroy.
As Mike O’Roarke of BTIG noted last night, history, while not always repeating, often rhymes. On March 10th, 1938 Dick Whitney, the former President of the NYSE and the hero of the Crash of 1929, was indicted for fraud after he bilked his firm, friends, relatives, wife and charities of millions to support a lavish lifestyle.
We can only hope the Madoff Massacre marks a similar stake in the timeline of our current crisis.
Hope, as we’re apt to say in the ‘Ville however, rarely qualifies as a viable catalyst.
The ramifications of this situation may not be measured today as there are multitudes of crosscurrents vying for mind share. What's clear, however is that it's going to be a long time before trust and faith is restored between traditional financial intermediaries.
Welcome to the New World Order, where you're a reflection of the company you keep and protected by the community that surrounds you.
I don't know about you but for my money, I sure am glad that I'm a Minyan.
Good luck today.
R.P."
(in www.minyanville.com)
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