The story below (greed) traces the underlying cause (greed) for several of Wall Street’s notable firms’ (more greed) rise and now fall (GREED).
Two takeaways:
- Follow the money: if your financial advisor works for a Wall Street brokerage firm, the advisor answers to his employer, not to you.
- Keep your investments at an institution that serves solely in a brokerage firm capacity. Don’t be a casualty of another financial firm implosion.
“…the truth is that Wall Street’s shocking reversal of fortune was inevitable. Its black box is virtually guaranteed to careen from record riches to deep losses and ensure that employees grab a fat share of the booty. “As margins shrank in traditional businesses like underwriting and brokerage, Wall Street looked for new places to make money,” says Louis Pizante, a former investment banker at Goldman Sachs and Nomura who runs Mavent, a leading compliance firm that ensures that mortgages bought by Fannie Mae and other institutions comply with federal and state regulations. “In the process the firms took imprudent risks to make big profits.”
Put simply, Wall Street firms used towering leverage to make lottery-like loot in a long-running bull market that blatantly underpriced risk. Now that run is over, and the price of risk is rising dramatically. That’s driving down the value of everything from junk bonds to mortgage-backed securities, and Wall Street’s addiction to leverage is cutting the wrong way. The Bear Stearns story is a primer on the Wall Street curse: When portfolios are built on a mountain of debt, a firm’s capital can vanish overnight…
Read the whole story (Fortune Magazine, Shawn Tully).
"For where you have envy and selfish ambition, there you find disorder and every evil practice."
James 3:16
Read the disclosure.
