September 05, 2008

“A Con Game In Pinstripes”

Steven Pearlstein is the Washington Post’s Pulitzer Prize-winning business columnist. Over the past few years he’s written some of the most perceptive accounts of the "bigger = better" dynamics that underlie the world’s current economic crisis. Today’s column is no exception:

“There would have never been a subprime mortgage crisis if Wall Street's underwriters had not been on the phone to bankers and brokers with incessant calls for more ‘product,’ by which they meant any loan for any amount to any borrower that could be packaged and sold off without even a pretence of due diligence and shopped around to the rating agency most likely to trade a triple-A rating for a triple-A fee.”

Steve goes on to warn:

“These people are not your friends. They have already racked up half a trillion dollars in credit losses, wiped out five years of shareholders' profits and taken the wind out of the sails of the global economy. Given the situation, you'd think the leaders of this industry would have stepped forward to acknowledge the extent of the damage and apologize for their deep complicity in it. Instead, they have pointed fingers at the media and short-sellers, offered lame excuses about unforeseen market forces and warned of dire consequences from increased regulation, as if things were not dire enough already.”

And he’s very clear about what needs to happen if things are to change for the better:

“This is an industry that has lost all credibility -- with investors, with corporate clients and with the public. Its fundamental problem is a corrupt culture that is shaped by inflated fees and excessive compensation that bear too little relation to the risk, skills and innovation involved. Until that excessive compensation is competed away and that culture is transformed, Wall Street will continue to serve up a steady diet of booms, busts and financial scandals.”

Read his full article – and check out his past columns for a heavy dose of the kind of clear thinking that’s been so missing on Wall Street and in Washington.


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