Robert Lenzner
Forbes columnist
I credit Fareed Zakaria, one of the clearest thinkers on current public affairs, for articulating this insight. The lesson Zakaria — and all of us — have learned is that Wall Street’s image of the best and the brightest masters of the financial universe is no more. That’s a shocking notion to absorb, since all my working life I reckoned the Kingdoms of Wall Street were the vanguard on affairs of money — at the summit of the pecking order globally — ahead of the Germans, the British, the French and Hong Kong, Shanghai, Geneva and Zurich.
The myth of competence was underscored by today’s story of how Goldman Sachs lost 98% of Libya’s $1.3 billion invested in options on global banks like Citigroup, just before it was discovered they were more or less insolvent. Wow! In Goldman Sachs We Trust! At the very moment of maximum pending disaster Goldman Sachs considered it the investment to make for Libya. It was the very worst place to put the Libyan money. Maybe there will be more unveilings of such wealth destructing investment decisions.
Then, there is JP Morgan Chase whose management inexplicably allowed $100 billion to be laundered between two good clients including one Bernard Madoff, the leading swindler of the 21st century so far. No one at benighted JPM ever inquired as to the purpose of this $100 billion shuffle. Maybe the financial competence is with the corrupt side of American finance. I have repeated this inept dealing yarn and no one can believe $100 billion — not million — was passed around this loosey-goosey way.
JP Morgan, Bank of America and others also have mishandled the mortgage snafu on residential homes throughout America. The trust that once was supposed to exist between consumers of finance and their sources of money has been fractured, perhaps beyond solution. You’re going to be hearing a great deal more about this ineptitude at the retail financial level. The opposite of sovereign wealth misplaced.
Not to speak of the burgeoning disaster in public and private pension funds over their inability to meet the retirement expectations of their employees. Mistaken arithmetic models, investment strategies that involved vast amounts of illiquid investments in real estate and corporate investments with the innocent sounding monicker: private equity.
The financial meltdown of 2008, of course, revealed the lack of foresight, the imbecility of senior executives, their lack of public virtue and the way these reputed houses of financial versatility had lost control of themselves — and had to be bailed out to the tune of $3-$4 trillion in loans, investments, guarantees and the like.
Citigroup had no risk control system, and was borrowing short to invest long in complicated mortgage-backed securities they didn’t understand — off the balance sheet no less.
AIG, the largest insurance company in the world, held $500 billion — that is HALF A TRILLION in credit derivatives on which they had no protection at all against a decline in the value of those securities. Does this sound competent or even sane — to be risking HALF A TRILLION DOLLARS? It’s hard to believe I actually wrote that last sentence. Why don’t you read it over, please?
And I could go on. Look at the current debate on raising the nation’s debt limit. Have you seen any of our Masters of the Financial Universe provide a rational, pragmatic solution to this genuine crisis of financial competence that impacts all 350 million Americans?
Do you have faith in your financial leadership to do more than maximize their annual bonus? Let me know please- as I am worried.