In Sweeny Todd fashion the Financial industry has chosen, on first blush, a rather unexpected target for its financial rapacity – itself. And recent articles in the prestigious MIT Technology Review- The Blow Up and The Economist-the Darkside of Debt detail how the jugular cuts, more appropriate to a cheap Hollywood Slasher flick, were done on the Streets DarkSides. Increasingly the open, transparent, and readily valued markets are being shunned for the secretive and complex worlds of private placement compounded by complex derivative financial instruments which are often hard to trace and even harder to value. Add to this mix the explosively expanding use of computerized automatic trading and you have the Wall Street FUBAR Wrecking tool that puts Hollywood’s Transformers to shame.
Now the latest installment of Wall Street FUBAR, the Sub-Prime Fiasco is unfolding to the consternation of the financial community, its regulators and the usual Financial Slasher’s target, the Consumers Commons always fit for another Wall Street high financial bloodletting – whats a few $10s of billions dollars in losses spread over an acquiescent public . But this time the victims may be threefold sufferers in increasing order of magnitude.
First, the regulators, commercial in the case of Moody’s, Standard and Poor, and other rating agencies have such bastions of the Street as Barrons calling for greatly revised regulation. Likewise the Federal agencies such as FRB-Federal Reserve Board, SEC, and Treasury all have been found wanting and so all the agencies along with Congressional legislators are starting to make regulatory proposals some on the scale of the cursed Sarbanes Oxley accounting strictures. With new found “change=populism” rearing itself in the US Presidential campaigns, more not less financial markets regulation is likely on tap. On the other hand, this re-examination of how well the Finance community delivers on risk management and fiduciary trust may have some takers from beleaguered investors
The second victims of subprime slash attacks have been the the financial community itself. Billions of dollars in writedowns by all the major banks and investment houses (save one) are just the tip of the iceberg. The financial community having been thrown into a deep state of distrust, is just not doing “business as usual” to the extent that the Treasury and several Central Banks have had to intercede to prevent a major financial clotting and blockage. Some like Bloomberg conjecture big upheavals for the Financial communities compensation and bonus system. But of even greater import, as major banks and investment houses have had to go out on to world markets and sell 4-10% of themselves; they also have a much more difficult line to sell in the future. Wall Street bankers are now perceived as poor risk managers if not greedy financial derivative gun-slingers – willing to risk maybe a recession or perhaps monumental losses or even a system meltdown all in the name of confiscatory and ephemeral returns.
The third, biggest set of losers are the public; and well do they deserve the Wall Street motto – “never give a sucker an even break”. The bumpkin public have already gotten to eat large losses in any of their financial stocks, continuing losses in the value of their home equity, and very likely a recessionary downturn in the economy all thanks to their “trusted” financial community. Of course since this is spread over tens of millions of families and to varying degrees – and can be blamed on a few rapacious lenders – it will be a case of “no real harm, no foul”. So, like DotCom Bubble of 2000, The Asian Crisis of 1998 (a preview of the current subprime crisis), the Saving and Loans debacle of 12-16 years ago and Junk Bonds of just 4 years before it will just be dissipated in token action over a few years. Heck the Fed is regularly the moral hazard and financial safe haven for Wall Street’s stream of indiscretions. Besides financial power is one of the future pillars of US employment now that manufacturing jobs have been gutted and all but abandoned. So who wants to offend the Street ?And finally our $billion++ baby Wall Street CEOs can buy an awful lot of influence in Washington. So like the guys said at Business Week – expect another playing in a couple years time of the Sweeny Todd Opera down on the Wall of a Street.
And its precisely this financial cynicism coupled with drastic effect of globalization on the US economy, that has spawned a new “change” populism as evidenced by the recent primary votes in the US. Both the Republican Mike Huckabee and the top two Democrats, Barack Obama and especially John Edwards, all had strong arguments with economic populism as key components of their campaigns. Edwards, a very successful trial lawyer, is making defense of the middle class interests his primary campaign motif. And so as the US Presidential campaign proceeds over the next year, it will be revealing to see how deeply economic populism drives the election. Suffice it to say, Wall Street and the Financial market movers and shakers have done themselves a pile of no-good with the Subprime Fiasco.