CRIMINAL CONFLICTS OF INTEREST
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For the last 20 years plus I’ve been amazed by the vast conflicts of interest that exist on Wall Street and in the financial industry. My first wake-up call was watching my first investment firm implode because of its own internal conflicts and mismanagement of an IPO of a mortgage derivatives fund, brought to us by our new hot shot MBA CEO out of some Ivy League school. That one particular investment brought down a 100 year old firm, and lost our investors at least $50 million (this was when $50 million was a lot of money). The firm was blindsided by the upside potential of this mortgage related, derivatives based, algorithmic program that they felt was hedged in every way possible, and would earn the firm millions in fees over the years.
It was not…and in less than 9 months it brought the entire firm down. No one went to jail and no one was forced to take responsibility. Incredible.
About five years later I watched two of my company’s red hot IPO’s file for bankruptcy, both within a year. Again, well over a hundred million lost to investors, yet no one was forced to pay the price. Nauseating.
In 1995 or so I read an article in the NY Times about Merrill Lynch and their research department. The article (which was buried on page 15b I think) spelled out that of the 700 or so stocks that Merrill’s analysts followed, each had a rating of Buy, Sell or Hold. You would think that the ratings would be evenly distributed, say with 300 Buy ratings, 200 Sell ratings, and 200 Hold Ratings….this would represent a somewhat balanced and fair ratings system. But, as the Times piece spelled out, Merrill’s analysts had sell ratings on just a handful of these companies that their research department followed. If you’re asking “how could that possibly be the case?”… here’s how: each of these companies also paid (or had the potential to pay) Merrill Lynch significant and very lucrative “finders fees” or commissions on future investment banking business, and Merrill’s higher ups that oversaw the revenue side of the business knew that a “sell rating” would be the kiss of death to ever earning those huge fees that are the lifeblood of Wall Street.
Finally, years later, Wall Street was investigated for this fraudulent practice and forced to pay over $1 billion in fines…an amount that was supposed to be true penance for their admitted wrongdoing. The truth however was something else. That $1 billion fine worked out to less than 3 days of profits for the firms involved!
Of course we all know about Enron, WorldCom and the various dot-coms that were nothing more than one big shell game. And we know about the $500 million bailout of hundreds upon hundreds of criminal savings and loans that became the Resolution Trust Corp from the 1980’s. Our modern day, trillion dollar bailout of the banking industry and of Wall Street is happening right before our eyes. Just follow the money that’s being doled out under the TARP Program and you’ll know who caused it by watching who saves the day (hint, they are one in the same).
Now, we have the biggest Ponzi Scheme ever supposedly in investment gurus Bernard Madoff’s $50 billion scam. The SEC investigated Madoffs firm 8 times over 16 years, yet could find only minor record keeping violations….say what? Any novice in investments or bookkeeping could have spotted this scheme from a mile away, and in fact many reported him to the SEC over a 10-15 year period. Yet incredibly, the SEC failed to once take action. Now, over 8000 investors in Madoffs fund have likely lost everything they invested. $50 billion gone in the blink of an eye…
When will these CRIMINAL CONFLICTS OF INTEREST stop?? When will someone in our country’s leadership have the courage and decency to do the right thing and completely restructure the Pyramid Scheme that is Wall Street??
And, let’s not stop there. While we’re on the subject of Ponzi Schemes, let’s do something about the one that really is the biggest Ponzi Scheme ever; Social Security, or Social Insecurity if we were to call it by its real name. This boondoggle of an entitlement program is bankrupt, as all of the money in it has been “borrowed” by the Federal government to pay for other programs. In 2020, if not sooner, our taxes will have to be raised to 70% just to fund these bankrupt entitlement programs, including Social Security, Medicare and Medicaid.
This is the sad, depressing future that we’re leaving our kids and grandkids. President Obama, if you truly do represent “Change that we can all believe in”, do the right thing and put an end to ALL of these criminal conspiracies, once and for all. Unless someone does it, and soon, we won’t have a country to call home for very much longer.
Kip Herriage
Editor, VRA
