RSS Feed
Twitter
Facebook
Email
HomeRichard Bowen: The Corruption Extends to the Highest Levels of Government
Posted by Larry Doyle on September 23rd, 2013 10:02 AM |
I thank the many devoted readers of Sense on Cents who made sure I was aware of a riveting, must-read article in yesterday’s New York Times written by Bill Cohan, a Wall Street-Washington critic without peer.
Cohan writes of the travails of Richard Bowen, former whistleblower at Citigroup, who ran headlong into the fortress manned by Robert Rubin and friends. Bowen was a Citi employee who blew the whistle regarding the preponderance of defective mortgages running through the Citi pipeline.
He brought the knowledge of this activity to the highest perch within the bank including the attention of Robert Rubin. How was he treated? With what most would define as ‘the silent treatment.’ Once silenced, he was then subsequently shown the door.
While Bowen was pushed out of Citigroup back in 2009, he has not been silenced since then. (more…)
Tiger Woods and The Greatest Risk
Posted by Larry Doyle on December 18th, 2009 3:07 PM |
What do the dalliances and sexploits of Tiger Woods have to do with Sense on Cents? Everything.
Uh-oh. Are you thinking, “Don’t tell me, LD, that you are going to turn a staid and fairly conservative business blog into a place for social stargazing and barroom gossip.”
No, don’t worry about that. While there are some obvious personal lessons involved in the Tiger Woods saga, there is a very real business lesson as well. I initially addressed this lesson when writing about Bear Stearns a year ago. My piece, “The Greatest Risk,” addresses reputation. I wrote then:
For those who have read my pieces, you have heard me stress how important it is to understand risk. On Wall Street,as in any business, there are all types of risk. For example, there is market risk, credit risk, interest rate risk, prepayment risk, and counter-party risk amongst others. For anybody involved in the markets, all of these risks are facts of everyday life, but they pale in the face of what many feel is the greatest risk of all, and that is “in never taking risk.” For without risk, there is no reward.
However, in my opinion, there is a greater risk that lurks everyday and for my money is massively mispriced, and that is reputation risk. When I say mispriced, I mean there is no premium high enough to jeopardize one’s personal and professional reputation.
Again, there are many who would say Tiger Woods, or any individual for that matter, is entitled to his personal privacy and should not be publicly judged by his private actions. I would respond that Tiger Woods is not strictly a private person, but he is also very much a public brand, and effectively an industry unto himself. The power of the Tiger brand was enormous. As with any brand, the marquee value is maintained only by continually burnishing and polishing the image.
Say what you want, but the Tiger image is forever changed and with it the Tiger brand. Can Tiger redeem himself? Of course. The power of redemption is a remarkable force. I hope for his personal sake that he addresses his issues and does redeem himself. That said, the Tiger brand is forever changed.
The lesson for all of us, and especially those starting out in the professional world, is one I address with every individual whom I mentor. As I highlight in my Career Planning link here at Sense on Cents:
While I am fully supportive of taking prudent risks in a career, the one risk for which there is no premium high enough is the risk of a tarnished reputation. With word of mouth being the most powerful form of advertisement, you never want to run the risk that your product is viewed as impaired by a questionable reputation.
Tiger Woods’ personal transgressions put his professional brand at this greatest risk. He has lost more than he would have ever imagined.
Tiger is perhaps the greatest golfer to ever play the game. As in any business, though, the risk of jeopardizing one’s reputation goes far beyond any golf course, trading floor, or boardroom.
That is the Tiger lesson for all of us.
LD
Can One Earn an Honest Living on Wall Street?
Posted by Larry Doyle on November 13th, 2009 8:29 AM |
You have the reputation you deserve.
While there are certainly instances where individuals are misunderstood or situations that are construed differently, a reputation is neither determined nor changed based upon one event. A reputation is ultimately a compilation of data points. That data does not belie what some individuals and industries may like to project.
That said, an industry’s reputation can often be largely determined by the high profile and influential behaviors of a small subset, especially if that minority is not properly regulated. Such is the world of Wall Street.
Does the fact that Wall Street has an awful reputation implicate a majority or even a significant percentage of individuals in this industry as being morally bankrupt? That is not the Wall Street on which I worked for 23 years. To that end, I take serious exception to an article written by Bloomberg’s Alice Schroeder, Wall Street Makes It Hard to Earn a Legal Living. Ms. Schroeder writes:
A group of university students I spoke to recently asked if it was possible to make a living on Wall Street without compromising your values. I had to tell them no.
How uncanny. I spoke to a group of college students last evening at my alma mater, College of the Holy Cross, and I shared with them the exact opposite. I highlighted that embracing core values and spreading them was both necessary and possible for developing a long-term, successful career.
I will readily admit that questionable trade practices – if not outright fraud – have grown on Wall Street over the years. There was certainly plenty of this activity when I went to Wall Street in the early ’80s and there will be thirty years from now.
The problem is not and never has been the industry. The problem is and always will be the individual.
I would maintain that people who seemingly forsake values and principles for profit most likely never had many values or principles in the first place. Do people go bad? Of course. Can people be reformed? Of course. Do people rationalize behaviors in terms of ‘everybody else is doing it?’ All the time. Does this mean that one can’t earn an honest and legal living on Wall Street? Please, anything but.
There will always be bad seeds in every pot. To deal with those, it is imperative that the regulatory crowd is beyond reproach and aggressive. On that front, I will readily admit that Wall Street regulation has been exceptionally deficient.
In light of all this, can one earn a legal living on Wall Street? The overwhelming population on Wall Street is doing it everyday . . . and that message comes from one who is willing to call Wall Street out for all its shortcomings.
High five to RG for bringing this article to my attention. Now you want to talk about principled and upstanding, RG and all the Gs are exactly that.
Comments, questions, constructive criticism always appreciated.
LD
American Business Needs More Leaders with Unquestioned Integrity
Posted by Larry Doyle on September 10th, 2009 11:38 AM |
Volumes can and will be written about the pitfalls and problems our economy has encountered leading up to our current economic crisis. Regrettably, there are never enough volumes written about those individuals who swim ‘against the tide’ and promote the principles of truth and integrity which are sorely lacking in our country today.
Against this backdrop, I always enjoy reading the commentary of Bloomberg’s Jonathan Weil who digs through the books and records of a wide array of corporations to expose accounting smoke and mirrors. This morning, Mr. Weil profiles 5 individuals who deserve real praise. I reference Weil’s work not only to bring greater adulation to these individuals but also to bring greater attention to the corporations and industries with which they are connected. Weil writes Five People Who Stayed Clean in Banking’s Bilge:
In the year that has passed since Lehman Brothers Holdings Inc. collapsed, there haven’t been many good guys to emerge from the wreckage of the financial crisis. Look hard enough, though, and you will find a few.
It’s a challenge, no doubt. So many people at the highest levels of government and industry blew it, including almost every top banking and securities regulator in Washington. Yet those failings are not what this column is about.
Rather, it’s to introduce you to some of the people I’ve come across over the past year who stuck to their core values in the face of enormous pressure to abandon them.
1. Dick Evans, chief executive officer, Cullen/Frost Bankers Inc. He said no to the government’s bailout money.
Cullen/Frost was profitable and had plenty of capital. Evans and his team concluded that the true cost of the government’s funds was higher than advertised. They thought taking the money would dilute their shareholders’ stake. Throughout the whole mess, the company has reported profits every quarter.
2. Joseph St. Denis, former vice president of accounting policy, AIG Financial Products.
American International Group Inc. hired this former Securities and Exchange Commission accountant in June 2006 to help clean up its financial-reporting systems. Within a year, St. Denis said he had found serious errors. Soon after, the head of AIG Financial Products, Joseph Cassano, began excluding him from discussions about the “super senior” credit-default swaps that ultimately sank the company. Cassano also demoted him. St. Denis did the right thing: He quit, at great personal cost.
3. Charles Bowsher, former chairman of the Federal Home Loan Bank System’s Office of Finance.
Bowsher resigned in March, less than two years into the job and just one week before the government-chartered system’s 12 regional banks were due to file their combined annual report. The reason: As an audit-committee member, he wasn’t comfortable signing off on their financial statements.
Specifically, he was bothered by the accounting standards and processes the banks were using to value their mortgage- backed securities. He also wasn’t about to risk his reputation. Bowsher, 78, was comptroller general of the U.S. from 1981 to 1996, during which time he was among the first to warn the public about the brewing S&L crisis and the need for regulation of derivatives dealers. The shame is that more corporate directors don’t have the guts to do what he did.
4. & 5. Tom Linsmeier and Marc Siegel, members of the Financial Accounting Standards Board.
Last April, the FASB caved to pressure by Congress and changed its rules so that banks and insurance companies could exclude huge unrealized losses on mortgage-backed securities from their earnings and regulatory capital. The decision promises to stain the board’s reputation as an independent standard-setting body for years to come.
The ruling wasn’t unanimous, however. Linsmeier, a former accounting professor at Michigan State University, and Siegel, a longtime forensic accountant, voted against the change. (The measure passed by a 3-2 vote.)
In a joint dissent, they wrote that “investors generally have opined that their preference is for the fair value of financial instruments to be reflected in net income.” Delaying recognition of losses, they said, may result in “a negative effect on investor confidence.” Linsmeier and Siegel emerged with their reputations enhanced.
While government pundits, market analysts, and high profile economists will posture and rationalize about a wide array of programs and policies implemented throughout this crisis, there is no substitute for prioritizing reputation and integrity. In fact, I would maintain that those individuals and corporations that prioritize these intangibles will be the real long term winners. America needs more men like the 5 referenced above . . . it also needs more journalists like Jonathan Weil willing to embrace similar characteristics.
LD
Related Sense on Cents Commentary:
Freddie Mac, Fannie Mae Deja Vu? (May 28, 2009)
The Greatest Risk (December 21, 2008)
Bank Stress Tests: Major Sham??
Posted by Larry Doyle on April 8th, 2009 11:35 AM |
Why is it urban school dropout rates are 50%? Well, I am sure there would be as many reasons for that horrendous statistic as there are dropouts. The fact of the matter is, though, the state of urban education has promoted a phenomena known as “social promotion.” If students aren’t qualified to do the work, testing has been gamed, standards have been lowered, and corners have been cut. As a result, urban education at this stage is an unmitigated disaster. What does this have to do with the current state of our economy and the world of finance? I am glad you asked.
If banks, much like students, are not required to pass rigorous testing, then “social promotion” in finance will produce results not unlike those in education–underperformance and ultimately an inability to compete on the global stage.
Against that backdrop, I personally looked forward to the results of the Bank Stress Tests. Let’s finally get an honest assessment of the “students.” Let’s see how they have performed and let’s project to see how they will perform!!
As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically. (more…)
Is Your Broker Working For You?
Posted by Larry Doyle on March 13th, 2009 3:01 PM |
The biggest secret in the money game is the manner in which people are compensated. Why is this compensation process such a secret? Very simply, if the general public understood the compensation process they could then understand the motivations of those managing their money.
At the institutional level, Wall Street typically pays people on a salary plus bonus format. The salary often would represent only 20% of the overall compensation. The bonus would be tied to individual, group, division, and company performance. The bonus would typically be paid 2/3rds in cash and 1/3rd in stock. That stock component would typically be paid out over a three to five year time frame, thus tying the individual to the firm. That lockup is known as “the golden handcuffs.”
Under this format, people are motivated to maximize profits in order to maximize compensation. In maximizing profits, however, inordinate residual risks have often been left on the banks’ books. Thus, the risk/reward model has been skewed. Expect the Wall Street compensation model to change to address this issue going forward. (more…)
Keystone Kops
Posted by Larry Doyle on March 9th, 2009 5:40 PM |
On the heels of the Bernie Madoff fiasco, there was massive pressure on the gross incompetence displayed by the SEC. Not unlike a police department that is under fire, the SEC needed a high profile case to gain a measure of vindication. Enter Allen Stanford and Stanford Financial.
I am not here to defend Allen Stanford nor any of the activities that transpired in his offshore bank located in Antigua. However, the SEC also froze the assets of all clients housed in Stanford Financial’s brokerage operation based in Houston. Unlike Bernie Madoff, who did not employ a custodian, the bulk of Stanford Financial’s assets were housed at Pershing Financial, one of the largest custodians in the business. While the concerns revolving around Stanford are in the Caribbean, the SEC’s act of freezing ALL customer accounts has been the death of this brokerage entity. Hundreds of legitimate jobs have been eliminated. Thousands of customers have faced unnecessary and undue financial hardships since February 17th as a result. (more…)
How Wall Street and Washington Betrayed America!!
Posted by Larry Doyle on March 4th, 2009 11:03 AM |
While politicians, bankers, regulators, and commentators can and will point fingers as to where and how our system of financial oversight broke down, make no mistake it was due to too many people making and taking too much money!! I have highlighted the grotesque system of lobbying that has developed and corrupted our society in More Legalized Bribery.
We watch daily hearings on Capitol Hill in the spirit of doing what is right for our country. Please!! Spare me the nonsense and pandering. While collectively we deal with markets that are now down over 50%, the pols and the bankers have effectively robbed the bank and left the taxpayers with the bill to clean up the mess. Barron’s wrote a brief piece on this topic: how the Financial Sector Spent $5 Billion Lobbying Washington Over the Last Decade!!
It is high time we attach names and faces to those politicians and lobbyists who fed at this trough!!
LD
Mo’ Money…
Posted by Larry Doyle on March 3rd, 2009 2:48 PM |
There are a string of events in the market today that all highlight the need for entities to refinance debt and raise capital. Given the tightness of credit and the onerous terms being exacted within the bond market, many firms are massively capital constrained. These issues are global in nature. From our friends at Bloomberg, I offer the links to a number of these situations. In light of these types of situations, one does not need to be in a hurry to buy stocks. Additionally, given the demands for capital, I still maintain that rates are headed higher.
I will share with you some of the current problem situations getting serious attention:
1. GE Falls Below $7 on Concern Finance Unit May Need More Capital
2. Corporate Bond Losses Drive Investors ‘to the Bunker’
3. Metlife, Lincoln Sink as U.S. Stock Rout Increases Capital Need
4. German Real Estate Firms Owe Billions, Face Deadlines
LD
