Let’s assume you own a broker dealer.

And lets also say that you have an Advisor who helps you manage your money, as most in your position would. Now -

What would you say if your Investment Advisor told you that his well considered opinion is that you should take your entire portfolio and allocate it like this: 55% Toxic Assets, and the remaining 45% into High Risk Hedge Funds?

Would you begin looking for a new Advisor? That is, after asking him for some of whatever it is that he must be smoking? (more…)

According to the U.K.’s Daily Mail, Goldman is set to pay all 443 partners Christmas Bonuses of approx $4.9M EACH, for total handout (including salary allocations)  appproaching $11.4BL. This on the heels of taking in almost $10BL in BailOut Bux. Meeerrry Christmas!

While I have not seen this confirmed yet in US papers, the above has been widely reported in hundreds of blogs in the UK and continental Europe…

If this is true, thank goodness for Real American Heroes. One might have expected a hint of brazen arrogance, or even callous greed when the bankers were accused of paticipating and fomenting the largest financial meltdown in history. But not from the GS crew! Those selfless execs at GS have apparently decided to “take one for the team”, in a Grand Gesture demonstrating the true level of their collective humility. Thank goodness that profits are only down 47%, and that shareholders have lost a mere 50% of value.  Otherwise those execs might be facing dissapointed shareholders, who might feel that they’d not done enough – and might even feel that more should be done for them!  But how, how could GS Management possibly do more? It’s not like money just grows on trees! One must make sound use of resources in one’s control. It’s what they’re paid to do.

Thank goodness for the triumph of Rational Thought, and the GS Executive Commitment to restoring confidence in our banking system. After this grand gesture, who amongst us could question whether Wall Street suffers from overweening greed?! To those that do, behold GS. Your slack-jawed, mouth agape reaction belies the collective awe that we all must feel when bearing witness to this shocking example of humble contrition.

And the best news of all – lest one fear that these kinds of awe inspiring acts might be one-time aberrations – is that Paulson is heading the Treasury. Paulson, former Chief at Goldman, is credited largely with creating the corporate culture there. May we all rest, assured that he will make equally prudent use of every single last penny in the US Treasury.

The humility of the GS Executive Committee will do nothing less than shock and awe the world.

Mary Shapiro, CEO of the FINRA, had this to say in a communication to Broker Dealers, in response to recent market events:

“As you know, FINRA’s primary responsibilities are regulating broker-dealers and the broker-dealer subsidiary of any newly formed bank holding companies, as well as protecting customer accounts. We do not have jurisdiction over the holding companies.

We have been working closely with other regulators, providing guidance to firms, examining for compliance with FINRA rules and federal securities laws, and, when rules are violated, investigating and enforcing those rules. We have also committed considerable resources to educating investors and arming them with information they need to make sound investment choices in this difficult environment.”

Now come on. Please! Was Goldman Sachs a bank holding company two weeks ago? How about Lehman? BofA? Well okay, there were in fact bank holding companies out there over which FIRA has no jurisdiction. But this in NO WAY ABSOLVES the regulatory bodies from oversight at the major broker dealers! And the clever scrutinised derivatives market was created and fomented by brokers like GS. But forget the gargantuan excesses of the derivatives positions – what about the other countless violations, the hundreds of violations that  the FINRA did record against the Bulge Bracket firms?

The fact that the Bulge Brackets had violations recorded is NOT an answer. It does not speak to the asymmetric nature of enforcement. The Big Firms were never stopped from doing business for, say, thirty days. Or told that they could not add any more clients for the duration of the year.  They were never given any of the devastating punishments frequently meted out to small firms. The Big Firms began to see regulation as a tax on doing business; nothing more.  Whereas smaller firms are often forced OUT of business.

Equal application of the regulatory element? I think not.

And the end result is that inordinate power was given over to the Bulge Bracket firms. And in this environment, when the very FED was making comments like “if everyone will all just join hands and buy an S.U.V. we’ll be okay” (said by the Dallas Fed Governor in 2003)! In an easy money environment when the financial firms were encouraged to create all kinds of instruments to put that money to work, one might expect that some shenanigans might get afoot. After all, absolute power corrupts absolutely!

Where were you THEN, Mary? Focusing on cracking the whip at small firms, and busy consolidating regulatory oversight!

I’m sorry, but petty excuses after the fact do not make up for an error in resource allocation that the financial markets of the entire WORLD into a tailspin!

Everyone knows how hard the FINRA has been working to get the merger complete, and the potential benefits of the entire FINRA’s hard work. But there were warning signs – the constant violations at the Bulge Brackets. The complaints of countless small firms that the regulatory environment had become unfair. There were signs.    

If the FINRA had stepped in once – only One time, for example – and suspended Lehman from doing anything but closing positions for thirty days – wouldn’t that have had a chilling effect on their willingness to do risky business?

You may have an opinion. You may well think that it wouldn’t have solved a thing. But the fact is, your opinions no longer matter. You have lost your power base. Goldman is no longer subject to your consideration. The Big Five no longer exist as such, and those that do now answer to a higher authority.

What you can do now: bring a more reasoned approach to regulation. Assist firms in keeping compliant. End unwarrented punishments that reward criminal behavior while at the same time penalising honest folks who are just trying hard to make an honest living. Restore reasonableness and the perception of ethical behavior at the Regulatory level. Then you will find that firms work with you to keep compliant, rather than operating from a position of fear and loathing.