Are Bankers Destroying Capitalism?

Are bankers destroying capitalism? It was certainly the populist pulpit preaching point of the moment a few years ago, but I didn’t buy it. After all, my sworn enemy had always been the inept regulatory structure; unwilling to put the foot down on the bad kids in the class.

Frankly, why would they? Those bad kids were making money for everyone, but at what cost?. Before we rehashing the age old argument let’s look over the following statement and think about who is responsible for what…and to what degree?

Anyone that has ever worked for a Wall Street firm is well aware of the danger an analyst brings upon himself if he refuses to tow the official corporate party line regarding stock ratings for a company that is simultaneously closing a financially significant deal with another division of his firm. Even though this atmosphere of “unspoken coercion” of inflated stock ratings existed for decades, when the bull was strong on Wall Street, very few journalists found this story newsworthy. Even though regulatory laws were passed many years ago to separate investment banking interests from securities interests within the same firm, the percent of US stocks covered by Wall Street firms rated as a “buy or hold” actually increased from 89% (2003) to 93% (2007) after the passage of new laws that were supposed to discourage firms from granting inflated stock ratings. Who in their right mind would ever believe that 93% of all stocks covered by Wall Street should be rated a “buy or hold” and that only 7% should be rated a “sell”? Of course, in Wall Street parlance, insiders know that “hold” really means “sell” but still, this is a level of deceit nonetheless.

Though this is just one of a few worthy excerpts, I think it really cuts to the core of the matter. It is almost impossible to imagine a Wall Street where an honest, unbiased valuation environment exists. Enron is the popular examples but there have literally been thousands of companies that a second year finance or accounting major would damn as insolvent, yet they all got buys. They got buys from girls and guys with years of experience who knew all too well what was up, yet played along willingly, feigning ignorance while the big dollars rained down.

Now that the environment has changed, their approach hasn’t. Wall Street is still massively rubber stamping the buy, buy, buy process. This process will inevitably continue to erode investor confidence in the industry, bring in greater regulatory presence and (the part everyone really cares about) put a molten dent in bonuses.

I know its hard out there monkeys. But that stub bonus ain’t worth your soul. Don’t sell yourself cheap, when that next Enron comes across your spread sheet…call it what it is. Call it how you see it, not how the machine of profits and lies wants you to. Money is earned, not churned.