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Nickdfresh
02-26-2009, 10:53 AM
The 5 biggest lies on Wall Street

These are the tenets you counted on for years, like 'buy and hold' and heed the advice of 'experts.' Keep these whoppers in mind as you plan your financial future.
By Michael Brush

If you had any money in stocks in the past few years, you might be feeling pretty dumb right now -- since you're down more than 40% on those "investments."

But stop being so hard on yourself. Yes, you probably should have pulled more money out in time.

But on the other hand, you were probably suckered by any number of big lies foisted on you by Wall Street and market players who stood to profit.

Here are the five biggest lies that probably hurt you the most and will be worth remembering in the future.

Big Lie No. 1: The market will take care of everything
Remember Ronald Reagan's line, "Government isn't the solution to our problems; government is the problem"? The Gipper may have had some great political insights, but the train wreck in the market shows this one wasn't one of them.

During most of this decade, Wall Street lobbyists persuaded would-be regulators in the Bush administration to lay off. "The markets" would find the best solutions to any problems on their own.

In the free-for-all that ensued, the Wall Street Masters of the Universe made untold millions -- and left us with huge problems. The damage caused by all the tricks, scams and skullduggery has cost more than $7 trillion in market losses so far, not to mention millions of jobs and a deep recession.

"We convinced ourselves that the inmates could regulate themselves, and obviously that was wrong," says Christopher Whalen of Institutional Risk Analytics, a financial consulting firm. "If we are going to let people buy public policy, then we are going to get stupid things."

Perhaps the biggest gaffe was allowing a multitrillion-dollar market in credit default swaps -- a kind of loan insurance -- to develop with no oversight or regulation. This was just plain dumb, and we'll continue to pay the price. Too much CDS exposure helped take down Lehman Bros. (LEHMQ, news, msgs) and American International Group (AIG, news, msgs). They lost big by insuring complex securities backed by bad home mortgage loans.

Of course, none of this could have happened if regulators hadn't looked the other way as mortgage originators handed home loans to anyone who could fog a mirror. They didn't care because the loans could be sold to Wall Street banks, repackaged as securities and sold again to investors.

"A shadow banking system developed to originate and sell mortgages outside the regulated banking system, and we ignored it," says William Isaac, a former chairman of the Federal Deposit Insurance Corp. and now head of the Secura Group, a division of national consulting firm LECG.

Even regulators who were supposed to be policing the market often did a lousy job during this "free market" era.

One example: Early this decade, a statistical wonk named Harry Markopolos had figured out that the investment vehicle that Bernard Madoff was promoting to well-heeled investors was a classic Ponzi scheme. Markopolos alerted the Securities and Exchange Commission, which failed to act until investors had lost billions.
...
Big Lie No. 4: Overpaid CEOs are worth the money
Whenever I write about greedy CEOs who get paid too much, company PR machines trot out the old saw that pay has to be so high "to attract the best talent."

Oh, really?

Then why are we suffering such a deep recession and huge market losses? After all, the CEOs at the banks that got us into this mess were paid like kings. Let's take a look at some of the consequences -- and predictions -- brought to us by the supposed "top" talent purchased with all that money:

An extreme underappreciation of his problems. At Lehman Bros.' very last annual meeting in April 2008, then-CEO Richard Fuld opined that "the worst of the impact of the financial markets is behind us."

In June, he told investors the investment bank was "well-positioned" because of efforts to strengthen its balance sheet.

Fuld was supposed to be a "top talent"; Lehman had paid him more than $186.5 million in salary, bonuses and profits from stock options in the prior three years, according to Equilar, an executive compensation research firm.

Yet by autumn, Lehman vanished, setting off the October 2008 market crash. It had been killed by mortgage-backed securities and other investments made on Fuld's watch.

The cost of moving too fast. On Sept. 15, Bank of America (BAC, news, msgs) CEO Ken Lewis announced that the banking giant was buying Merrill Lynch, saying the deal -- cobbled together over a weekend -- was "a great opportunity" for shareholders because together the companies would be "more valuable" due to synergies.

Lewis had taken home $98.6 million from 2005 to 2007, so you'd think he would know what he was talking about. So far, he's been terribly wrong.

Bank of America reported a $21.5 billion fourth-quarter loss. The government responded by injecting $20 billion in new capital Jan. 16 and guaranteeing $118 billion in potential losses from the Merrill Lynch deal.

The stock has been crushed. Bank of America closed at $33.74 the Friday before the deal was struck. It fell to $26.55 on Sept. 15. It dropped to as low as $3.77 on Feb. 5 before recovering to $5.57 on Friday.

What seems clear is that these executives were blissfully ignorant of the growing risks to their businesses or simply chose to ignore them.

And despite all the bad press about CEOs raking in millions for lousy performance, the tricks continue. D.R. Horton (DHI, news, msgs), the nation's largest homebuilder, lost a whopping $8.34 per share in fiscal 2008, which ended Sept. 30. The stock has fallen 79% since July 2005.

Yet Chairman Donald Horton and CEO Donald Tomnitz collected $5.4 million and $4.4 million, respectively, for the year, including $1.8 million each in performance pay. They were rewarded for hitting benchmarks on cost cutting, pretax income and operating cash flow.

None of this is new. CEOs have been collecting big bucks for lousy performances for years.

Big Lie No. 5: Buy a flat-screen TV, save the economy

Maybe the biggest lie about to be foisted on people is that they should go out and shop to save the economy. Wall Street wants you to spend to pump up the economy. Much of the federal stimulus package enacted this week entails tax breaks and handouts to get people spending.

But it's really just another big lie to tell people they'll make a difference if they go out and shop.

The problem is that the economy is going nowhere -- no matter how much anyone spends -- until someone comes up with a plan to give the banks enough of a capital cushion so they start lending again. So far, we haven't seen that happen.

So play it safe. Hold on to your money. Most of you need to save more for retirement, anyway.

According to McKinsey Global Institute, two-thirds of baby boomers are unprepared for their golden years. Most of the boomers who are unprepared have a net worth of less than $100,000 even though they are just years away from retirement.

If you are younger, don't smirk. You need to save, too; otherwise you'll end up like them.

MSNBC (http://articles.moneycentral.msn.com/learn-how-to-invest/the-5-biggest-lies-on-Wall-Street.aspx?page=2)

Combat Ready
02-26-2009, 11:50 AM
The 5 biggest lies on Wall Street


Of course, none of this could have happened if regulators hadn't looked the other way as mortgage originators handed home loans to anyone who could fog a mirror. They didn't care because the loans could be sold to Wall Street banks, repackaged as securities and sold again to investors.




Um....The government regulators did more than "look the other way"--they encouraged the loaning practices to the max.

They are at least partially to blame for this mess. To what extent.....is open to debate.

Combat Ready
02-26-2009, 12:44 PM
Frank's fingerprints are all over the financial fiasco


'THE PRIVATE SECTOR got us into this mess. The government has to get us out of it."
That's Barney Frank's story, and he's sticking to it. As the Massachusetts Democrat has explained it in recent days, the current financial crisis is the spawn of the free market run amok, with the political class guilty only of failing to rein the capitalists in. The Wall Street meltdown was caused by "bad decisions that were made by people in the private sector," Frank said; the country is in dire straits today "thanks to a conservative philosophy that says the market knows best." And that philosophy goes "back to Ronald Reagan, when at his inauguration he said, 'Government is not the answer to our problems; government is the problem.' "

In fact, that isn't what Reagan said. His actual words were: "In this present crisis, government is not the solution to our problem; government is the problem." Were he president today, he would be saying much the same thing.

Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.

As long as housing prices kept rising, the illusion that all this was good public policy could be sustained. But it didn't take a financial whiz to recognize that a day of reckoning would come. "What does it mean when Boston banks start making many more loans to minorities?" I asked in this space in 1995. "Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians, and regulators plans to take the credit?"
Frank doesn't. But his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.
Now that the bubble has burst and the "systemic risk" is apparent to all, Frank blithely declares: "The private sector got us into this mess." Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fia sco/

LoungeMachine
02-26-2009, 01:10 PM
#6 lie from Wall Steet:

I promise not to cum in your mouth.

:gulp:

Combat Ready
02-26-2009, 01:15 PM
#6 lie from Wall Steet:

I promise not to cum in your mouth.

:gulp:

That lie is not confined to Wall Street my friend! :biggrin:

Nickdfresh
02-26-2009, 01:17 PM
Frank's fingerprints are all over the financial fiasco


...

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fia sco/

This article has been posted here before, and it's author has been shown to be a completely biased fuckwit avoiding facts in other articles he's written (defending Palin I believe)...

Trying to blame it on Frank and the "poor people living in mansions"-argument clearly avoids the central problems of predatory lending, and how Wall Street became an unregulated shadow bank completely free of any concept of a debt to equity ratio...

Combat Ready
02-26-2009, 01:21 PM
This article has been posted here before, and it's author has been shown to be a completely biased fuckwit avoiding facts in other articles he's written (defending Palin I believe)...

Trying to blame it on Frank and the "poor people living in mansions"-argument clearly avoids the central problems of predatory lending, and how Wall Street became an unregulated shadow bank completely free of any concept of a debt to equity ratio...

My point is that regulators contributed to the problem. I stand by that point.

WACF
02-26-2009, 01:43 PM
A Northern perspective on banking....it is a system where you are going to have to go.

The whole video is interesting...it is nice to have a PM that can think on his feet for once.

http://www.cnbc.com/id/15840232?video=1043703424

Combat Ready
02-26-2009, 02:04 PM
A Northern perspective on banking....it is a system where you are going to have to go.

The whole video is interesting...it is nice to have a PM that can think on his feet for once.

http://www.cnbc.com/id/15840232?video=1043703424

Thanks for posting. Quite informative and educational. This PM Harper is pretty sharp.

Interesting bit on the banks and how they've avoided a mess similar to ours.

I'm blown away that Canada has the lowest corporate tax rate in the G7...Never would have guessed that.

WACF
02-26-2009, 02:40 PM
Thanks for posting. Quite informative and educational. This PM Harper is pretty sharp.

Interesting bit on the banks and how they've avoided a mess similar to ours.

I'm blown away that Canada has the lowest corporate tax rate in the G7...Never would have guessed that.


I gotta chuckle out his response to concerns about oil sands oil being banned...pretty much said good luck with that.

PM Harper is an excellent speaker...too bad our media barely gives him a chance...his best interviews occur out of the country...and we don't hear about them unless you snoop around.

http://www.smalldeadanimals.com/pictures/co2cartoon.jpg

swage33
02-26-2009, 08:27 PM
Here's the problem...posted this in another thread under different arguments but, Bill Clinton politicized this mess. "I want everyone to own their own home"-Bill Clinton. People in Washington knew this was fucked up but they dare not come out against it. Politicians are more concerned about the next election than they are about right and wrong. Name one politician that could have come out against the poor and minorities that could have been re-elected. Not one...this mess had to run it's course...then blame could be assigned to the most unpopular man of the moment....Apey. Capitalists will make money any way they can...robotically...they will take advantage of any loopholes and push the parameters of any control. This is not evil....it is robotic, efficient and effective in achieving the goal of making money. Was more regulation needed?...yes! But who would propose it? It would have been political suicide.