On January 14, President Obama unveiled a plan for banks and brokers to pay fees to cover bailout loans that are not likely to be repaid by certain companies that were bailed out (although some banks have repaid their TARP loans). See Financial Crisis Responsibility Fee fact sheet.
The unofficial successor to the Pecora investigations of the 1929 Crash and Great Depression, the Financial Crisis Inquiry Commission (FCIC), began hearings into the current crisis.
In his testimony to the FCIC, Goldman Sachs Chairman and CEO Lloyd Blankfein endorsed the fiduciary standard for brokers who provide advice to retail investors. That was extraordinary. Will any of the three other CEOs who testified with Blankfein second that endorsement? JPMorgan Chase & Co. Chairman and CEO, Jamie Dimon, Morgan Stanley Chairman John Mack, Bank of America CEO and President Brian T. Moynihan all testified at the hearings, but none uttered the word "fiduciary" in their statements.
When I contacted Morgan Stanley about this issue, spokesman James Wiggins responded by email: "Morgan Stanley Smith Barney is working through our industry association, SIFMA, which has endorsed the idea of a uniform national fiduciary standard and is engaged with the policymakers in Washington to implement it in a way that preserves our ability to offer the full range of services that our clients want."
JPMorgan Chase and Bank of America/Merrill Lynch had not responded to requests for interviews or comment at press time.
The fiduciary issue for individual investors is one simple and critically important subset of the overarching and vastly important issues in play here. The issues are even more important because, rather than being part of a cyclical or even secular market correction, the causes of the current crisis are man made. We have been covering and writing about the crisis since mid-2007, before then-Treasury Secretary Henry Paulson and Fed Chief Bernanke, and many Wall Street CEOs, would even admit that there was a serious crisis at hand.
While many blame sub-prime borrowers for the crisis, lenders, packagers and the Wall Street brokers and banks that securitized mortgages and other loans had an even bigger hand, and axe to grind, feeding the securitization-profit beast. While there are many levels of blame to go around–rating agencies, lack of oversight by numerous regulators, and Congress, the boneheaded way banks were permitted to keep holdings off the books in SIVs, the ability of banks and brokers and insurers to in effect make highly levered bets on one another's demise through credit default swaps–all of this and more gets a share of blame for this crisis. Oh, by the way–whatever happened to the need to mark holdings to the market?
Laying part of the blame for the crisis on low interest rates–as Blankfein did in his remarks doesn't cut any ice either–simply having low rates doesn't take away the obligation of company executives to act in a prudent manner for their employees and shareholders–and, by the way, what about the greater good? Can't there be a healthy form of capitalism that does not destroy the world's economy? Because if not, then we are all going to be in trouble again, and perhaps sooner than later.
