The state of the Street
Commentary: Recognizing mistakes is key to future of financial institutions
By Todd Harrison
Last update: 12:13 a.m. EST Feb. 11, 2009
"That's the problem with money -- it makes you do things you don't want to do." -- Hal Holbrook as "Lou Mannheim" in "Wall Street"
NEW YORK (MarketWatch) -- They say you're a reflection of the company you keep. That's unfortunate news for those working in the financial industry.
As the severity of the financial crisis starts to sink in, socioeconomic anxiety is building against those on Wall Street. Capitalism, the pride and joy of our free-market system, became an instant villain when an era of conspicuous consumption shifted to an age of austerity.
What some people fail to realize is the writing has been on the wall for years. While risk managers shoulder blame, culpability extends to policy makers who ignored the warning signs, and uneducated consumers who lived beyond their means throughout our last, lost decade.
To appreciate the magnitude of where we are, we must understand how we got here.
When I started in the financial industry, there was a fraternal bond of trust where transactions occurred in trading pits and over untapped phone lines. It was a time when your handshake meant something, and all you had was your name and your word. In retrospect, it was a time of great vulnerability.
After the tech bubble, a healthy and natural progression would have led us into recession. Alan Greenspan never allowed us to take that medicine, opting instead to inject the economy full of fiscal and monetary drugs. The resulting imbalance steadily built through the years and arrived at our doorstep with a thud. See Minyanville column.
It's not wise to mess with Mother Nature. We're now witnessing the other side of risk gone awry and the comeuppance of a scorned business cycle. While Washington wiggles through its next iteration of stimuli, we're left to remember that time and price are the only arbiters of our financial fate.
Last Wednesday, I offered that a monster move was coming for the market, based on the reception of the latest bailout bill. My gut was that the move would be higher -- a bear market bounce that catches traders leaning the wrong way -- but that is a different conversation than sounding an "all clear" to pile back into a bull costume. See Minyanville column.
It's not wise to mess with Mother Nature. We're now witnessing the other side of risk gone awry and the comeuppance of a scorned business cycle. While Washington wiggles through its next iteration of stimuli, we're left to remember that time and price are the only arbiters of our financial fate.
Last Wednesday, I offered that a monster move was coming for the market, based on the reception of the latest bailout bill. My gut was that the move would be higher -- a bear market bounce that catches traders leaning the wrong way -- but that is a different conversation than sounding an "all clear" to pile back into a bull costume. See Minyanville column.
Consider the rally off last Wednesday's lows, which was acute. Bank of America (BAC: 5.56, -1.33, -19.3%) tacked on 88%, Citigroup (C: 3.35, -0.60, -15.2%) added 28%, JP Morgan (JPM 24.62, -2.66, -9.7%) climbed 24% and the PHLX KBW Bank Index (BKX: 26.74, -4.30, -13.8%) , an aggregate of the banks, was up 30%.
Commentary: Recognizing mistakes is key to future of financial institutions
By Todd Harrison
Last update: 12:13 a.m. EST Feb. 11, 2009
"That's the problem with money -- it makes you do things you don't want to do." -- Hal Holbrook as "Lou Mannheim" in "Wall Street"
NEW YORK (MarketWatch) -- They say you're a reflection of the company you keep. That's unfortunate news for those working in the financial industry.
As the severity of the financial crisis starts to sink in, socioeconomic anxiety is building against those on Wall Street. Capitalism, the pride and joy of our free-market system, became an instant villain when an era of conspicuous consumption shifted to an age of austerity.
What some people fail to realize is the writing has been on the wall for years. While risk managers shoulder blame, culpability extends to policy makers who ignored the warning signs, and uneducated consumers who lived beyond their means throughout our last, lost decade.
To appreciate the magnitude of where we are, we must understand how we got here.
When I started in the financial industry, there was a fraternal bond of trust where transactions occurred in trading pits and over untapped phone lines. It was a time when your handshake meant something, and all you had was your name and your word. In retrospect, it was a time of great vulnerability.
After the tech bubble, a healthy and natural progression would have led us into recession. Alan Greenspan never allowed us to take that medicine, opting instead to inject the economy full of fiscal and monetary drugs. The resulting imbalance steadily built through the years and arrived at our doorstep with a thud. See Minyanville column.
It's not wise to mess with Mother Nature. We're now witnessing the other side of risk gone awry and the comeuppance of a scorned business cycle. While Washington wiggles through its next iteration of stimuli, we're left to remember that time and price are the only arbiters of our financial fate.
Last Wednesday, I offered that a monster move was coming for the market, based on the reception of the latest bailout bill. My gut was that the move would be higher -- a bear market bounce that catches traders leaning the wrong way -- but that is a different conversation than sounding an "all clear" to pile back into a bull costume. See Minyanville column.
It's not wise to mess with Mother Nature. We're now witnessing the other side of risk gone awry and the comeuppance of a scorned business cycle. While Washington wiggles through its next iteration of stimuli, we're left to remember that time and price are the only arbiters of our financial fate.
Last Wednesday, I offered that a monster move was coming for the market, based on the reception of the latest bailout bill. My gut was that the move would be higher -- a bear market bounce that catches traders leaning the wrong way -- but that is a different conversation than sounding an "all clear" to pile back into a bull costume. See Minyanville column.
Consider the rally off last Wednesday's lows, which was acute. Bank of America (BAC: 5.56, -1.33, -19.3%) tacked on 88%, Citigroup (C: 3.35, -0.60, -15.2%) added 28%, JP Morgan (JPM 24.62, -2.66, -9.7%) climbed 24% and the PHLX KBW Bank Index (BKX: 26.74, -4.30, -13.8%) , an aggregate of the banks, was up 30%.
Fight or flight
There are two lenses best used for viewing what's on the horizon. There's the destination, for investors, and the path that we take to get there, for traders. Simply put, we've got a long road ahead, but there will be profound opportunities as we find our way.
For years, I was the most bearish guy in the room, telling anyone who would listen the wheels were going to fall off the wagon. Now, as the world wobbles for all to see, I find myself being more constructive and searching for opportunities in the new world order. See Minyanville column
The leaders coming out of a crisis are never the same as those who enter. We've seen that in spades as Bear Stearns (JPM: 24.62, -2.66, -9.7%) , Lehman Brothers, AIG (AIG: 0.92, -0.12, -11.5%) and Merrill Lynch (BAC: 5.56, -1.33, -19.3%) all trade as shadows of their former selves, if at all. As capacity is absorbed or eliminated, a leaner, more austere industry will emerge.
There are two lenses best used for viewing what's on the horizon. There's the destination, for investors, and the path that we take to get there, for traders. Simply put, we've got a long road ahead, but there will be profound opportunities as we find our way.
For years, I was the most bearish guy in the room, telling anyone who would listen the wheels were going to fall off the wagon. Now, as the world wobbles for all to see, I find myself being more constructive and searching for opportunities in the new world order. See Minyanville column
The leaders coming out of a crisis are never the same as those who enter. We've seen that in spades as Bear Stearns (JPM: 24.62, -2.66, -9.7%) , Lehman Brothers, AIG (AIG: 0.92, -0.12, -11.5%) and Merrill Lynch (BAC: 5.56, -1.33, -19.3%) all trade as shadows of their former selves, if at all. As capacity is absorbed or eliminated, a leaner, more austere industry will emerge.
The next generation's financial infrastructure must be built on a foundation of community, transparency and trust. It needs to be comprised of human capital that understands integrity is a commodity. It should be everything the industry used to be before it prayed to the false idolatry of money. It has to learn from mistakes, as we all do.
Inherent in that architecture is the unwinding of the intricate derivative machination, the destruction of debt, a conscious decision to allow weak institutions to fail and an infrastructure based on tangible metrics. Time and price will be the judge. Given the current social mood, we're in a race against ourselves.
The ramifications of our current choices will resonate far beyond the perception of Wall Street professionals. We're talking about the survival of the free-market system and capitalism as a whole. We're at a critical crossroads, with globalization on one side and geopolitical fragmentation on the other.
See both sides, respect the risks and remember that lucidity is necessary now more than ever. The result of our decisions won't just dictate profit and loss, it will shape the quality of life and the global landscape for generations to come.
Inherent in that architecture is the unwinding of the intricate derivative machination, the destruction of debt, a conscious decision to allow weak institutions to fail and an infrastructure based on tangible metrics. Time and price will be the judge. Given the current social mood, we're in a race against ourselves.
The ramifications of our current choices will resonate far beyond the perception of Wall Street professionals. We're talking about the survival of the free-market system and capitalism as a whole. We're at a critical crossroads, with globalization on one side and geopolitical fragmentation on the other.
See both sides, respect the risks and remember that lucidity is necessary now more than ever. The result of our decisions won't just dictate profit and loss, it will shape the quality of life and the global landscape for generations to come.