Millions of Americans who remain gainfully employed, however abbreviated their work week & diminished their retirement savings, may be inclined to leave Wall Street's complexity to the quants in spite of disastrous consequence. 

     While some of the nation's leading banks painfully rebuild the equity value & capital reserves, other small town & neighborhood banks fall victim as a rate unequaled since the Great Depression.

     Just this week the Federal Deposit Insurance Corporation switched the owners of 52 of the nation's banks, nine in Illinois alone. The Chicago Tribune (07/03/09) compared the increased bank foreclosure rate to that of the national unemployment rate, but that may tell only part of this story.

     Diminished value of capital reserves may be attributed to everything from non-performing sub-prime mortgages to last Fall's nationalization of the two of the biggest American mortgage lenders--Freddie Mac & Fannie Mae.

     Financial wizards, who sat through many of the same MBA classes as this blogger, were attracted to Wall Street investment houses, private equity firms, hedge funds & commercial banks by promises of fame & fortune. Create new financial products, attract investors, diversify the risk to third parties & reap the rewards.

     Seldom expressed in the polite company of Long Island Atlantic Ocean panoramic vistas or in the midst of Fifth Avenue Manhattan bling, "Eat what you kill" became the path to riches for a privileged few.

     The statistical "fat tale" caught up with those who once relegated catastrophe to the footnotes of financial reports. Were the consequences confined to those who created this mess, many of us might chalk it up to moral hazard, but diversification & leverage spread the suffering around the globe.

     The Obama Presidential Administration knows that there's must financial regulatory work left to do. Urgently, those same Congressmen & women who reaped bundled a harvest of generous political contributions must now tell their Wall Street benefactors that there's a new sheriff in town to curb wild west excesses.

     Getting the wealthiest ten per cent of Americans to resume their consumer spending represents fully one third of America's economy. Restoring their confidence in the financial markets is the key to driving economic growth past the "dead cat bounce" which sprouted this past Spring.

     Former President William "Bill" Clinton may have granted executive clemency to one Wall Street inside trader, Salim "Sandy" B. Lewis, but the latter calls a "fool's game" regulating the nation's financial affairs based upon "wishing for improvement and managing by the Dow's swings."

     Lewis and William D. Cohan, a Fortune contributing editor & Wall Street banker suggest gutting the current system in favor of one which "rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors." 

     The pair knows that America's credit card love affair with free money which made paper millionaires of millions be rooted out in favor of prudence.  

     Obama Administration Treasury Secretary Timothy Geithner's best efforts may be thwarted during quiet conversation cocktail parties, lavish entertainment & a few carefully chosen gestures exchanged by long acquaintance. Generous Wall Street contributions which fueled both political parties to fame & fortune bought political access which must be bridled back in the interests of the nation's future financial health.

     Changes in the so-called "mark-to-market" Financial Accounting Standards Board rule proves illustrative of how bankers persuaded regulators to allow them to polish up the rusty facade of non-performing loans & illiquid assets.

     As with the tale of the frog & the scorpion, often incorrectly attributed to the Greek poet Aesop, there's an insuppressible nature in all of us from which the public must be protected. 

 

Mark Arnold Fredrickson

President

Northwest Area Citizens Organization

markfredrickson@earthlink.net