In the course of researching tonight’s story for the "Fixing the Financial Crisis" series, I came across some interesting predictions from a variety of sources that I wasn’t able to include:
- Wall Street’s lower compensation levels mean it will no longer be able to attract the best and the brightest MBA grads (Robert Albertson, Sandler O’Neil). Some go to faster growing Asian Markets. Others to unregulated Hedge Funds.
- Wall Street’s misfortune is a boon for public interest sectors: “I can think of a lot of other fields that stand to benefit from all the human capital that is currently sloshing out of finance and into other realms: technology in general, energy in particular, and alternative energy in super-particular; health care; research science; and, yes, education (Stephen Dubner, NYTimes).
- Hundreds -- if not thousands -- of hedge funds go out of business, causing collateral damage: “In recent years, public pension funds, foundations and endowments poured billions of dollars into these private partnerships. Now, in the midst of one of the deepest bear markets in generations, many of those investments are souring.” (Louise Story, NYTimes)
- The investment banking industry will return to being a business with returns marginally higher than those of a regulated utility. (William Wright, Wealth Bulletin)
- Many laid off Wall Street executives are forced to relocate -- strengthening regional boutique shops: (Valerie Bowman, AP)
- The changes that are happening on Wall Street are a “Black Swan Event”, an event that lies beyond the realm of normal expectations. “Why isn’t everyone talking about the current situation as a Black Swan event? I can’t believe any investment professional believes what is happening is part of normal cyclical or even secular financial or economic behavior” (Byron Wein, PequotCapital Oct. 2008 Commentary).
- There is a Big Shake-up in the Balance of Power in the World: “The global financial crisis will see the US falter in the same way the Soviet Union did when the Berlin Wall came down. The era of American dominance is over.” (John Gray, Political Philospher)
I would be interested to hear your take on the Future of Wall Street. Will Wall Street be able to pick itself back up again after this latest crash, as it has in years past?
Comments
Thank you for your excellent reporting on this subject!
I suspect that Wall Street will continue to undergo changes and we'll see an increase of certain elements, and a decrease of others. Look for the creation of more bank holding companies, more oversight and regulation --particularly with respect to derivatives and other exotic financial instruments -- and more scrutiny of executive compensation and cushy stock options. There will likely be less profit taking, less Champaign and fewer lavish boondoggles.
The good news is, Wall Street could undergo a much needed change in culture, with more emphasis on the service aspects and less on rampant greed. There will be less risk-taking, but that could lead to a less dynamic market.
I foresee a scaled-down marketplace with fewer firms and fewer highly-qualified people. In the worst case scenario, it could mean that the Global Center of Finance would be moved to Shanghai, Hong Kong or Dubai and take with it the best and brightest minds.
In my opinion, the public bears part of the responsibility for Wall Street's implosion. Many people have lost sight of the differences between investments and speculation. I've observed this throughout much of my financial career. In fact, it led me to put my findings into a new book: The Big Gamble: Are You Investing or Speculating? The details can be found at www.financialspeculation.com.
Donald Trump liked the book so much, he's given it his personal endorsement.
There is a lot of stuff going on out there and I believe the people should see what is really happening. As everyone thinks, it is something that it is not.
This is really upsetting.
Lets see if I can break this down in the most simplest form possible.
• Banks/lenders create exotic lending products and offer is to the public and business areas
• They profit largely from this as well…. (So where’s the money?)
• They turn around and blame the subprime market for this.. how interesting!
o They paid brokers MORE money to put people into these subprime or exotic loans that could have received fixed rate or no home at all!
o They avoided using any common sense with the loan papers for staying within the basic terms of a loan
• They turn around and sell off notes and securities to investors all over the globe to make even MORE money.
• They buy CDS’s to protect themselves, did they know this would happen???
• They again blame the subprime market or low income people
• They do not wish to help the homeowners rework terms with a permanent fixed rate
• They only want to do temporary modifications to loans (Hope Now = No Hope!)
• They borrow BILLIONS from the Federal Reserve. (People still do not know about this part)
• They buy up so called weaker banks or business… I thought they lost money or didn’t have any!
• They get great lower rates from our government yet raise rates on lending
• They stop lending all together, even for good credit people and business.
o No cars are sold, merchandise purchased or foreclosures sold
o Now business can’t even complete projects or continue to fund manufacturing. We all knows what that leads too!
• Banks have money (liquidity) but refuse to lend. They did not need more!... Thanks Paulson…
• They are getting paid on both ends, only AIG is getting caught in the cookie jar for now… there will be more.
• What reason would they need to lend when the people/government are depositing large sums of money right into their accounts;. No incentive!
People/Investors:
• They purchased more home than they can afford
o Remember most do not fully understand lending and was steered into higher priced homes due to brokers saying you can afford this.
o People & investors directed brokers and lied on applications to purchase more than one home or larger home on hopes of flipping for BIG profits
• Investors walking away from their homes (aka investments)
o True homeowners do not walk way, until it’s tool late in the process
o As the investment has lost money (aka vacant homes)
o Same investors are now buying the REO’s & short sales
• Now homeowners (good credit) are walking away due to reduced value.
o They can buy a home (same or better) for a much lower price and save money in the end (lower mortgage payment).
o They then turn around and let their home fall into foreclosure.
Government:
• They started a ton of bailouts !!!!!!
• Every analyst and business person said in plain and simple terms “FIX HOUSING”
o Since that wasn’t addressed in the beginning now it is “UNEMPLOYMENT”
o Should we wait for something else!....
• Government directs its efforts in every other direction but housing (I guess government means: go around problem)
• They provide low rates, great terms, free money and open policy to banks/lenders
• Spend Trillions of dollars avoiding the issue and allowing banks to recover loss money
• Market is bad due to government getting involved in private business
• Investors have pulled out of market because of government… the selling
o Making people loss TRILLIONS in retirement funds and this includes state money that invested in these “Too Big” to fail companies.
• Government has to bailout out everyone now with our money and borrowed funds,
o no turning back now… because the lawyers are waiting to file suit if they do!
• Government never helped ”The People” that is the main reason why they are out of office…CHANGE!
I believe you should look into these issues and more. As the simplest answer is right in front of everyone (Paulson open your ears) and they do not see it,
The banks/lenders are the center of this whole thing! yet we give them money to pay VP’s and bonus’s or fatten their balance sheets. Send me some money and I will not lay anyone off or take a bonus. Not like them who have put many of their own people on the job fair line.
Are we not seeing what really started this and what is continuing to this issue…..BANKS/LENDERS.
I’m now seeing my customers who purchase from me can’t any longer due to banks lowing or removing their terms. If this continues then I will need to lay people off. This is just one bad circle! I’m also getting renters who are now unemployed and can no longer pay rent. I also have homeowners turn renters who are losing (possible) their job as well. All of this will put tons of people on unemployment (State/Government) payment plans (aka checks)… are you seeing a pattern here!.... HELLO!
As for me I’m seeing friends and family close doors, move, lay off people and cut back. Just to keep food on the table and a roof over their head.
If you’re not lending you’re not making money. That is what makes the world go round. It isn’t the loan products that did it. They work fine as long as there are checks and balances involved. It is simple common sense: if you make 20k a year you can’t buy a 250k home, much less one for even more. Just because values are increasing. COMMON SENSE You couldn’t even get a car loan for a 30k car on that salary, so why a home (out of your salary range).
Keep it simple: help the housing and employment and you will correct the nation.
I hope I have put forward some valid points for you… again, this is what I am seeing on the east coast and hearing from friends around our nation.
Paulson; listen to me... Help the people and you will help the economy. keep it simple. If the people are not spending the banks aren't lending. It doesn't work Top down, but bottom up.
Climb the mountain don't leap from it... hoping you'll land on your feet.
Wall st will change, but they will make more or different investment tools to make more money… just look at the new types of mutual funds coming out. Wall St. is smarter than our government. You just have to hand it to them for that!