One on One with Robert Albertson, Chief Strategist at Sandler O'Neill
Tuesday, September 15, 2009
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SUSIE GHARIB: More analysis now on the anniversary of the Lehman collapse and how that event changed Wall Street. Joining us now Robert Albertson, chief strategist at Sandler O'Neill. Hi, Robert.
ROBERT ALBERTSON, CHIEF STRATEGIST, SANDLER O'NEILL: Hi Susie.
GHARIB: I don't know if you saw the cover of "The Economist" this week, but on the cover it says, Wall Street one year on, what's changed? How would you answer that question?
ALBERTSON: Well, it's changed quite a lot. A lot of the logical reforms and goals are already falling in place, such as compensation headed more towards long-term in shares. Leverage is down a lot. I don't care what anyone says. There are adjuncts to Wall Street that have not really been addressed which are still problematic and that would include the rating agencies and the mortgage originators, both of which need to be brought under the regulatory tent. But in the end, Wall Street isn't broken. It sure is dangerously diminished. And we have to remember Wall Street is a critical component of credit creation, much bigger than the banking system, in fact.
GHARIB: As you know, President Obama, Congress, the public, they don't want to go through another one of these financial crises and they want to do something to prevent that. So they're calling for new rules, new regulations. Can Wall Street and by that I mean the big financial firms, banks and investment banks, come up with a new structure, a new safe guard before Congress does?
ALBERTSON: Well, I don't know. I don't want to go through it again either, no one does. But the truth is you have to step back and understand what caused it in the first place, where did the disease begin? And I don't want to diminish the role of Wall Street at the end, but this in fact was something that took 20 years of declining saving and 10 years of an influx of unprecedented foreign liquidity. We had a tsunami; no one seemed to see it. I think the Street now recognizes it. I think the rules will change. I don't understand really why we want to completely revamp the regulatory system and the rules. We need to add some rules, but the rules weren't the problem. We didn't have strong rulers, people who executed properly. And the poster child for that, in a different way but very obvious to all, was Madoff. That was highly transparent for a long time. That came under the auspices of Finra, which most people watching your show may not even know, and the SEC and those are internal regulatory structure, line of reporting execution issues. There's no law that can be passed that is going to help us here. It's got to be better regulation.
GHARIB: What is the solution here? Because American taxpayers don't want to be put in a position again that they're backed up against the wall saying look you've got to bail out, you fill in the blank, whether it's financial firms or auto companies or whatever. You're going to have to bail them out because the whole financial system is at risk. What's the solution?
ALBERTSON: Well, solution number one is to get trust restored in the system so it functions again as opposed to constantly berating it as the primary cause of everything bad. Solution number two would require recognition that the support for this system is not taxpayers. In the case of the banks, all the money given to the banks is basically being returned out of profit. There are a lot more banks that are smaller banks going to have problems. Those failures are ultimately going to be paid for by the banking industry so, the taxpayer is not on the hook in the financial system in the way a lot of people think. And the third thing is we need to start addressing the broader problems instead of being obsessed with the financial system as the primary issue. But right now everyone believes that President Obama, you know, refers to it as quick kills and bloated bonuses. I don't want to turn into quick fixes and bloated government. And I think there are all the obvious things that need to be done are on the table, including the compensation issue, leverage, all of that is being accomplished and that should do it. The real issue is we need to be able in the future to be able to see these tsunamis better and to have the independence and the conviction and the authority to act on them and to slow them down and stop them.
GHARIB: And that's a hard thing to do. But I want to go back to something else that President Obama said yesterday. He said that he doesn't want the old ways that led to this crisis cannot stand, he said, the old ways. Do you think that Wall Street, once again the big financial firms, are still back to their old ways? Are they still going out there doing risky ventures or have they scaled back?
ALBERTSON: There's a balance. You have to take risk in order to generate any kind of growth. Wall Street is not back to its old ways. There's no evidence of that whatsoever. What some people are confused about is that some of the firms remaining today are highly profitable again. They don't recognize that their leverage has been cut in half and part of the reason they're profitable is a huge amount of capacity has been taken out of Wall Street. That's not an indication of going back to the old ways at all. Most of the senior Wall Street CEOs have already addressed the compensation issue. (INAUDIBLE) at the top of them, squarely and honestly. And I disagree with the president's statement.
GHARIB: All right, unfortunately we can't continue the discussion. We're going to have to leave it there and you're going to have to come back.
ALBERTSON: I would enjoy that.
GHARIB: Thank you so much. My guest tonight, Robert Albertson, chief strategist at Sandler O'Neill.
