Transcripts

"Commentary"-A Lesson Learned

SUSIE GHARIB: Tonight's commentator says there is a lesson to be learned from the current financial crisis. He's Todd Buchholz, author of "New Ideas from Dead CEOs."

TODD BUCHHOLZ, AUTHOR, "NEW IDEAS FROM DEAD CEOS": Close the windows, lock the doors and put on a gas mask. Oh, it's not the Beijing air, it's the stench of Wall Street burning money, destroying credit. Meanwhile, the Fed is running the printing presses overtime just to offset the cash burnt to a crisp. Let me share with you two personal campfire stories on how this mess began. A brokerage house invited a hedge fund colleague and me to lunch to pitch new derivatives their Ph.D. physicists had cooked up in their lab. It was hard to admit we couldn't follow the formula. It was like the emperor's new clothes. Maybe they should've invited Stephen Hawking. We did have the self-confidence to pick up and leave, right after they picked up the check. But how many investors are drowning today because they bought instruments they did not understand? A second story. After Long-Term Capital almost blew up the world in '98, I met with a top investment bank about launching a hedge fund. I assured them we would not be so aggressive, instead of trading derivatives based on illiquid Danish and Russian mortgages, we would stick to plain vanilla government bonds. The bankers got ornery. They nearly took back the cookies. They didn't want to hear plain vanilla. There's no money in plain vanilla. The more customized, the less liquid, the bigger the personal profits to bankers. So welcome to Wall Streets new "Bonfire of the Vanities." What's the lesson? You can't put out fires when nothing is liquid. I'm Todd Buchholz.