John Helyar, co-author of the well known Barbarians at the Gate and an editor-at-large at Bloomberg News in Atlanta, wrote a concise history of how we arrived at the current financial “king-hell combination of Hurricanes Gustav and Ike,” published in the November 2008 issue of Bloomberg Markets.
Helyar begins his opinion piece with the observation that there is just one thing wrong with the genius of capitalism: it occasionally veers off into “barking madness.” This is a time in which we find ourselves.
Whereas it is not at all clear how to find our way out of the wreckage of this storm, it is a good deal clearer, according to Helyar, how we got here. “Wall Street went off and did what Wall Street does best. It takes a good idea and overdoes it to such excess that it becomes a very bad idea.”
Comparing today’s situation to the late ’80’s frenzy of leveraged buyouts fueled by junk bonds, culminating in history’s largest LBO of RJR Nabisco (chronicled in Helyar’s book), the author sees nothing but bad news in today’s circumstances. There is plenty of blame to go around, according to Helyar, from the creative investment bankers responsible for the securitization of mortgages to the mortgage originators such as Countrywide with their gimmicky subprime mortgages to former Fed Chairman Greenspan as the “cheerleader” for nontraditional mortgages.
But the principal cause of the magnitude of this storm and the wreckage it continues to create was, Helyar seems to say, the sweeping deregulation of U.S. banking. As the author observes, the repeal of the Glass-Steagall Act in 1999 “allowed commercial and investment banks to merge and created synergies of incompetence.” The only winners, if there are any, are the large commercial banks such as JPMorgan Chase and Bank of America.
Finally, though, Helyar concludes his opinion piece with the lesson that Wall Street apparently must learn over and over again: Excessive Ambition Kills!
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors with investment problems. For further information, please contact us.