The Fourteenth Banker Blog

April 25, 2010

The Ownership Conundrum

Filed under: Running Commentary — thefourteenthbanker @ 11:08 PM

We have a conundrum.  Even while Goldman Sachs lurches from one obscene disclosure to another, while the Financial Crisis Inquiry Commission issues subpoenas to Moody’s for selling out their ratings, while TARP banks contract credit and increase pay, while the Eurozone fractures along economic lines with risk of contageon, while lobbyists swarm Capital Hill to keep the gravy train moving, the investing elites just keep buying banks.

Beginning in the 1960’s a movement began to change the face of Apartheid in South Africa.  It did not gain steam until the 1980’s.  When it finally did, the old power structures were forced to bow to the conscience of the world.    That time has come again.  The financial system is kicking and screaming this week, pouring money into campaign coffers, lobbying and trying to water down, build in loopholes, and otherwise disembowel the legislation before it finally passes in some form.  Enraged as the public has been, it has few tools at it’s disposal.

Disinvestment, sometimes referred to as divestment, refers to the use of a concerted economic boycott, with specific emphasis on liquidating stock, to pressure a government, industry, or company towards a change in policy, or in the case of governments, even regime change. The term was first used in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott designed to pressure the government of South Africa into abolishing its policy of apartheid.

If you have been invested in large banks, you have done reasonably well lately.  Now sell them.  Management will not change appreciably until they know the people will speak with a loud voice and hit them in the wallet.  The same regimes run the banks in the same way.   The same axis of power runs between New York and Washington.  The revolving door turns.   Regime change is a worthy goal.

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7 Comments »

  1. Not that I ever invested much in banks, but whatever little I had (mainly company matching 401k) will be sold by tomorrow.

    Your readers might like to hear this story, after learning about the possibility of the hidden dangers in interest rate SWAPs ( which are dolled out like candies at my bank) I recently asked one of the guys at the SWAP group to expain me about the counter party risks in these transactions. I guess my line of questioning may have clued him in that I knew more than a lowly business banker should, at first he tried to brush me off with an answer like, “well, there’s really no risk to the client” when I pressed with some more pointed questions I could see the wall go up and I was gently but firmly told to refer such customers directly to their group which is much better at handling detailed SWAP related questions. Hmmm?

    So I guess the bank’s okay with me selling this product but not okay with me wanting to have any indepth knowledge of it?

    Comment by Vocalbanker — April 26, 2010 @ 2:09 AM | Reply

    • Having been in more than one product structuring group, and no offense to you personally, yes.

      Comment by ACE — April 27, 2010 @ 3:23 AM | Reply

  2. 14th Banker– I have to say I think it’s a little bit unfair to compare this whole thing to Apartheid. It is certainly unfair to say “Golcman Sachs lurches from one obscene disclosure to another”. I’m going to call you out on this one
    A) because I think your blog really does have something to offer, you, coming from the banking industry and seeing firsthand what can happen when loans become a completely comoditized process.
    B) your willingness to use inflamatory language without a good grasp of the context is not in service to this blog.

    If there are certain things that were released in the emails, post them, comment, and let’s discuss. I am happy to say that reading the 7 emails that I was able to see in the release documents, there is absolutely nothing untoward or even the least bit odd going on here.

    Comment by ACE — April 27, 2010 @ 3:21 AM | Reply

    • Ace, so let me understand this, on one hand you’re confirming my intuition about the presence of opaqueness in the system but on the other hand you want people to stick to strictly what’s been released/uncovered (so far, btw) ??

      This is where we are in our times, the politicians, the corporate looters and even some well meaning folks such as yourself want Americans to deny their intuition and refocus on pure logic and revealed information and blah blah blah!!!! EXCEPT that INTUITION is the voice of our soul, that basic place inside each one of us where morality is ever present. A lot of logic can shut it down in the short run, but long run, well that’s another story.

      Comment by Vocalbanker — April 28, 2010 @ 12:55 AM | Reply

  3. 14th Banker is spot on with the Apartheid analogy which was obviously used as simply as foundation to state the historical context about when and how divestment became a potent tool to affect real attention and change to otherwise deplorable human conditions.

    I for one don’t find it inflammatory at all and for those that do is telling.

    Comment by Sunshine — April 27, 2010 @ 8:06 AM | Reply

    • Wait a sec. I completely agree with you that apartheid was a deplorable human condition. But is the current state of finance and banking? Um… Don’t think so. It’s kind of like what Jon Stewart said about comparing various people to Hitler. It cheapens the reference (dang, the video link doesn’t work and I can’t find another, anyone else remember this clip?)

      Comment by ACE — April 28, 2010 @ 2:28 AM | Reply

  4. My goal was to make people think about ownership and the fact that you cannot always decide what to own solely on the basis of hoped for profits. For example, many people myself included would not invest on adult businesses. That does not make them equal to Apartheid. But we should not give trading a free ride on this. There is no question in my mind that the food price spikes caused people to die of starvation and malnutrition related medical causes. There is already a huge problem with distribution of food aid. Even if the exact same amount were delivered to needed areas regardless of the cost, the theft would doubtless have been higher with much higher prices. It is not something we like to talk about much, but expensive food causes death. If traders speculated and drove up food prices, a side effect was death. Some people commit suicide when they go broke. Economic disruption is not without human cost like that of Apartheid.

    So to what extent do we support it and look the other way? I am not claiming perfection on this. I do not scrub my investments or mutual fund holdings to see if they have any part in any anti social activity. But there comes a time when it becomes so extreme that the questions rise to the fore.

    Secondly, in banking we will not solve all the ills until we get some institutions whose owners have a different approach to creating value and who force the competitive landscape to respond.

    Comment by thefourteenthbanker — April 30, 2010 @ 2:54 AM | Reply


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