Fed Governor Kevin Warsh: "We don't see any immediate systemic risk issues" (2007)

We don't see any immediate systemic risk issues. . . . The most important providers of market discipline are the large, global commercial and investment banks.

~ Fed Governor Kevin Warsh, July 2007

Charlie Munger speaks out against his own investment in GS

Wall Street to some extent is deliberately trying to profit from sin, and I think it’s a mistake. Why should an investment banker go to Greece to teach them how to pretend their finances are different from what they really are? Why isn’t that a perfectly disgusting bit of human behavior?

~Charlie Munger, Vice-Chairman, Berkshire Hathaway, "Wall Street Bankers Share Blame for Europe Crisis, Berkshire’s Munger Says", Bloomberg, May 2, 2011

Ron Paul on Wall Street, bailouts, and who pulls the strings in DC

You know, it is said that the Congress didn't have enough strings attached to the money that they were giving away, but I think the strings go in the other direction. I think Wall Street has the strings on Washington. And they pull and do what they want and that's where the corruption is. They control the monetary system.

~ Congressman Ron Paul, "Ron Paul on the recession: 'None of this is behind us'," The Hill's Blog Briefing Room, October 20, 2009, by Michael O'Brien

Bethany McLean on the artificial Wall Street boom

Over the last bunch of years Wall Street justified the extravagent amounts that people were paid by saying, "look at the profits we're producing." And now if you look at the writeoffs that firms have taken, most of those profits turned out to be completely illusury, because the profits had been decimated by the writeoffs. In other words, the profits weren't real in the first place. So people have already collected millions of dollars that, in a strictly speaking economic sense, they weren't really entitled to.

~ Bethany McLean, Interview on PBS NOW, January 31, 2009

Charles Gasparino on the securities industry

This is the most regulated industry in the world and it's leading our country to ruin.

~ Charles Gasparino, CNBC, November 20, 2008

Jim Grant on why politicians do not attack Wall Street over the credit crunch (2008)

Wall Street is off the political agenda in 2008 for reasons we may only guess about. Possibly, in this time of widespread public participation in the stock market, "Wall Street" is really "Main Street." Or maybe Wall Street, its old self, owns both major political parties and their candidates. Or, possibly, the $4.50 gasoline price has absorbed every available erg of populist anger, or -- yet another possibility -- today's financial failures are too complex to stick in everyman's craw.

I have another theory, and that is that the old populists actually won. This is their financial system. They had demanded paper money, federally insured bank deposits and a heavy governmental hand in the distribution of credit, and now they have them. The Populist Party might have lost the elections in the hard times of the 1890s. But it won the future.

~ James Grant, "Why No Outrage?," The Wall Street Journal, July 19, 2008

Kevin Duffy on rationalizations for the credit bubble

The rationalizations for this bubble are much different when compared to the Internet bubble. Back then, valuations didn't matter. This time, most of the speculation is in so-called value stocks that have had their earnings inflated by cheap credit, especially the financials.

The brokerages, in particular, have been bailed out continually by the government and seem to be playing the credit bubble aggressively.

... We think that there's a big correction ahead for the brokerages.

~ Kevin Duffy, Bearing Asset Management, "Setting a Course With Bearing Asset Management," Motley Fool, April 11, 2007, by Matt Koppenheffer

Bloomberg: Analysts mostly missed Bear Stearns implosion

Analysts did a particularly dismal job of perceiving what was going on in their own industry. The majority of the 17 analysts covering Bear Stearns Cos. had rated the stock "sell'' or "hold'' through 2006, when its price increased 42 percent. Most of the analysts who had had a "buy'' on the shares failed to downgrade them before July 2007, when two Bear hedge funds heavily invested in mortgage-backed securities went bankrupt.

~ "Why Paul Miller in Virginia Is Wall Street's Best Stock Picker," Bloomberg, June 19, 2008, by Kambiz Foroohar

BW: Investment banks off the hook from Enron lawsuit

The U.S. Supreme Court closed out a lingering chapter in the Enron saga on Jan. 22 when it declined to hear an appeal by shareholders seeking billions in damages from investment banks that advised the notorious energy giant. The denial was expected after a decision last week that said aggrieved investors can't sue third parties who abet fraudulent schemes unless they can show they relied on public statements by those parties. 

~ BusinessWeek, "Enron Lawsuit: No Go," February 4, 2008, edited by Harry Maurer & Cristina Linblad

George Will on Wall Street bailouts

Republicans and Democrats promise cooperation, compromise and general niceness using other people's money. If Congress cannot suppress its itch to "do something" while markets are correcting the prices of housing and money, Congress could pass a law saying: No company benefiting from a substantial federal subvention (which would now include Morgan) may pay any executive more than the highest pay of a federal civil servant ($124,010). That would dampen Wall Street's enthusiasm for measures that socialize losses while keeping profits private.

~ George Will, "The Fed Muddles Through a Bailout," Townhall.com, April 20, 2008

Wall Street shareholders suffer losses partners never imagined

Shareholders share in the downside and not necessarily in the upside, that's the whole story. It's OPM: Other People's Money.

~ John Gutfreund, Former CEO Salomon Brothers, "Wall street shareholders suffer losses partners never imagined", Bloomberg, February 11, 2008

Peter Schiff on the coming decline of Wall Street

Most importantly, Wall Street's reputation, once its greatest asset, is also in jeopardy. Just as Detroit lost its reputation for high quality cars, bankrupted dotcoms and worthless subprime debt are creating similar problems for Wall Street. You can't expect to keep your customers if you continually sell them shoddy merchandise. Wall Street has spread hundreds of billions of dollars in losses around the world and in so doing shattered its reputation with some of its best customers.

However, in the last few years Wall Street has not only screwed customers but their own shareholders as well. At one time all of our major investment banks, such as Goldman Sachs, Lehman Brothers, Morgan Stanley, Bear Stearns, Smith Barney, Shearson, E.F. Hutton, Kidder Peabody and Solomon Brothers, were private partnerships. However, during the 1990's they all went public (of course many merged first so they no longer exist as independent firms). Goldman Sachs was the last to go public in 1999. The transition allowed Wall Street partners to cash out, transferring future risks to new shareholders. In so doing they were able to capitalize on bubble valuations, yet through lavish bonus compensation packages, still keep the lion's share of the profits for themselves. In other words they got to have their cake and eat it too.

As a result of this transfer of risks, the business models of America's leading financial institutions shifted, with profits coming from riskier sources such as proprietary trading and structured finance. To line their own pockets, Wall Street willingly exposed its shareholders to risks that it would never have assumed with its own capital. This moral hazard set the stage for the enormous losses shareholders are now suffering, and are a direct consequence of the phony profits booked in prior years. However, while shareholders are left holding the bag, Wall Street's former partners, now turned employees, have already walked away with huge IPO and stock option windfalls, as well as lavish bonuses paid on phantom profits.

~ Peter Schiff, "Another One Bites the Dust," Gold321 Ltd, January 25, 2008

Alain Belda on naming Stanley O'Neal to Alcoa Board

Stan is a straightforward leader who focused on improving the operations of the business during his tenure at Merrill as part of his broader strategic vision for the firm.

-Alain Belda, CEO Alcoa, "Alcoa Names Former Merrill Chief Stan O'Neal to Board ", Bloomberg, January 18, 2008

Bill Laggner on investment banks

Bearing is shorting the underwriter. We are short Bear Stearns, Merrill Lynch, Lehman. Anyone involved in structured finance.

Bear, Merrill and Lehman is who has let this structured finance get carried to a whole new level. It’s like each has a role in a play, you had an originator, you had a borrower, and you have Wall Street, buying and securitizing all that paper. This is who sold it to a group of people reaching for that yield.

~Bill Laggner, Bearing Asset Management, "Respect is Due", Hedgefund.net, March 23, 2007

Deutsche Bank analyst Mike Mayo on Merrill Lynch's subprime lending problems

In our view, the quarter showed that Merrill has navigated recent market problems quite well and that the issues of market concern are not a major driver of its earnings.

~ Mike Mayo, Deutsche Bank analyst, "Merrill Lynch's profit rises 31%," MarketWatch, July 17, 2007

(Comments from a recent research report assessing Merrill Lynch's quarterly results.)

Ron Paul on Wall Street

If [Wall Street] believes in freedom, free markets, and sound money, they'll love me. But if they like creating credit out of thin air, they'll see me as a threat.

~ Congressman Ron Paul, "Ron Paul on the Evil Fed, the IRS, and Saving the Buck," BusinessWeek, December 10, 2007, interview with Maria Bartiromo

Henry Paulson seeking advice from Wall Street's elite

When the markets began to shudder in July, Paulson used the address book he had built up during 32 years at Goldman Sachs to seek information and advice from Wall Street's elite. Among those he called, people familiar with his handling of the crisis say, were former Treasury Secretary and Goldman alumnus Robert Rubin, now chairman of Citigroup, and Jamie Dimon, CEO of JPMorgan Chase.

He was on the phone daily through August and into September with Fed Chairman Ben S. Bernanke and was also in frequent touch with New York Fed President Timothy Geithner, the central bank's eyes and ears on Wall Street.

In mid-September, Paulson and his team summoned bankers to the Treasury building adjacent to the White House. The result was M-LEC [master liquidity enhancement conduit].

The idea -- and Treasury's involvement -- has been controversial from the get-go. Soon after the plan's announcement, former Fed Chairman Alan Greenspan and billionaire investor Warren Buffett questioned its practicality, saying investors would not be fooled by a shuffling around of unpalatable assets.

~ Bloomberg.com, "Paulson Finds Bush's Treasury No Career Enhancer Like Goldman," November 21, 2007, by Rich Miller, Matthew Benjamin and Kevin Carmichael

New York law firms resist downsizing amid Wall Street downturn

I don't think the other top-tier New York [law] firms lay off associates anymore. I think they've learned their lesson from the last few downturns.

~ Scott Barshay, mergers and acquisitions partner, Cravath, Swaine & Moore, "Credit Market Collapse Claims Victims as Lawyers Exit," Bloomberg.com, November 20, 2007

(He added that his firm has never laid off associates. Cravath is New York's second-most profitable law firm.)

Jim Grant: "The channel of credit runs through Wall Street"

Finance has moved outside the banking system to the Lehmans and Bears and, yes, the New Centurys of the world. More and more, the channel of credit runs through Wall Street. State and federal examiners still look over the shoulders of their institutional charges, but the rating agencies are the cops who walk the principal beat of supervision.

~ Jim Grant, "Memo to markets: We're on our own," Grant's Interest Rate Observer, March 9, 2007

Kevin Duffy on the "asset inflation Kool-Aid drinkers"

The big winners past 20 years were the asset inflation Kool-Aid drinkers, with investment banks at/near the top of the list. The great paradox is that they call themselves capitalists yet believe in monetary intervention (which they think creates perpetual asset inflation). (Perhaps this is why the Dems accept their campaign contributions.) If there is such a thing as economic law (which we actually believe exists), there is a house-cleaning in the works for which the faithful will be unprepared. The economy is in the early stages of weaning itself from its credit addiction – a good thing - with the Fed the source of the drug and the investment banks the creative and aggressive distributors who in the process became addicts.

[In you live in New York City,] you have a front row seat to the greatest spectacle on earth. Relax and grab your popcorn, we’re only in the first inning.

~ Kevin Duffy, Bearing Asset Management, July 19, 2007