Trust

 April 14, 2010
 
I have a friend who publishes a business BLOG called “Trust Matters”.  It is found on his site, www.trustedadvisor.com, and his thesis is that honesty and forthrightness are among the most important keys to success in the business world.  I know that he’s right if peace of mind is considered as a measurement of success but, in the business world it is not.

I don’t trust any major corporation to care about its clients or employees.  They are run by people whose only objectives are to increase their share price and to project a benevolent image so the only thing I can trust is that they’ll be good for me only if I own shares in them, otherwise they’re out to get my money.  Cynical, maybe but that’s the way I see it.

Stock brokerages were much more deserving of trust when they were partnerships and their income was dependent on how well they managed their money.  Now that they are publicly owned they are investing OPM (other people’s money) they no longer have much “skin in the game” and I basically don’t trust them to look out for me.  Also, brokerages are now parts of major banks and are the most profitable areas of those banks. My sense is that it’s pretty simple.  If you can sell me an investment product and tell me about it’s upside potential while buying a short position in that same security I have no faith in your intentions.

I’ve read recently that the six largest banks in the USA control some 60% of the country’s assets.  We hear the term “too big to fail” and nothing happens.  They are too big to fail and they should, therefore, be broken up.  My sense is, also, that the trading operations should be once again separated from the commercial and personal banking business.  They should be separate corporations.  They should be made small enough such that, when they begin acting like casinos again, and they lose their capital it will have no impact on the economy at large.  When Goldman Sachs or some other firm convinces another AIG that they want to buy “insurance” against the failure of some “sure not to fail” security and that security turns to garbage, I want the impact to be felt only by the people on either side of the bet.

And, speaking of trust, how about Enron, Arthur Andersen, Monsanto, Exxon, Payday loans from Bank of America, The Health Insurance Business. Big Pharma…….the list goes on and on and I trust none of them.  Corporations are composed of people who, taken individually, may very well be honest but, put them in a situation where their income depends solely on increased profits………..watch out!

Posted May 4, 2010

1 Comment

I think trading positions are much more complex than you acknowledge here. I, as Wall Street Firm “X,” may recommend GE stock to you because we feel it is undervalued, yet simultaneously may be shorting the SPX (S&P Index, of which GE is a part) as a hedge against our current net long position in large cap equities, even as we are writing GE puts in our aggressive equity funds and are buying forward options on an order basis for a large institutional account. None of that involves taking the other side of the bet you make when you buy or sell a security.
In the case of Goldman, the securities involved were NOT available for public purchase, and the buyer should have been relying on nothing other than its own expertise to evaluate the risks and the rewards involved in the specific securities it was examining. Nothing else was material. I have heard of no information being withheld other than there were other professionals who chose to take the other side of the bet.
As far as the AIG’s of the world go, I think they should rot in hell. There should be regulation to insure that the destruction from bet implosion is limited to the players directly involved and/or shared by those who are willing to ante up in advance to play the game.

-Mal

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