It Can’t Be Coincidence

There’s nothing like getting started early. Last year two days before the 40^th Earth Day celebration (4/20/2010) Oil Giant BP and its Deepwater Horizon team saw their nearly billion dollar investment in the oil rig explode in a truly spectacular way. Since then there has hardly been a day without bad news from this tragedy.

BP, however, has plowed doggedly ahead, demonstrating again and again a level of insensitivity usually seen in a rhinoceros and other thick-skinned earthlings. It didn’t seem that way in the beginning when they focused on winning the hearts and minds of the people impacted by this tragedy. They focused everything on their efforts to shut off the flow of oil into the Gulf of Mexico. Early on they downplayed the volume, as if that would divert attention from the fact that they hadn’t the foggiest idea of how to deal with a massive underwater gusher.

The world waited as they built one Rube Goldberg gadget after another, each sure to shut off or divert the flow. The three main players in this comedy of errors were all the while pointing at each other as the blame-game unfolded. While Deepwater Horizon was drilling for BP, it was owned and operated by an outfit called Transocean that does stuff like that.

After a few months of finger pointing and BP’s CEO and “Whiner in Chief,” Tony Hayward (“I want my life back”), wandering the Gulf beaches, the BP Board booted him. Of course in addition to getting his life back he got the millions in severance the standard reward failed business leaders expect these days.

In an effort to keep up with its annual Earth Day observance, this year (4/20/2011) BP took the blame-game up a notch and sued some of the other players in this tragedy: Transocean (of course), Halliburton (they seem to turn up everywhere) and Cameron International, the company that made the blowout gadget that was supposed to prevent this whole scenario.

The timing of BP’s lawsuits is just too perfect for words. Painting themselves as the “Victim” on the first anniversary of this continuing disaster shows them as the kind of heartless villains that give business a bad name. The minority that besmear the reputations of the great majority of businesses striving for high ethical standards.

All through this horror story BP and their fellow members of the Keystone Kops School of Management have scrambled to keep the focus on anything but the one factor that should be in the fore, especially on the first anniversary of the disaster. The amount of oil leaking, the environmental impact, the impact on the businesses and the beaches, are all important but secondary.

The loss of eleven lives, injuries to another seventeen, that’s what we should be focusing on. That’s the real tragedy.  Those families will never get their lives back. To cynically make a move designed to clog the news cycle on the first anniversary of the spill when the focus should have been on those who lost their loved ones is beyond disgusting, it’s just evil.

Doing Time

There has been endless speculation as to what and or who created the giant economic bubble that burst in 2007.  To prevent a global financial meltdown the Bush administration created a huge bailout program for banks and for the colossal insurer AIG. The bailout not only prevented a bad situation from becoming unimaginably worse, it has paid off for the taxpayers as the banks pay back the loans with interest. It appears that the bailout of General Motors and Chrysler may pay off as well.

None of this is very comforting to those who lost their jobs and homes. Those folks and many of the rest of us have been wondering when the high flyers whose reckless behavior triggered all this might get theirs. Perhaps that time has come.

Last week (4/13/11) the Senate Permanent Subcommittee on Investigations released its two-years-in-the-making report “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse.” Frankly, given the spineless catering to the special interests over a few modest reforms in the Dodd/Frank Bill, it was hard to imagine that this investigation would amount to much. Surprisingly the members of this Committee were on the job. They were, as the saying goes, “Taking names and kicking butt.”

They paint a detailed picture of the out-of-control atmosphere that saw investment bankers enabling downstream players, mortgage brokers and lenders to spread money across the housing market like there was no tomorrow. All showered with encouragement from the boneheads at Fannie Mae and Freddie Mac, not to mention the rating agencies and –of all people– the head of the Federal Reserve Bank.

People were encouraged –coached if you will– to falsify loan applications. They ended up owning property they could not afford and well, you know the story. These sure-to-fail loans were bundled into increasingly sophisticated –read deceptive– packages and sold as securities by the investment bankers.

It’s not that the bankers didn’t know they were selling crap; they even called it crap inside the trading desks. And they protected themselves; as they sold these so-called toxic securities they bet against them at the same time. Some bankers were more aware than others. Not that any of them had reason to miss what was really going on. Read Michael Lewis’ The Big Short for an inside view.  

Prosecutors are poring through the 650-page Senate Report looking for criminal behavior. Many believe that those who triggered the catastrophe are too big to go to jail, just as their organizations were too big to fail. Maybe not. No major public official in NY State ever headed behind bars until last Friday (4/15/11) when former Controller Alan Hevesi was led out of court in cuffs sentenced to one to four years in jail. So maybe there’s hope that we will see some of these arrogant bankers in cuffs on their way to jail.

It would be nice if the members of the Congress would rethink the laws that allowed all this to happen; that still allow Wall Streeters to gamble. Investment bankers need to get back to creating capital for business. That would help in a real way. It would create jobs. Isn’t that what they keep talking about in DC?

© 2011 GLG

First Things First

While the players are frantically filling the air with chaff, it doesn’t take much to see that investment bankers pay a lot more attention to their own money than they do to those who entrust them with cash to invest. The latest smarmy deal to ooze into public view is a little (just a couple billion bucks) deal that the folks at J.P. Morgan profited from to the tune of a billion or two, while JPM clients took a half-billion dollar hit.

They began sorting it out in Federal Court last week. The investors claim JPM should never have put their bucks into so-called Structured Investment Vehicles (SIVs) issued by an outfit called Sigma. It may very well be that JPM will skate on this one. There seems to be no question that shortly after they plugged the investors’ money into Sigma, JPM could see that Sigma was headed for the rocks. That insight was so clear, JPM bet over $8 billion that Sigma was breathing its last. In return for their eight big ones JPM latched onto Sigma assets that the investors say netted JPM a couple billion.

JPM says Hey, the guys who put our clients into Sigma are in one division of our company (apparently the not too bright division) and the guys who made the other deal (the smart guys) are in another division. Sort of their right hand didn’t know what their left hand was doing. What’s more, they point out, they are required to maintain a “Chinese Wall” between these divisions (they have to keep their right hand behind their back). One division isn’t allowed to talk to the other. That may actually fly in court and JPM may walk on this one.

There are a host of reasons why it won’t fly anywhere else. First off, a lot of people at JPM, including their CEO, knew about both sides of this deal. According to a New York Times story, JPM’s top credit officer pointed out the dilemma only to be told by the bank’s top risk guy, “JPMorgan needed to protect its own position and not worry about what its clients were invested in.”

And in those words lies the key to what’s wrong with the investment bank sector. The same kind of conflict was at the core of the financial collapse that is still inflicting suffering across our land and most of the rest of the planet. Investment Banks (who are fine, completely recovered thank you) should be focused on helping their clients grow capital, not running trading desks with their own bucks. It leads to actions and behaviors that may legally pass muster, but morally and ethically are disgusting. Chinese Walls don’t work, these banks need serious adult supervision.