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Tuesday September 23rd 2014

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House of Sticks: Resuming the Chase

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My allegiance to this column is based on my ability to lead you to credible references. Giving you resources that can verify my statements in detail, and name names, from the events I have been relaying in broad generalities, is a most important goal. This subject matter, after all, is so egregious in nature that one might say it is the financial fairy tale from which giant conspiracy theories are created. We could only wish for those conspiracies to be theories.

When the financial sector behaves badly, the only entity capable of cleaning it up, unfortunately, is government. Remember 1992 and the RTC, and 2008 and the FED. Government attempts to untangle the tangible mess while the financial sector tries to salvage its public reputation. The best way to mend those reputations is to find ways for the public (and the firms’ employees) to develop serious memory lapses. How does one effect that ploy? One affiliates with, for example, research organizations searching for a treatment/cure for a disease that afflicts children. Another method is to get involved with the arts and sponsor ballet, opera, and/or symphony performances. These non-profits feature more financially well-heeled members and season ticket holders, and these participants develop amnesia. The past is often overlooked, and they tend to give the companies in question “free passes” because off their community involvement.

What about the employees of these firms? Ask yourselves a couple of questions. Could you work for a company that purposely created faulty research resulting in criminal/civil lawsuits, massive financial losses for its own clients as well as others, and a consistent blistering by the media? Could you work for an investment bank that had to convert to a commercial bank to survive because of its own over-speculation in the private derivatives markets? Could you work for a firm that was involved with Libor rate price fixing while saddling a government entity with derivatives that would blow up if the Libor rate price fixing scheme worked?

I didn’t think so. You’re basic sense of right, wrong, and ethics eventually would dominate your being. One must wonder, however, what makes good people, who survived the 2008-09 cuts, stay at not-so-hot firms? Want an answer? Deferred compensation. Tie ‘em up and leave ‘em roped.