All That Glitters
The 8/9 edition of the Wall Street Journal reported that three large financial firms have agreed to buy back auction-rate securities from their customers in an effort to settle charges that they mis-led customers regarding the safety of the financial instruments.
USB, Mertill Lynch & Co., and Citigroup Inc have agreed to purchase $36 billion in response to regulators allegations that the companies: Mis-led investors, Pushed securities that they themselves were selling out of their portfolios, and ignored client demands for help.
Auction-rate securities are long term bonds that have the ability to be sold at auction before the maturation date. The issuer receives a lower payment rate than traditional bonds and the buyer receives a higher rate than traditional money market accounts.
The auction-rate market was among the more lucrative bond markets for Wall Street which explains its behavior as it tried to prop up the market amid the looming liquidity crisis. The problem, it seems, is that part of the propping up included lying. In one case a report written by a Merill bond analyst which warned of the impending danger was rewritten and the ending changed to a buy recommendation.
What is amazing about this story is the scope of the wrong doing. Three independent multi-billion dollars firms engaged in deception in order to shore up their profits. Paradoxically their behavior is exhibit A in the Federal Goverment's push for increased regulatory control among financial houses.
Innovation is simple (not easy). It's coming up with new ways to solve the customer's problems and then delivering those solutions. Most of the literature concerned with delivering these solutions talks about charismatic leadership qualities or new workshop tools. In reality the best advice, as boring as it is, is don't lie, cheat, or steal. In fact the first point of advice for people looking for Innovation should be don't engage in unethical business practices. This lets you dedicate resources to helping the consumer instead of dedicating them to negotiating with prosecutors.
USB, Mertill Lynch & Co., and Citigroup Inc have agreed to purchase $36 billion in response to regulators allegations that the companies: Mis-led investors, Pushed securities that they themselves were selling out of their portfolios, and ignored client demands for help.
Auction-rate securities are long term bonds that have the ability to be sold at auction before the maturation date. The issuer receives a lower payment rate than traditional bonds and the buyer receives a higher rate than traditional money market accounts.
The auction-rate market was among the more lucrative bond markets for Wall Street which explains its behavior as it tried to prop up the market amid the looming liquidity crisis. The problem, it seems, is that part of the propping up included lying. In one case a report written by a Merill bond analyst which warned of the impending danger was rewritten and the ending changed to a buy recommendation.
What is amazing about this story is the scope of the wrong doing. Three independent multi-billion dollars firms engaged in deception in order to shore up their profits. Paradoxically their behavior is exhibit A in the Federal Goverment's push for increased regulatory control among financial houses.
Innovation is simple (not easy). It's coming up with new ways to solve the customer's problems and then delivering those solutions. Most of the literature concerned with delivering these solutions talks about charismatic leadership qualities or new workshop tools. In reality the best advice, as boring as it is, is don't lie, cheat, or steal. In fact the first point of advice for people looking for Innovation should be don't engage in unethical business practices. This lets you dedicate resources to helping the consumer instead of dedicating them to negotiating with prosecutors.
Labels: aution-rate securities, innovation
posted by Greg at 5:28 AM
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