SIFMA’s Leaked Memo Rubs Investors the Wrong Way

by Jacob Zamansky on July 8th, 2009 at 5:35 pm : Comments 000

As I write this post, a collection of highly educated, enterprising professionals (whose skills would no doubt be better suited for more constructive endeavors) are on a conference call scheming ways to blunt what Wall Street considers a “populist overreaction” to the banking crisis.  Indeed, as reported by Bloomberg a few weeks ago in memos detailing confidential meetings at the Securities Industry and Financial Markets Association (SIFMA), Wall Street has launched an image improvement program led by former aids to Hank Paulson who meets every morning.

The reason being is that Wall Street fears that it won’t have a seat at the table when it comes time to hash out the details of President Obama’s regulation reform without a facelift.  What better way to do it than spend nearly $100,000 per month on consultants after receiving $700 billion in TARP loans?

It seems outrageous on the surface, but to be fair it’s not uncommon for a trade group such as this to embark on a PR campaign.  And according to Bloomberg one of the goals is to communicate “accountability,” which is admirable.  Having said that, to categorize the public’s outrage over what has occurred as a “populist overreaction” is an insult to the millions of American’s whose lives are now ruined because their life savings were decimated by Wall Street’s fraud and greed.

These were Wall Street’s customers and they are more than justified to be irate.  Families are feeling real pain while bankers are upset that bonuses will only come-in at $750,000 this year.  It doesn’t make sense to them.  Their only recourse is anger and an explosion in litigation and arbitration claims.

According to the leaked memos, SIFMA plans to empower the legions of brokers to be “foot soldiers” that will deliver message points directly to the masses on a grass roots level.  This is not a surprise to me.  After all, it was the brokers that were conduits for misinformation their superiors crafted in order to sell dubious products such as structured notes, auction rate securities, hedge funds tied to subprime mortgages or shares in Fannie Mae, Freddie Mac, Lehman Brothers and other failed financial institutions.

Brokers were often encouraged to lie and commonly didn’t receive any training with regard to the complex securities they told their customers to buy.  Wall Street charged underwriting fees then a commission on the very same products, thus doubling and sometimes tripling fees for investors.  They traded out of their own accounts knowing the markets were going to tank and hedged against their own clients.  So I doubt seriously that after the losses sustained by individual investors that they will be receptive to a call from a broker saying “it’s not our fault and you can trust us now.”

It was recently reported that 2009 will be another bonus bonanza on Wall Street.  Clearly Wall Street is not ready to take responsibility for their terrible decision making and fleecing of individual investors and until it does, no amount of spending on PR programs will do any good.  Instead of PR, Wall Street should be concentrating on repairing its relationships with customers by compensating those that were ripped off for their losses.

Moreover, they should embrace the fiduciary standard for brokers.  At least then, Wall Street’s customers will know that their interests are being looked after and it’s not just a bunch of PR spin.

Filed under Wall Street
and fiduciary standard, SIFMA