Risk Management: Bankers get rich. How about you?
I've mentioned risk management from time to time. Good risk management keeps you honest - even safe. For example, it forces discipline on you. You keep your portfolio positions to a certain size, and that reduces your risk of loss of principal overall.
But wouldn't it be nice to have Wall Street's version of risk management? What's that? Let's call it "bailout risk management."
Hold on a minute! I thought the bailout was supposed to help us. It couldn't be that the bailout really was only intended for bankers, could it? Wasn't that just a sour, cynical way to look at it?
When the bailouts started with Bush, the Republicans said the Democrats were trying to undermine Bush when they opposed the bailouts. (Never mind that some Republicans opposed them; they were either traitors or just ignorant. They didn't know what was "really" going on and why we just had to have these bailouts.)
Then Obama gets in and the Democrats say the Republicans were partisan when they opposed the Obama bailouts. (Never mind that some Democrats opposed them; they were either traitors or just ignorant. They didn't know what was "really" going on and why we just had to have these bailouts.)
Of course, there were those who were saying the beneficiaries would be certain investment banks - like Goldman Sachs, Morgan Stanley, JP Morgan. After all, Lehman Brothers and Bear Sterns, a good chunk of their competition, were gone. So didn't it stand to reason that these other investment banks would benefit from reduced competition?
But wait. They were in dire straights and had to be bailed out, even with the prospect of reduces competition. They got money from us.
So let's see, the government gave them money to save them, and they reduced their competition. Yep, some people saw that one right away and figured it would prove to be a pretty neat deal for those big bad bankers.
And you know what? It is! The NY Times this past Saturday got the point: "Bailout Helps Fuel a New Era of Wall Street Wealth." Bonuses flow again - this time record bonuses.
You see, the big bad bankers - the ones who were left standing with reduced competition and a pot of our money to help them chug along - figured things out fast. After all, they're pretty smart people.
They've got the kind of risk management you and I could use. They went right out and engaged in all sorts of risky trading - the kind we might have stayed away from, so as not to take the "big loss." But they don't have to worry about the "big loss." They get bailed out.
So they traded to their hearts content. They took risk and got big rewards. Of course, there was no real risk. They're too big to fail, so where's the risk. If they screw up, they get bailed out.
More on this next time...
But wouldn't it be nice to have Wall Street's version of risk management? What's that? Let's call it "bailout risk management."
Hold on a minute! I thought the bailout was supposed to help us. It couldn't be that the bailout really was only intended for bankers, could it? Wasn't that just a sour, cynical way to look at it?
When the bailouts started with Bush, the Republicans said the Democrats were trying to undermine Bush when they opposed the bailouts. (Never mind that some Republicans opposed them; they were either traitors or just ignorant. They didn't know what was "really" going on and why we just had to have these bailouts.)
Then Obama gets in and the Democrats say the Republicans were partisan when they opposed the Obama bailouts. (Never mind that some Democrats opposed them; they were either traitors or just ignorant. They didn't know what was "really" going on and why we just had to have these bailouts.)
Of course, there were those who were saying the beneficiaries would be certain investment banks - like Goldman Sachs, Morgan Stanley, JP Morgan. After all, Lehman Brothers and Bear Sterns, a good chunk of their competition, were gone. So didn't it stand to reason that these other investment banks would benefit from reduced competition?
But wait. They were in dire straights and had to be bailed out, even with the prospect of reduces competition. They got money from us.
So let's see, the government gave them money to save them, and they reduced their competition. Yep, some people saw that one right away and figured it would prove to be a pretty neat deal for those big bad bankers.
And you know what? It is! The NY Times this past Saturday got the point: "Bailout Helps Fuel a New Era of Wall Street Wealth." Bonuses flow again - this time record bonuses.
You see, the big bad bankers - the ones who were left standing with reduced competition and a pot of our money to help them chug along - figured things out fast. After all, they're pretty smart people.
They've got the kind of risk management you and I could use. They went right out and engaged in all sorts of risky trading - the kind we might have stayed away from, so as not to take the "big loss." But they don't have to worry about the "big loss." They get bailed out.
So they traded to their hearts content. They took risk and got big rewards. Of course, there was no real risk. They're too big to fail, so where's the risk. If they screw up, they get bailed out.
More on this next time...
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