Streetwise
Lauren Rudd
Sunday, March 29,
2009
This Is Not The Time For Pitchforks and Torches
The chilling part of the hue and cry over the antics of Wall
Street is not the demonstrable way in which a few advantaged themselves to our
peril. Rather, it is the close resemblance that the public’s uproar has to the
frenzied mass hysteria that gave birth to witch burning, lynching and
Kristallnacht.
The Queen of Hearts in Lewis Carroll’s Alice's Adventures in
Wonderland had a way of settling all difficulties, great or small. “Off with his
head,” she said repeatedly, without even looking round; a painful parallel to
the views of both the public and Congress.
While torrid commentary may inflame public opinion, the vast
majority of those feeling the pain of the recession are simply perplexed and
confused by the underlying causes of the recession. Ask the average individual
to define a credit default swap and you get that deer in the headlights look.
However, mention the word bonus and its time to light the torches.
Now, I am not defending the titans of the financial world,
many of whom helped create one of the worst economic environments since the
Great Depression, while receiving financial renumeration at a level that the
average individual can only hope to achieve through a winning lottery ticket.
What I am defending is their right to play by whatever rules
and regulations were in place at a particular point in time. Certainly there
were compensation extremes within the extremities of Wall Street and corporate
America and there always will be. However that does not mean we mimic the ways
of the French proletariat and bring back the guillotine.
We, the American public, hired through our votes a team of
professionals to whom we have entrusted the responsibility for righting our
economic ship. Will they always make the right decision and or implement the
optimum solution? No, of course not for they are burdened with the frailty of
being human.
Robert Townsend, author and former CEO of Avis, wrote in his
book, “Up the Organization,” that if he made the right decision 80 percent of
the time he considered himself a success.
Congressional grandstanding aside, the Treasury Department
and the Federal Reserve are taking actions they deem necessary and correct to
repair the damage from years non-existent financial regulation. Is there a 100
percent consensus on what is being done...no and there never will be. However,
until the solutions are proven to be wrong, they should be supported and not
derided with vitriolic rhetoric.
The latest complaint is that a small minority will enrich
themselves by participating in the solution. That is undoubtedly
correct...unfortunate but correct. Individuals such as Bill Gross at PIMCO are
not acting in an altruistic manner. Rather they are capitalizing on a situation
that will earn them a substantial monetary reward.
Here is the interesting part; the financial lusting that put
us in this economic mess will go a long ways toward cleaning it up. As various
financial groups begin to bid and establish markets for those moribund and toxic
securities, the balance sheets of banks and corporations will improve. The end
will be a more vibrant credit environment.
The key question is how do you participate and receive your
share of the bounty? No, you cannot play in center ring. Investments there are
the prerogative of those with super sized check books. However, in the smaller
rings are the equity remnants of quality companies whose only fault was to be
standing in the way of a bus they did not see coming.
Next week we will once again delve into these investment
opportunities. However, as a preview of coming attractions, I have raised my
12-month target price on Bank of America from $6.00 of two weeks ago to $7.50,
and I may have to raise it again.
