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Freaky Friday Potpourri: Adding Insult to Injury


New scandal erupts in already marred market


"All you have is your name and your word." --Ruby Peck

My grandfather taught me that there are three foundational elements to any successful relationship, be it business, family or friendship.

They are honesty, trust and respect.

If any one of those bonds were broken at any given time, the underlying dynamic would never be the same.

If more than one were breached, the odds were stacked against you.

If all three were violated, it would be game over, time to punch out and put a fork in any remnant faith.

Our concerns in the financial space have been highlighted for many moons. In June 2007, when the banking index was 65% higher than current levels, we scribed After the Gold Rush when mainstay averages were at all-time highs, M&A was on a trillion-dollar run rate and Blackstone (BX) billions were being minted.

We offered that "The financial sector currently represents roughly 21% of the S&P, not including "financials in drag" such as General Electric (GE) and General Motors (GM), which derive a large portion of their earnings from finance based operations."

"The natural question is therefore begged," we continued, "do you need exposure to the banks and brokers? It would appear that, given our finance-based economy and the risk of higher rates, investors are already there in spades."

Fast forward to the following fall,
we cast a glance at the ivory towers at Wall and Broad and asked ye faithful to not hate the player, but hate the game. And I quote:

"What's clear is that changing the costume in the corner office won't turn the trick. Stan O'Neal, Chuck Prince and Warren Specter are all smart guys that played the same game as everyone else. They just haven't played it as well as their contemporaries and have been held to task in kind.

We saw similar stories manifest when the tech bubble burst and corporate malfeasance morphed into a modern-day witch-hunt. That's not to say these guys are Kozlowski or Ebbers or Lay. Their antics perpetuated fraud as opposed to a universally accepted, albeit misunderstood, systematic process.

But the structural imbalances, hidden risks, counter-party collateral exposure and embedded insecurities aren't one-and-done write-downs. That's not how the knitting is weaved with $500 trillion dollars of derivatives in play. In fact, one could argue that the inherent learning curve needed to unwind these interdependencies will allow the issues themselves to manifest.

The frightening part of these modern day sequels is that the same greed and reward-chasing behavior that was responsible for the universal acceptance of risk has again been so readily embraced. It is that story itself-the twisted tale of misguided agendas-that is the common thread of these seemingly disparate plots.

Trick or treat, my friends, and be wary of the bad apples. For when we bite into the forbidden fruit, we're liable to find the pin that pricks collective psychology and leaves us all howling at the moon."

The carnage we've since seen has been beyond mainstream imagination. Bear Stearns, Fannie Mae (FNM), Freddie Mac (FRE), AIG (AIG), Lehman Brothers, Washington Mutual, IndyMac, Wachovia Bank (WB), Citigroup (C) and other once impenetrable institutions seized up and set into motion a derivative contagion that has threatened the very existence of the capital market construct.

We used the analogy that the financial dike was springing holes at a furious pace and only so many fingers were available to plug them.

With our collective hands, feet, heads and heavy hearts pressed hard against the wall of worry with hopes of stemming the crimson tide, the very last thing we needed was a kick to the groin.

Move Over, Shoeless Joe Jackson

It was well past 2:00 AM as our train made its way through the dark northeast corridor towards New York City. The Minyanville brass, having journeyed to our nation's capital for a high profile dinner meeting only hours earlier, was on our way home to finish up the freaky week.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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