Earlier today, Dennis Kneale was running his mouth (as he is oft' wont to do) about the complete failure of the "Financial Supermarket" business model, referring to the diversified financial services corporation epitomized by the likes of Citigroup and the like As usual, Kneale conveniently ignored the reality of the situation, which in this case is that the model itself is not necessarily broken, but very prone to failures of implementation and execution, much like most other large, complicated business models. Citi has long been criticized for being a mish-mosh of poorly-integrated components, a conglomeration of legacy systems, policies, procedures, and cultures. It is mainly for these reasons (as well as others, no doubt) that the financial supermarket model has failed to live up to its promises for the House that Weill built.
Similarly, a quick look at any main-stream media (as well as some newer outlets) - especially ones with comment boards - shows that scapegoating is alive and well with the ongoing mess thats engulfed some of our oldest and most storied financial institutions. Most of this is due to ignorance, which itself is partially fueled by poor and irresponsible reporting, as well as the fact that for the layman/woman the business of an investment bank or broker/dealer is likely more foreign than that of almost every other type of company. Sure, writing an operating system or designing a new computer chip or cell phone is fantastically complicated, but at least it results in the creation of tangible products with which the public interacts. For all Joe & Jane 6-pack ("J&J6P") know, everyone who worked at Lehman Brothers was engaged in massively risky financial alchemy and made $12,000,000 a year for it.
As impossible as this may sound to those of us in the 'biz, for many people this picture of Wall Streeters as scheming bigwigs raping the public from their gilded offices in lower Manhattan is more real than reality. The fact of the matter is that likely 1/2 - if not more - of the employees at Lehman (Bear, or any other Bank/Brokerage) were just as far away from the 7-8 figure bonuses as J&J6P. Sure, a 50 year old MD in operations can make $400,000 a year, but there are people in virtually every large corporation who've climbed their respective ladders to get to a similar point. Just as in many other industries, Wall Street salaries (all-in) are seriously skewed left - that is - those very few at the very top make so much that it severely weighs on the average.
The blame for our current predicament, at least the part that those on Wall Street have to shoulder, similarly lies with a very small percentage of employees - likely less than 5% at most banks - who were directly involved in the myopic asset-backed security mess in which we're currently engaged. Because this simple truth is generally unacknowledged by those who don't or haven't worked in Finance (and conveniently overlooked in most media reports), we see dozens of comments from "outsiders" on NY Times Dealbook or WSJ's Deal Journal throwing blanket criticism onto ALL of Lehman employees or worse, ALL of Wall Street in general.
Still others, instead of blaming the employees, blame the practices and products themselves: ALL structured products, ALL ABS, ALL this, that or the other thing are the devil! Please. In-and-of themselves, securitization and structured credit are NOT inherently the root cause of the problem. When combined with lax (or simply non-existent) risk management, over-reliance on Rating Agencies, and most importantly, excessive leverage, they are a time bomb waiting to go off. It doesn't take a PhD in Finance to comprehend this simple idea - we've seen that leverage kills countless times before - many observers will invariably lay all the blame on the products instead of their improper use.
The major takeaway here is that we - from relatively small-time bloggers such as myself and 1-2 to WSJ columnists to the anchors on CNBC - need to do everything within our power to educate the public about the true nature of whats going on.
While we don't quite have the reach to enact any real changes, I'd like to call on all media outlets, reporters, talking heads - everyone - to make a concerted effort to be responsible in their journalistic duties. Tell the whole story, at the very least make a 1/2-assed effort, because for many people, they only know what you tell them.
The same goes for those of us on the Street. We have an implicit self-interest in making sure the public understands what we do, and why they need us; our very livelihood depends on it.
Good luck to all those who've lost their jobs and those who likely will in the coming months. As always, if you have any questions, comments, or want to tell your story, feel free to shoot me an email email@example.com or let 1-2 know what your thinking.