The Michael Lewis analysis

This is interesting:

Gutfreund did violence to the Wall Street social order — and got himself dubbed the King of Wall Street — when in 1981 he turned Salomon Brothers from a private partnership into Wall Street’s first public corporation, a decision that can now be seen as the first pebble kicked off a cliff that triggered the avalanche that has engulfed Wall Street……(…)…..This was yet another consequence of turning Wall Street partnerships into public corporations:

OK, clearly, I\’ve cut a lot out.

But let us, just for the sake of argument, accept the analysis.

What would be the solution?

The analysis is that once those doing the gambling are no longer doing so with their own money but with that of others they are not sufficiently restrained in said gambling.


The solution would therefore be that the gambling should be done with taxpayers\’ money? Nationalisation of the banks?

That doesn\’t seem to solve the problem.

We should ban the gambling? Not actually possible and even if it were we do still want that to continue: for it\’s how we move risk around, something we most definitely do want to do.

No, we want to make people go back to gambling with their own money. So the solution is:

More hedge funds. More private equity. More people having their own wealth tied up in the trades that they\’re doing.

That is, exactly the opposite of everyone is shouting should happen.

2 thoughts on “The Michael Lewis analysis”

  1. Wall Street is the last bastion of centralized brute force power. It’;s the id half of the 20th Century psyche of America – assuming you can assign higher order functions to Washington. It was failing, and in reinventing itself, it has spread a contagion.

    But America, the more-real parts of it, where “We Can’t Make It Here Anymore” ( per James McMurtry) may begin to find both of rather limited utility. On one of his many cable appearances, I think on Bloomberg, Mr. Lewis mentions that it took four years from 1929 to 1933 for any real government action to develop.

    Actually, he proposes just putting CDO/CDS instruments on exchanges in favor of transparency. I will have to think about what you have said – that may well be exactly it. But he struggled with the privatization issue in interviews, I think – he knows what that means.

    There is something like a zero-point energy potential in this moment. If the American people sigh and hope for business as usual, they deserve whatever comes after. I think they’ve found the story now, and ignorance is no excuse.

    For whatever reason, probably because I recently watched Starz “Spartacus: Blood and Steel” and because Mr. Lewis also writes sports, there is a hint of something quintessentially Roman to that piece. Our champions went bloody into the arena, with us all side betting on who would please the gods the most. Only the patrician holding this games did not show the thumbs down ( or is it up? ) to dispatch the broken creatures.

    The image “hands of a boxer” … inspired.

  2. You may find this article interesting…

    Facing Challenges of Brazilian Private Equity: Part II

    Financial Transparency

    This is perhaps the mother of all issues when considering the more common challenges in successfully raising private equity capital. And it’s not an issue solely relevant to Brazil and/or Latin America, as it is an issue facing any early-stage or middle-market company worldwide looking to raise capital via the private equity market. It is the subject of much frustration among private equity professionals and company executives alike, and perhaps the single most common reason why most potential transactions reach an unfortunate and untimely death.

    For free access to the full article:

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