Summary
As a member of the Wall Street Investment community for over thirty years, it continues to confound my logic that time and time again, beginning with the "Match King" and "Ponzi" scams of the turn of the century, to Samuel Insul's Utility Holding Companies of the twenties, to the "conglomerate" bubble and explosion of the early seventies, to Michael Millikin's "junk bond" plays of the late eighties-early nineties, how the public is led back repeatedly to scams, with the procession being headed by major print-media giants, retail stock brokerage firms, and supposed "experts" in the investment field. The sub-prime mess is a logical next step.
Analysis
In the examples that I make reference to, it is understandable that, prior to the SEC's creation in 1933, the investment markets relied only upon "Caveat Emptor" as their guiding principal. Thereafter, the public's "watchdogs", in the form of the SEC, the NASD, the Federal Reserve, and Congress, should bear the weight of responsibility for allowing financial abuses to run rampant, destroying confidence and the lifetime savings of public investors. Unfortunately, at least as it appears to me, the only security that pension funds and hedge funds have, as collateral for their investment in sub-prime mortgage derivatives, based upon the explosion of the "Mortgage Investment Companies", such as CMI, MGIC, and others, during the early 70's, is; the expectation of future cash flow, passed through from the mortgage borrower, and a "book entry" notation by the issuing banks, versus the mortgage pool that is identified as representative of a particular bond issue. This seems to bear a striking similarity to that mortgage investment company bust of the seventies, and if we were to do an autopsy upon its resolution, the bottom line was that; (a) Investor equity was wiped out, and; (b) Bond holders, of the most senior class of bonds, received back mere pennies on the dollar. The end result was that investors, be they individual members of the public, as well as institutional pension funds and profit sharing plans, recouped little if anything, yet the commercial banks and Wall Street Investment Banks that packaged and sold these vehicles, made hundreds of millions of dollars in fees, and transferred the risk of ownership of these instruments, off of their books, and onto the books of the buyers. Additionally, as with the Milliken bonds, these mortgage instruments only had a market value that was "quoted and created" by the same Investment Banks that were selling them to others. When the market for these instruments swooned, there was no real market, nor were there any buyers. It seems to me that financial responsibility for the sale of these instruments should "follow the money", and should lead to the doorsteps of those institutions who packaged and sold these products. Unless this path is pursued, it appears, at least to me, that recovery of anything more than a pittance of "face value" will be forthcoming to those who were left "holding the bag".
