"He who is greedy is always in want." Horace (65BC - 8BC)
I could not help but comment on the The Wall Street Journal (WSJ), June 27, 2007, front-page story, "How Wall street Stoked The Mortgage Mess." The article illustrates yet another example of, what I have described as, the cycle of greed, which threatens to destroy the same force it has created...
The "Cycle of Greed" as illustrated by WSJ:
I selected a few choice paragraphs from the WSJ article and made some strategic edits to illustrate my view:
Twelve years ago, Lehman Brothers Holdings, Inc. sent a vice president to California to check out First Alliance Mortgage Co. Lehman was thinking about tapping into
Alliance's lucrative business of making "subprime" home loans to consumers with sketchy credit.greed.
The vice president, Eric Hibbert, wrote a memo describing First Alliance as a financial "sweat shop" specializing in
"high pressure sales to people who are in a weak state."greed. At First Alliance, he said, employees leave their "ethics at the door."
The big Wall Street investment bank decided First Alliance wasn't breaking any laws. Lehman went on to lend the mortgage company roughly $500 million and helped sell more
than $700 million in bondsgreed backed by First Alliance customers' loans. But First Alliance later collapsed. Lehman landed in court, where a federal jury found the firm helped First Alliance defraud customers.
Today, Lehman is a prime example of
how Wall Street's money and expertise have helped transform subprime lending into a major market force in the U.S. financial marketsgreed. Lehman says it is proud of its role in helping to provide creditgreed to consumers who might not otherwise have been able to buy a home, and proud of the controls it has brought to a sometimes-unruly business.
And the cycle continues...
TFPAuthor, Kent Thune, is the President and Owner of Atlantic Capital Investments, LLC (ACI), a fee-only, registered investment adviser based in Mount Pleasant, SC, near Charleston. ACI specializes in retirement, investments, and financial planning.