As Woody Allen Said

September 16, 2008

By Bill Singer

http://BrokeAndBroker.com

http://RRBDLAW.com

Many of you have phoned and written to me in recent days. Some of the stories have been heart wrenching: the closing of your firm, the loss of your job, the loss of your savings. The personal and professional carnage is considerable; however, after nearly three decades on Wall Street, I am no longer surprised when the pendulum swings, as it now has. 

As most of we old hands know, this is not simply another recession or another bear market. No, this is a more fundamental change--it is the likely death of Pax Americana: the post-War ascendancy of the United States of America to the role of world's sole economic and military superpower. Although I doubt that the USA is headed for third-world status or even that of a second rate power, there is no question that we must now become accustomed to sharing power and more accustomed to flexibility on the world stage. One always hopes in times such as these that we learn the lessons. Unfortunately, those who brought us to this precipice always seem to retain the reins of power and simply wheel the carriages around for another run off the edge and into the abyss. If I sound despondent, it is because I am. 

The ancient Greeks told the story of the Trojan princess Cassandra, with whom the god Apollo fell in love. In the throes of his infatuation, Apollo gave Cassandra the gift of prophecy. However, when she failed to return his affection, Apollo cursed her so that no one would ever believe her. Imagine Cassandra's anguish when she warned her fellow Trojans that the Greeks were hiding in the Trojan Horse and would destroy the city.

Wall Street is no different than ancient Troy. The Cassandras of our age have long warned against lax regulation, against ineffective regulators, against the corruption that permeates our political and regulatory system. To some degree, I too stood on the ramparts and pointed at the wooden horse being wheeled into our walls. Pointedly, I have warned that the old NASD and its recent emanation as FINRA were socially engineering small member firms out of business. I warned that we were headed for a securities industry populated with mega-firms and that when the firestorm came, as it inevitably would, that those monsters would melt. I warned that we would need smaller, independent/regional brokers to fuel our return to financial health, and their diminishing numbers raised troubling concerns. 

Yet those fools opened the gates for that damn wooden horse! And now they wonder why the city is burning down around them.

What would I propose to replace our current system?  I re-state the long published cornerstones of my decade-old calls for industry reform:

  • End self-regulation of Wall Street
  • Promote the independent/regional brokerage firm model and restore local capital formation
  • Professionalize the hundreds of thousands of registered persons in the securities industry
  • End the practice of making the public customer the property of the Broker-Dealer
  • Ensure that a registered person is unencumbered by conflicts of interest and pressures to sell house product
  • Create a national auditing agency to monitor the integrity of assets and risk management policies across the financial community
  • Insist that regulators promulgate fair regulations, engage in effective regulation, and pursue education and remedial measures in addition to sanctions

Sadly, I harbor few expectations that any of the measures above will be implemented.  In recent days, all that comes to mind is a wonderful quote from Woody Allen.  Perhaps in times such as these, all we are left with is a cynic's sense of irony:

More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.