Nothing Personal, Just Business

The Secretary of Treasury has laid out details for the toxic bank assets rescue plan and the markets staged a pretty decent relief rally. From close on Friday, March 20th through close of yesterday, March 24, the S&P500 index was up a little more than 5%. It appears that the market has received the news well.

But not all is well on Wall Street. Wall Street executives are quoted in a Wall Street Journal article as “expressing anger and betrayal at Washington’s latest anti-Wall Street rhetoric.” (no kidding… read it here)

Stunning. Wall Street is feeling angry and betrayed. The recipient of more than $10 trillion (and counting) of taxpayer bailouts, much of which has passed directly through to banks around the world essentially paying the payroll of many of them, is angry and betrayed. At what I ask? Have we not supplied you with a money at every turn? Regardless of irresponsible business practices that led to a near worldwide financial collapse, the U.S. taxpayer has stepped in and jeopardized our currency’s future, the risk of potential inflation, our reputation as the world’s leader of free market economics, our international security, we have bailed you out. We have even recently gave you an arbitrage opportunity within the Secretary of Treasury’s toxic asset bailout plan in the form of asymmetric risk.  So what pray tell could Wall Street executives feel angry and betrayed about?

The article does not delve into any named causes of these aggrieved feelings. However, I suggest that this sense of anger and betrayal stems from the fact that for the first time, Wall Street is accountable for its actions and behaviors to Main Street. Specifically, its about the money, their money in the form of compensation. Is it unreasonable for investors to responsibly review compensation policies in the companies they invest it? Let’s remember that we are professionals and that the U.S. taxpayer is simply doing what the financial services sector has failed to do. We are acting like responsible managers.

Consider this tender Wall Street executive deep within your feelings of anger and betrayal. This is not personal, it’s just business. Yep, business. View this as a “turnaround” investment that requires some active management. From this perspective, Wall Street is getting really very minor oversight yet it is bristling and surly. We loaned you money when you were in deep distress and received a combination of debt and equity and we are merely protecting our investment and exercising our prerogative (actually our fiduciary duty to the taxpayer) as investors to oversee the investment. Very simple.

Many of you have done this for a living let’s not forget. You have have used this same reasoning with executives in companies that you have invested in when you had the “difficult conversation” regarding their performance or compensation — or even their termination.  I know because I have been there too. So as you stew in your anger and betrayal, let’s remember a couple of things:

  • This is not personal, we are merely exercising responsible, fiduciary oversight in our investment.
  • We are investors and loaned your firms money and have equity and need to be respected as such.
  • This may be uncomfortable for you but we have a duty and after all, you did take the money.
  • As a recipient of the money, you are accountable. For your business practices, your compensation and all aspects of your business. Period. No discussion about it. If this is uncomfortable to you, then there are terms laid out for your release from these obligations.
  • We are professionals so let’s not devolve into silly emotional outbursts that are unconstructive. Those emotions are valid, but personal and need to be processed somewhere else besides Wall Street Journal articles and really have no bearing on the oversight function we are now exercising.
  • Demanding trust at this point is asking a bit much. Remember how we got here. In fact, you need to earn our trust all over again with a series of small steps demonstrating that you hear and respect our wishes as investors. Demanding it at this time demonstrates a significant lack of situational awareness .

Please recall that we are ultimately in a free market (or some variant thereof currently.) And even though Wall Street has been bailed out by the U.S. taxpayer, it too must play by free market rules. Part of that is accountability to your investors. It’s not personal, it is just business.


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