Tuesday, May 5, 2009

Getting Back to Normal on Wall Street

America's imploded financial sector doesn't mean change, at least that's the opinion of an Obama Deputy Treasury Secretary nominee. Bloomberg reported:

Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.

“The system will look more like what preceded the current environment than many people seem to believe,” Cohen said yesterday at a panel discussion on the future of Wall Street sponsored by Bloomberg News in New York. “I am far from convinced there was something inherently wrong with the system.”

Does Tim Geithner feels similarly? Securitization was restarted. Naked short selling and naked credit default swaps remain in play. Executive incentive compensation is re-tinkered. Greed remains, with a tad less leverage. That leads to Carlyle Group co-founder David Rubenstein's comments at the same venue.

Rubenstein said that while Wall Street will likely rebound after the recession, competition probably will emerge from global banks being formed in China and the Middle East as well as from so-called boutique investment banks at home.

“Wall Street will be reshaped,” Rubenstein said. “People once thought that American brand-name institutions could do no wrong and that if they sold a product, it was a good product, and if they said something was worth a certain value, it was worth a certain value. Now that has changed.”

Quality products from China? That's laughable, given their imitation of American "profit at all costs" management methods. Cheaper input substitution harms. Wall Street packaged financial pigs with lipstick. Chinese firms free wheeled on ingredients, often with deadly consequences.

Rubenstein's comments deserve attention. Who is forming global banks in China and the Middle East? Are global shadow bankers (like the Carlyle Group) involved? They want to buy more distressed banks in America.

The global crisis of quality continues. Wall Street's returning to "normal" exemplifies this. One PEU said “Lowlife grave dancers like me will make a fortune.”