Dicey Business

The other day, I had lunch with a friend. We don't meet up often, but when we do, we have lots to say. In this case, the first order of conversation was the doom and gloom in the markets and the likely effects of the recession. You see, both of us studied Economics when we were in the University together many years ago. Naturally, the conversation steered its way to the recent Lehman Minibond debacle, occasioned by the collapse of Lehman Brothers in the US.

In his opinion, everyone, from the old and ignorant to the savvy investor who may have several degrees, should be compensated in full because these structured investments were mis-sold to one and all. Why so? Because when a person with a PhD (not in Finance, though in Business and Information System) could make a little sense of these financial products and write about it, he still expressed a caveat - he couldn't be sure that what he understood and wrote about the Lehman structured products was complete or correct. (in Singapore's Sunday Times, 26 Oct 08).

Did the Customer Relationship people understand the products they were selling? Absolutely not. Did their managers understand what they were instructing their subordinates to sell? Highly unlikely. They weren't academics who would want to understand the products. They were just salesmen. Did the senior management understand the products they undertook to retail? Perhaps, but if they did, they are no less culpable. Why? Because they knowingly sold toxic assets. How can anyone sell poison, like the toxic milk powder from China, and yet remain blameless?

Well, ok, I am not being fair. The senior management probably understood the risks underlying these products. But never in their wildest dreams did they see the collapse of Lehman Brothers, the venerable Investment Bank that started life in the 1840s. But were the risks adequately explained to the investor, young, old or savvy? I doubt so. And if it wasn't, then there has been a mis-selling of the product, so insisted my friend. Therefore, the banks must compensate one and all without reserve. I said that that is very unlikely, but he remained adamant.

Such are the emotions that inevitably follows the possession or dis-possession of wealth. My mother, who is past 80, was worried that a sum of money she was coaxed into investing several years ago may have been the Lehman bonds. She couldn't sleep well for 2 days and only upon further enquiries could she be assured that it had nothing to do with the now dirty word "Lehman". And the takeaway lesson? When you don't have money, you worry. When you have money, especially when it is a lifetime of savings, you worry more. Truly King Solomon was right when he wrote, 'Vanity of vanities, all is vanity! What is the profit to a man in all his labor which he labors under the sun? " (Ecclesiastes 1:2-3)

P.S. I suppose it has dawned on everyone that the Financial industry in the last few years, those that dealt with sophisticated products in particular, was no less than a worldwide betting syndicate involving sophisticated high-rollers and your mom-and-pop 'gamblers' betting on higly sophisticated financial products. The only difference is, it is legal, highly respectable (till recently, that is), and, more importantly, clueless to many. They just didn't understand what they were putting their money on. Why then do we need a casino, and two at that?

Image source: morgueFile.com. Author: Jane M Sawyer