Wall Street Financial Truth

Chapter 9 The Truth About Wall Street (7)
But are Americans in a hurry?No, the United States has already played to the highest level: there is no rush for those who owe debts, "the more debts, no worries", the more you owe, the less urgent it is, but the creditors worry.No wonder there is such a joke circulating on the Internet: A reporter once asked Buffett how to repay the astronomical foreign debts of the United States in the future?Buffett replied: The U.S. economy is a borrowing economy, with continuous borrowing and consumption to promote economic development.And when a 13-year-old child asked Buffett, Grandpa, you continue to borrow money for consumption. Do you want us to pay back the debt you borrowed in the future?Buffett replied to the child: Study hard and let your grandson pay off your debts.

It seems that Americans have learned the true meaning of "The Foolish Old Man Moves Mountains": "When I die, I have a son, and when my son dies, there are grandsons. There are endless descendants." They may really think that this biggest Ponzi scheme will be able to continue forever keep playing.The fact is that the huge amount of national debt caused by the deficit consumption of the United States is the largest Ponzi scheme in history. Just wait and see how it ends!

13. Why can't people see the truth about Wall Street?

Veteran banking analyst Mike Mayo has repeatedly called for selling bank stocks over the past 12 years, a tough call for a sector in which nearly every individual stock is rated "buy" or "hold." Mayo's proposal is an outlier.Mayo's unfavorable ratings on bank stocks have often gotten him into trouble with banks, clients and Mayo bosses who are unwilling to alienate the companies.In the book, Mayo describes the various fights, accusations and phone threats that ensued after he yelled "sell."Additionally, Mayo offered his proposals for addressing banking problems.

Let's take a look at what the Wall Street "people in the river and lake" have to say.

Having a negative view will keep you from making friends in the banking industry.I have been a banking analyst for 20 years, and my job during this time is to research listed financial companies and determine which companies can be the best investment choices.My research has also expanded to include institutional investors: mutual funds, university endowments, public employee retirement funds, hedge funds, and other institutions with large sums of money.In the past 10 years or so, especially in the past 5 years, most of the large banks have not been considered good investment targets.To be precise, they have performed extremely poorly during this time, with stock prices falling by 50%, 60%, 70%, or more.

Analysts are supposed to be the inspectors of the financial system -- poring over companies' financials and telling investors what's really going on.Today, there are about 5000 so-called sell-side analysts on Wall Street, and about 5% of them track and research the financial industry. The total market value of American companies in the fields they supervise exceeds 15 trillion US dollars.

Unfortunately, some analysts essentially act as cheerleaders — lest they embarrass their institutions, alienate the companies they cover, or irritate their bosses.The percentage of sell ratings on Wall Street has remained below 5%, even today, yet any MBA-year student can tell you that 95% of the stocks in the market today are impossible to make money on.

For years I've been pointing out some of the problems in the banking industry—too risky business, too high pay for bank employees, too easy lending, and so on.As a result, bank management yelled at me, distanced themselves, taunted me, or threatened legal action with the sole purpose of persuading me to soften my position.

Looking at what's going on inside finance - seeing the pressure there to conform or shut up - may give you an idea of ​​why so many cave in.And that might answer the question: Why has the economy been hit by crisis after crisis over the past decade, catching markets off guard despite the many supposed warning signs?

As an analyst, without access to management for one-on-one insider information—often this is why investors pay to see analyst reports—then one might assume that the analyst is inferior to his or her peers.Goldman Sachs is ahead of the game in this regard, and is somewhat different in the industry.I've just started tracking this investment bank, so I have very few existing relationships that I can leverage.When I told a contact at the company that I wanted more opportunities to meet with management, he told me that they didn't treat me differently — they did everyone.When I made another meeting request, I got a message saying we needed to "talk".

Like a student being reprimanded by a teacher, I was told that managers' time was spent making money for the company, not chatting with the two dozen analysts who followed them.Analysts like me should be patient.Also, the “gatekeeper” added (which I—in a way—shouldn’t find intolerable): Goldman Sachs takes analysts into account when considering whether to allow analysts to meet with management. position, influence and knowledge of the company."In other words, we will evaluate you," he said.

—Excerpt from Exile on Wall Street by Mayo

On Wall Street, it is actually difficult to see how the US economy is trending, especially the role Wall Street plays in the global economy, because we are in the mountains.If you jump out and know a little bit, you will understand that the key to the current US economy is actually "one center, two basic points"-the housing market as the center, and the high debt and unemployment rate as the basic point.As long as these three issues are not resolved, the financial crisis is far from over.

And "one center, two basic points", just like the seesaw we used to play when we were young, push down one end and lift the other end.The fiscal deficit and debt consumption in the United States have already reached astronomical figures, and it seems that the game cannot continue.But to reduce the fiscal deficit means that the government will reduce expenditure, reduce large-scale basic projects, and reduce personal consumption, so that the unemployment rate will rise further; and the unemployment rate is the biggest killer of the housing market. If the housing market falls further, households with negative equity will become more and more As more and more "foreclosure houses" follow, financial institutions will continue to fall, all walks of life will be further damaged, and the financial crisis will further deepen.If we try to reduce the unemployment rate, the existing private enterprises are struggling. They have become "presidents" and are always laying off employees. The only thing they can count on is the government.In fact, the US government is the largest employer these days.But this is on the premise of increasing spending and investing in basic projects. The government has no money, so it can only raise taxes and continue to borrow. Then the fiscal deficit will definitely continue to rise, and the two cannot be settled.Therefore, the crisis continues to extend.

What Wall Street is promoting at all costs is a financial system, but more of a monopoly power system.As people rely more and more on money as an intermediary, those with power are increasingly willing to create money and abuse that power to determine who gets it.However, relying on this system to create is not social wealth, but a mirage, the real estate bubble is the best example.

The dignitaries of the financial institutions involved in the "creation of wealth" used financial assets to build a debt pyramid, and used grotesque derivative securities to magically change the "wealth" under the action of leverage. Profits, charging super high management fees, created perfect Ponzi schemes one after another: constantly using the money of those who came later to fill the holes in the front.When borrowers start defaulting on their debts or failing to pay their loans, the bubble bursts, "wealths disappear" and the debt pyramid collapses in an instant.And the magic master standing at the top of the pyramid "creating wealth" has already put the wealth that came in at the bottom into his pockets and slipped away, leaving a ruin (a black hole of unpayable debt).

Wall Street's pyramid game not only harmed American people, businesses, financial institutions, and state governments, but even the US federal government was kidnapped by Wall Street.The financial crisis prompted the Bush administration to immediately introduce a bailout policy, because Wall Street firmly controls the issuance of credit, which is the only way people can access the world of money, and every aspect of people's lives depends on money.The government can only issue bonds and borrow money from the whole world to tide over the difficulties.According to the Special Inspector General of the Troubled Asset Relief Program (TARP) Barovsky, the government’s series of bailouts, bank bailouts and other programs have cost close to 24 trillion U.S. dollars. The total cost of all wars is even higher!In total, each American share nearly 8 US dollars, plus the original 3 US dollars of national debt owed, as well as personal debts, such as mortgages, credit cards, etc., the average debt owed by each American will be as high as 12 US dollars!Even Obama recently had to admit that Americans have run out of money for their children and grandchildren.

I personally think that financial derivatives are like nuclear power plants. If they are well controlled, they can benefit mankind; if they are out of control, they will become weapons of mass destruction.As a financial hedging tool, derivatives originally had a positive effect.But the problem is that derivative products are becoming more and more complicated by Wall Street, so that regulators can't understand these products at all, so there is no regulatory control, so they are rampant and endanger society.

For example, the subprime mortgages triggered by the last financial crisis were worth only US$1 trillion, but they were packaged by Wall Street as US$2 trillion in subprime debt, which in turn "derived" a toxic debt of US$65 trillion. Derivative securities flooded into the housing market again, magnifying the virtual demand several times at once, forming a huge housing market bubble.When the derivative securities were introduced, fewer than 10 people in the United States understood what was going on.As for the Federal Reserve, which is the watchdog of Wall Street, no one understands it.

According to the report of the Bank for International Settlements, as of June 2008, the total value of unsettled over-the-counter derivatives was 6 trillion US dollars, equivalent to 648 times the world's GDP. This huge black hole has no bottom.Derivative securities do not create wealth by themselves, but only use leverage to amplify wealth virtually.When you make money on paper, you are pocketed by Wall Street's "elites" in the form of huge bonuses.And once it breaks, the government can only use taxpayers' money to rescue the market.Even in this financial crisis, the U.S. government has already invested 10 trillion U.S. dollars to rescue the market; at the same time, the media revealed that Goldman Sachs' bonuses will break new highs, with an average of 2 U.S. dollars per employee.When you see this, you should understand the tricks.

Ordinary investors must not buy products that they do not understand in order to covet the so-called high returns.The reason why Wall Street can remain invincible is the greed and blind obedience of human nature, which is the soil that cultivates its roots, germination, flowering and fruiting.Because deep down in people's hearts, they long for the pie to fall from the sky, so that they can make a lot of money without spending a lot of effort. The two major bubbles of the 21st century, one "dot COM" and the other today's real estate are examples.I have seen with my own eyes that the assets of relatives and friends around me have shrunk, and news of millionaires, tens of millions, and even billionaires committing suicide due to bankruptcy is also heard from time to time.From my personal experience, wealth is like flowing water, it is absolutely impossible to stand still, and it is impossible to keep something flowing.

Besides, in today's deteriorating world, information is absolutely asymmetric, and retail investors will lose very badly when playing with "bankers".For example, most hedge funds on Wall Street have high returns, about 30%, how do they make money?If you distribute fake news to reporters through a bureaucracy, and ordinary investors follow up blindly, then you will be in bad luck. What hedge funds earn is your loss, because within a certain period of time, the total assets of society are so much. Your pocket will go into his pocket, whoever controls more resources is the winner.If you ask me what investment is the best, it is to invest in your own brain. Even if you learn from the Jews, no one can take away the knowledge in your mind, and it will always create wealth for you.

The financial crisis made Americans begin to reflect on the words of our ancestors, such as "paying according to the people, increasing income and reducing expenditure; gathering armpits and gathering sand to form a tower; what you want to get, you must give it first; no pain, no harvest" began in the United States. Popularity.We descendants of the dragon, don't think these old sayings are "earthy".

How to do?Mike Mayo goes on to point out some of the ways in "The Traitor of Wall Street":
To solve the banking problems, should we rely more on government regulation or let the market find its own way?More stringent regulations, or relying more on the laws of capitalism itself?The current state of affairs is that we have chosen the evils of the two ways and thus have the worst possible outcome.We have a system that seems to be a capitalist framework, with a lot of regulations that are not strictly enforced, and when things go wrong, the government steps in to protect the banks from being punished by the market for their bad decisions.In my opinion, this is not capitalism.

It's easy to understand some of the problems with regulation.If the regulations had been in place, the financial crisis would not have developed to such a degree--adding to the bailouts, this financial crisis caused hundreds of billions of dollars in losses and millions of people lost their homes because they could not repay their loans .But if the regulation is too tough, we may lose the vitality of innovation in credit, and the financial industry will be in a pool of stagnation.

And the real problem with regulation is that it doesn't work very well, partly because regulators tend to think things through with hindsight.Today's financial system is almost dizzyingly complex and changing at a dizzying pace, and new regulations from regulators often address a specific problem, such as banning certain types of securities or trade.

A more effective solution should be to let the market operate according to its own laws.That doesn't mean doing away with regulations altogether - leaving the banking system to savagery, letting the blood flow and watching consumers be scammed time and time again.What we need is a cultural change, and perhaps a time change, that forces companies to follow accounting rules more strictly in accordance with the essence of the economy, rather than just superficial.

Regrettably, even in 2011, some banks did not disclose in detail the size of their securities and loans that may have been affected by the European financial crisis.The key to solving the bank's problems is to increase transparency so that outsiders can see clearly what the truth is.

What we need is a better model of capitalism.The new model starts with the accounting system: banks are allowed to operate freely, but they must ensure that the numbers (the real ones) are visible to bystanders.There must also be a system of bankruptcy: so that those who can benefit from the risk - including lenders, borrowers and bank managers - also bear the consequences when they go wrong.In terms of regulation, the United States may learn from London's approach.Over the past decade, Britain's Financial Services Authority -- the U.S. equivalent of the Securities and Exchange Commission -- has fired most of its staff, then filled the vacancies with more capable people at higher salaries.The move reduces the incentive for regulators to jump ship to make money in the private sector, and it also increases mutual understanding between banks and regulators.

A better model of capitalism also means reducing the influence of banks.All third parties that supervise banks should have full freedom and be able to effectively monitor and balance interests.My peers—the 5000-strong Wall Street sell-side analysts—should be the first to be selected as watchdogs of the market.Doing this will require a cultural change, one that will ensure that analysts rely on their intelligence to make independent assessments of public companies that wield so much control over the U.S. economy.

(End of this chapter)