Uncle Sam Takes on Wall Street’s Legacy of Risk

PEU Report | Uncle Sam Takes on Wall Street’s Legacy of Risk

The Ghost of Credit Past visited Wall Street on September 17-18. The dark figure pointed to the interest rate board. The Reaper asked, “What did you sow?” He laughed scornfully at their reply of “Money?”

“Watch!” the visitor implored. Investment bankers saw their past efforts to price risk woefully inadequate. Blinded by the greed of commissions, fees, and incentive executive compensation, they packaged cheap credit and sold it for a premium. The scene replayed a credit rating expert hoping the house of cards collapsed after their retirement.

With the wave of his scythe, interest rates reset to cover the errors of past deeds and current market risks. The board changed to:

30 year fixed mortgage 14%
Credit card APR 28%
CCC rated corporate debt 20%

Investment bankers wailed at the horror. Chief executives donned their golden parachutes and fled to the rooftop heliport. The reaper left the building.

The Ghost of Credit Past had no idea another Reaper was nearby. One thousand feet above, a remote killing machine fired a Tomahawk missile at the karma enforcer. Despondent investment bankers watched their tormentor evaporate in a fireball.

On the big board, interest rates began ticking downward. When they returned to pre-visit levels, Uncle Sam barged in. “Don’t worry boys, I’ve got it all under control. All those sins the reaper tried to make you pay, I’ll take ’em off your hands, and at premium prices to boot!”

Investment bankers cheered! A sole janitor interrupted the celebration. “Well, that might help with past sins, but what about your current ones?” Everyone discounted his questions. After all, he was just a janitor.

Posted by PEU Report/State of the Division at 6:21 AM – http://peureport.blogspot.com/2008/09/uncle-sam-takes-on-wall-streets-legacy.html

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