Broker says subprime warnings were ignored
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I’m a broker with a large New York Stock Exchange firm, and several times I tried to tell my superiors of the potential dangers of the subprime market and the danger of holding billions of dollars of those mortgages in the firm’s portfolios. I was very nicely told to shut up. Two of my clients want to sue my firm because they have lost nearly 50 percent in its common stock, and they’ve asked me to be a voluntary witness. Now one of my client’s lawyers has threatened to depose me. If you have any thoughts to help me, I’d really appreciate it.
No Name, Cleveland
Dear No Name:
If stockbrokers managed client portfolios with the same results UBS, Merrill, Morgan Stanley and Bear Stearns get from their bond portfolios, the New York Stock Exchange would demand a mass public hanging at high noon. Those birds at the NYSE would be all over you guys like bark on a tree; you’d be excoriated, indicted, ignominiously fired and your personnel records would receive a black mark so ominous that cockroaches wouldn’t crawl into the same file cabinet. That’s how spiteful those NYSE noogies can be.
But it seems that the NYSE doesn’t give a hoot in Hoboken how UBS, Morgan Stanley, Merrill, etc. manage their corporate capital. And that’s criminal, because a firm’s capital determines the volume of business it can conduct, just like a bank’s capital determines the volume of loans it can make. Basically, if a firm’s capital declines below a specific level, it could become a serious problem, potentially harmful to the safety of your clients’ assets. That’s real scary, which is why firms like Citigroup, UBS, Morgan Stanley, Merrill, etc. fell on their kneepads in panic begging and pleading to borrow billions from foreigners in Abu Dhabi, China and Singapore.
It’s chilling to learn that Merrill, UBS, Morgan Stanley, ad nauseam, could be so wantonly careless and allow their bond departments to savagely cripple their balance sheets. And it’s even more chilling to discover that the NYSE (the nexus of our nation’s financial stability) remained publicly oblivious to the carnage.
Like the dot-com bloodbath, Merrill’s shares plunged from $97 to $50, Bear Stearns crashed from $172 to $90, Morgan Stanley plummeted from $90 to $47 and UBS imploded from $66 to $44.
Perhaps the NYSE needs an oversight committee to make certain its noogies are protecting the investors.
You must be a smart lad if you saw this collateralized debt obligation and subprime debacle coming. I didn’t! I made a gross mistake trusting the brilliance of Merrill, the genius of Citigroup, the brains at UBS and the acuity of Morgan Stanley. Their bond people even persuaded Standard & Poor’s as well as Moody’s to assign triple-A ratings to those CDOs.
However, some believe the real blame rests with the NYSE, which didn’t want to compromise the enormous fees it receives from Merrill, Citigroup, UBS, etc. Some observers suggest that a class-action suit against the NYSE for failure to supervise would be a more promising alternative.
They believe the NYSE is as duplicitous as the CIA, and that a class-action suit would expose a sordid underbelly that could explain why former CEO Richard Grasso received a $140 million retirement package in 2002 when the NYSE’s net income for that year was just $18 million.
Keep your schnozzola out of it. If shove comes to push, your firm will hire counsel to help you deal with any potential legal problems.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
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