It’s pretty much a common understanding that the driving appeal of money management is always given both a lift and a bashing when some celebrity of the profession gets busted. The bashing is of course an obvious reaction since the majority of clients, (and most everyone else) firmly believe that if they had more time on their hands they could manage money better than their brokers. The reason for the lift however can be a bit more elusive.
Part of the problem is not that money is lost or that egos are bruised, it’s that the trust that binds a transaction is tainted. And when it’s tainted it steamrolls everything, including even many of the most benign statements made in the defense of an investment strategy. Let’s face it people are inherently distrustful and they have very short memories. They easily find appeal in aggressive behavior and view the rules of judgment selectively. Why else would so many people ignore the time honored idioms warning about “putting all your eggs in one basket”, that allows a snake like Madoff to operate, or the executives of Enron or WorldCom cooking their books, or Lehman Bros. hailing their firms solvency only hours before declaring its bankruptcy. And forget about the collective joy we get watching our captains of industry walked off in shackles, and the more they wince and grimace and push at the predatory paparazzi the better we feel. It’s a fact that bad behavior, the breeding ground of distrust, makes for good TV.
Few people trust the banks, fewer trust the courts and, there isn’t an awful lot to throw at the media that will stick. But the banks who applied innovation to get us into this sub prime coated mess in the first place will likely correct past errors in calculation and deliver innovative solutions to get us out of it. And it’s likely the courts and the media will dance around each other claims misreading the public’s wishes as though it were written in some kind of intelligible code. In short given enough time there will come a day when we will trust those institutions again, and distrust a few new ones like healthcare and energy (shame on me).
But lets be honest, ours is a system (the planet)that is by its very nature playing with a stacked deck, deliverable over eternity and always compelling people do some pretty zany things in the name of self preservation. But the upside is they always leave one door, one glimmer, one itty bitty sliver of hope that the guy sitting next to them on a NY subway isn’t going to kill them. That glimmer is our target.
Our business is in trouble. The business of investment management and trading needs to regain client confidence, and it might include some groveling. Just because our institutions are culpable and seriously derelict of responsibility shouldn’t automatically include every portfolio manager, mutual fund manager, broker, advisor, and the countless support people that make each transaction possible. But that’s how it is; we need to regain the confidence of our clients and anyone who relies on us to come up with ideas on how to navigate the financial landscape. And most of all stop placing performance over the value of managing a clients expectations. A theme shared by Harley Bassman, someone who gets it and is a likely innovator at Merrill Lynch, where it’s needed.
On a lighter note I acknowledge that I will likely receive comments remarking on my omission of politics in my diatribe outing the institutions we distrust. It was no accident; let’s just say that politics remains one of the few arenas in America that operates with or without the trust of its constituencies. Maybe there’s something we can learn from that?