Shocked, Just Shocked

Posted by on 12/17/10 in Ethics, Markets

Much has been made of WikiLeaks’ recent release of previously confidential diplomatic cables. The world was shocked—just shocked—to learn that there is tension between Sunni and Shia in the Middle East and that North Korea’s dictator for life Kim Jung Il is widely considered slightly nuts. Shocked, just shocked.

Lost amidst the political revelations was another packet of secret cables. Wikileaks had intended to post them to their website but accidentally faxed them to Syntrinsic instead. Fortunately, we had plenty of toner on hand. It seems that Wikileaks somehow came upon communications between high ranking officers and officials at major investment firms, regulatory agencies, and other sensitive financial posts.

Following the lead of many great news organizations, we feel we have a moral obligation to post excerpts from these cables here so that the world may be safe for democracy and freedom, etcetera, etcetera. Nonetheless, in a concession to our Chief Compliance Officer and to human decency, we have elected to delete the names of the specific authors, preferring rather to cite their professional roles.

Memo from Regulatory Investigators to Congressional Staffers:
“…and tomorrow we will be announcing a series of investigations into hedge fund insider trading. This announcement is likely to have an adverse affect on the US stock markets; therefore, we recommend that you sell your equity positions at market open tomorrow. Please bear in mind that only members of congress and their staffers are legally able to trade on inside information such as we are providing here, so please keep this memo private.”

Tweet from overwrought Congressional Staffer working on the Dodd-Frank Financial Reform Bill:
“We had promised Fiduciary Standard. Nice dinner last night with lobbyists from You Know Who. Breaking promise. Feeling remorse. LOL.”

Treasury Department Job Posting for CEO Position at Major Bank
“Wanted: Former CEO of failed financial institution with experience alienating shareholders, destroying shareholder value, and demoralizing (or downsizing) employees. Must be willing to accept large signing bonus and considerable stock options that only vest when government bailout secures future of firm. Must be willing to relocate within mid-town Manhattan. Requires a firm commitment of at least nine months, nothing less. Please contact Head of Treasury Department directly. At home. Sunday night.”

Dictation from Federal Reserve Brainstorming session
“Let’s create a US sovereign wealth fund, you know, like Norway, China, or Singapore.”
“Yeah, we could use it to buy US distressed assets. Then sell them back to the private sector later.”
“So where do we get capital?!”
“Let’s print it!”
“No borrow!”
“Is that sovereign?”
“Is that wealth?”
“Hey, delete those last two comments, now!”

Lecture Notes from Professor of Finance at Prominent School of Business
“Look, we teach Modern Portfolio Theory because it is easy to teach, not because it reflects reality. The real world is far more complex, far less predictable than MPT promises. But look, we’ve got tests to give, books to write, ratios to name, and software to sell. Now, enough of this. Please draw a normal curve…”

Speech from Senior White House Official (with staffer edits as indicated)
“Americans should invest in annuities (because insurance companies have contributed heavily to my campaign – REMOVE) and because it is important to plan for your futures. We were going to hold insurance companies to a fiduciary standard but (decided that doing so would likely make it harder to justify their sale in many cases and – REMOVE) did not want to stifle the profitability of the insurance companies when the economy is already weak. Annuities are a great compliment to social security (which many of you will find less robust or reliable than you had hoped – REMOVE).”

Friendly brief from White House Budget Office to Department of Education
“We understand that you wish to develop and require a curriculum around personal finance and we agree that in time, such an effort has merit. In the meantime, we are concerned that your effort to educate young people on matters related to credit card usage, investment, personal debt, and taxes, may demoralize citizens and even discourage their contributions to consumer spending at a crucial time. We ask that any such efforts be pursued when the economy is healthier. To underscore our point, we find that Education Department funding is already difficult to sustain and hope that your cooperation on this matter will enable to fully fund the budget you have requested.”

National Sales Manager response to FINRA panel on investment sales practices
“We are firmly convinced that there is no benefit to investors in disclosing clearly the various expenses associated with investment. Such expenses are minor, are of little concern to investors, and do not influence the behavior of our investment professionals. Even though the supervisory personnel at our firm are compensated based on revenues generated from the sale of investment products, we are 100% convinced that they ensure that all sales practices are in the best interest of the investor. Do you really think someone would sell an investment product just because it pays them better than another product?[Pause]. I didn’t think so.”

Note from Japanese Central Bank official to American counterpart regarding bank supports and interest rates
“Been there. Done that. Didn’t work.”

We realize that the excerpts above are seismic in their impact, revealing the cynical underbelly of global finance. We also recognize that we may be forced into hiding for exposing these dangerous communications. Indeed, the whole economy might grind to a halt, but such is the price of…well, you know.

We like this “secrets” business. You take widely known, common sense information, dress it up a bit, and make it seem mysterious and exclusive. Then—only after you have transformed it from general knowledge into a restricted insight—you dramatically announce it to the world. Sort of like the marketing materials from most investment firms.

Hmmmm, maybe we’re on to something…