1: “You don’t restore trust by allowing the same corrupt entities to exist. 2: I also take contention with your statement that “we” sold them the toxic paper.”
I wouldn’t put it that (1) way. It is not the entities themselves, it is the sales methods that were employed. Right now, today, Lehman essentially no longer exists. You cannot open a brokerage acount with them. If “Goldman Sachs” or “JP Morgan” were to suddenly enter that same state and a new bank “J. Smith Bancorp” or “F. J. Zappabank” suddenly opened their doors, somehow I don’t think the trust thing would suddenly dissipate. These banks, I agree, need to eat their own losses, but might as well stay as named. What irks those potential investors or re-investors is the way they were duped into buying so-called “AAA” paper that was actually crud...even in good times, it was crud. As we do on this forum, we can discuss ad infinitum whose fault it was and try to parse blame among 1: weak appraisers 2: lying borrowers 3: banks who knew well what they were doing but thought they could escape culpability by tranching their toxics into unrecognizable vapors, spread out to the four corners of the world. 4: Ratings agencies who, in a macro version of the corrupt appraiser who needs to “make the number” so he’ll get the call for the appraisal, “made the numbers” on mortgage debt that was shockingly weak in collateral and serviceability depth.
I say, that is not the point. The point is, if you stand outside the US (or if you are a manager for a Harvard endowment or a CALPERs) and see this piece of paper you bought that was supposed to be infinitesimally riskier than Tsy bills, which you bought for the extra 1/3% yield, now utterly illiquid and trading at 22 cents, you are not a parser. You got bludgeoned. You got snookered. This was supposed to be a “no brainer” deal because Moody’s and S&P had rated the bonds “AAA” and that was all the due dilly you ever had to do. Up to now. Now you have more money to put to use, to lend, by buying yielding debt. You gonna buy more?
And now....over and above those bruises, we have Paulson coming and and just “canceling” FNM & FRE preferred debt. And, even banning shorting which is a common means to hedge ownership of preferred. [OK, OK, non-naked shorting is not “banned” but the fact of the matter is you CAN be forced to buy-in at any time, so it is not a desirable thing to buy as one side of a hedge because you can be dumped out of it at any moment] My point here is that plenty of financial rules are being changed mid-game, and that, too is a contributor to the atmosphere of distrust. That is the common theme, it’s not whether one piece maybe works better today or used to be like this or is suspected to change to that, it is that this stuff is changing, in all cases, on Sunday nights, without notice, by fiat. You, the fund manager, get judged on your results. Just think, you could have beaten your present results by having NEVER made a decision to invest in anything, to be sitting in cash or Tsys or Ginnie Mae bonds. Instead you’re down 78% = ELEVEN (or so) YEARS of interest for being a wiseguy. This isn’t a matter of “enjoying a challenge”; if the US financial system is going to change the rules on you mid-game and you have a FIDUCIARY DUTY to invest funds prudently, conservatively, you flat out cannot play.
By “we”, I’m just trying to emphasize the view of a potential foreign investor. No, I didn’t sell any of this stuff either, so I’m entirely with you as to feeling like my taxes being raised to pay for these crimes is grossly unfair.
So at least we seem to agree that there was a lack of due diligence on the part of the investor. I'm sorry but when your putting forth million of dollars into an investment and all your going to do is look at what some easily influenced trade report is telling you. You shouldn't be surprised if you get burned.
Investments do not guarantee a rate of return. If I lost a million dollars at a casino I wouldn't go to the government expecting my money back. Regardless these investors are not much different than habitual gamblers, they just want to make the next buck and getting burned once will make them more cautious yes. But the vast majority of them will be back at the tables feeding there addiction soon enough. After all it sure beats a real job...