Whistle Blowing becomes a new Growth Industry on Wall Street amid Phony Stress Tests?
Welcome to Capital Account. Bad news for underwater home owners – foreclosure filings in february point to a rising tide in home seizures ahead, according to those who track it. Why? That 25 billion dollar mortgage settlement between states and the banks may be to thank. We'll tell you why and look at what this means.
Banks may be stressed in the wake of the Goldman Sachs Greg Smith op-ed, but should more of us be stressed? And I'm not talking about the results of the test, I'm talking about the methodology and the assumptions that go into it. What effect does litigation risk have on the valuation and future capitalization of banks like JP Morgan (in the case of Bear Sterns) and Bank of America (in the case MBIA)? We have risk analyst Christopher Whalen, managing director of Tangent Capital Partners, with us to talk about it.
We discuss not only the concerns over litigation, and what effect it could have on the banks balance sheet's, but we also get into the housing market, and the effect that an economic downturn could have on the value of portfolio's heavily exposed to this sector. We also ask Chris Whalen to give us his thoughts on the assumptions used in the Federal Reserve's most recent stress test, and if he thinks there is some alternative motive at play that could be responsible for the soft assumptions used. In addition, we ask Mr. Whalen what he thinks of Zero Interest Rate Policy (ZIRP) and if this, besides being detrimental to savers, has actually been hurting the banks long term.
Lastly, with wall street shedding jobs and squeezing out less in compensation recently, is there less to lose for bankers already disgruntled with the system? Could whistle blowing actually be a new growth industry on wall street? We think the FBI should start introducing the profit motive back into justice. After all, if there is one thing that we have learned form wall street, it is that they will stop at nothing to earn a profit. Why not let them get in on the action? Give them some of the litigation upside that would come with more whistle blowers. And amidst all this ruckus over Greg Smith's now infamous NYT resignation letter, it appears that not only Lloyd Blankfein, but also Jamie Dimon have gotten into the action themselves, both sending out letters of their own to employees on the matter. We ask, who has the best PR, Lloyd Blankfein or Jamie Dimon?