When the Lehman bonds and High Notes turned out to be lemons, many investors suffered huge losses across the world. There were compensations and pay back to some investors, notably the ignorant and less well educated uncles and aunties.
The well heeled and branded investors, known simply as sophisticated investors, were not so lucky. Even the sellers of the toxic notes were spared except some low level clever sales people who were found to have fouled only because they sold to the ignoramous. If the clever sales people targeted the intelligent and sophiscated investors, it was caveat emptor. No trouble at all. Under the same logic, they could even sell poison.
The bottom line is that the notes were dangerous but intelligent investors should know the risks involved. They were dangerous but not poison. They were not snake oil but high risks financial instruments.
The financial institutions were taken to task not because of faulty products but not telling enough of the risks. No one really was found guilty of any crime except some low level sales people, also not for crime but maybe a bit negligent.
Last week the American govt took up a suit against more than a dozen financial institutions for selling flawed products during the housing crisis. What this means is that someone and some institutions could be found guilty. The names of those senior people instrumental in the packaging of the toxic products have been compiled and awaiting prosecution. This is a serious development as the products were never seen to be at fault.
What if the banks and financial institutions were found guilty of selling snake oil or fraudulent products, or guilty of fraudulent practices? Would the banks and financial institutions here also be found guilty for selling snake oil as well? At the moment everyone is walking around with a hallow on his head, like angels. Water under the bridge, no point digging out shit to get people to court.
The seriousness of the American govt suit against the financial institutions and the legal implications can be widespread, depending on the findings. If fraud can be established, many heads will roll. Those heads over here may have to face the music as well.
An interesting article in the ST yesterday titled America’s great bank robbery by Nassim Nicholas Taleb and Mark Spitznagel is worth reading. It discussed the elaborate schemes of bankers and fund managers in transferring their client’s wealth into their own personal accounts. This kind of day light robbery is not confined to the US but affected all the financial systems modelled after them. The same players, the same systems and the same copycats, all lining their pockets with quick easy money.
Would the stock exchanges be next to be sued?