I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit.
What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all.
Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have arranged a conference call with me or a colleague, no issue. That happened like, one time.
I think the concern that my firm had at this time was principally related to the likelihood that emails like this would hit the public domain at some point.
Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors).
As a client, it is perfectly reasonable for me to say to a sales rep "I want X% average return, I'm willing to accept Y amount of risk to get it, and I don't care particularly much about how you give it to me", so long as X and Y are reasonable. My understanding is that the financial institutions were accurately describing the average rate of return but drastically under-representing the risk of these instruments to their clients.
Calling consumers 'complicit' for failing to understand a company's offerings significantly better than their own salespeople is at the very least insulting.
I would agree with you that it's reasonable to expect that to be a conversation that would result in your desired outcome. There are a few technical things at issue.
Again, I agree this is broken. My only point is that saying things are "fraud" is harder than I think you expect.
The problem is that saying "I want X% return with Y risk, show me suitable investments" introduces two problems. The first is that risk is not easily quantifiable[1] and also that there are likely many things that are plausibly suitable for that requirement.
If you are dealing with a salesperson, they are required only to present stuff that has a reasonable likelihood of meeting your goals.
If they're working with someone who is a fiduciary, that fiduciary is required to do the extra analysis, but many people are not lucky enough to work with folks who are held to that higher standard.
In my view, every consumer when transacting with every salesperson should use their own judgment to make sure that the products they are being sold are sensible and suitable for them.
Failing to do that -- to just walk into a store and buy what the salesperson (not your personal shopper or your sister or someone who actually cares) says is best -- is just a bad idea.
I hope that adds some clarity as to where I'm coming from.
[1]Quanta exist, but are not comprehensively descriptive. Any metric will not comprehensively describe risk, especially because there are behavioral factors (your own changing attitude towards risk over time) that need to be incorporated into a thoughtful assessment.
It was fraud, executed at the highest level, with an associated Gresham's law corollary: honesty was driven out of the market as CEOs who failed to follow the "liars loans" trend didn't survive. As I said upthread, go read William K. Black's Wikipedia page, follow a few of the links (his appearance on Bill Moyers was good).
It doesn't have to be fraud against the consumers, does it? If consumers were equally complicit, that just means it wasn't the consumers who were being defrauded. It's conspiracy to commit fraud against whoever they were making misrepresentations to.
I'm not sure it's really fair to say that consumers were equally complicit, though - the people being paid to understand this stuff probably had more intent.
Point one is really good. I like your way of thinking.
I've got to say that the problem for me comes down to one of competence versus theivery. I don't think that the guys I worked with were outright thieves. I do think they were not especially competent in recommending investments.
These guys are salesmen. They could be selling you printers, but they're selling investments instead. They really are not paid to understand the stuff...they are paid to move product.
When I say that the consumers are equally complicit, what I really mean is that in many cases they just listened to a sales pitch and accepted it as truth.
Not to say that there weren't defrauded consumers or evil salesmen. I'm sure there are individual cases of fraud. I just think it's a really complex system with overlapping spheres of incompetence that defies easy characterization as "fraud" or "not fraud."
> When I say that the consumers are equally complicit, what I really mean is that in many cases they just listened to a sales pitch and accepted it as truth.
If you tell me something that you know or should know to be false, I act on what you told me, and you benefit from my action, then by definition I have been defrauded.
It's hard to speculate in a vacuum and obviously we don't want details in this medium, but here's a sales pitch:
Salesman: "By a MagicSuperAwesomeLotto ticket! There's no chance to win 50 million if you don't buy one. It's definitely a very risky investment. But it's an extremely small loss and the payout could make you generationally rich. We sell them in increments of $1, $5, and $50 if you want 50x chance to win, and we accept wire transfers."
Client: "So do I have to match all the picks in a row to get a payout?"
Salesman: "I'm not sure. It's a new product. We'll have to check."
Client: "Oh don't bother. I'll take $5,000 of them."
Go read William K. Black[0] on the subject of accounting control fraud. He's the author of The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry [2005] He was one of the lead regulators during the Savings and Loan crisis. Follow a few of the links on his Wikipedia page. It was fraud: massive and with regulators (led by Alan Greenspan) turning a blind eye.
My thing takes your investment capital and cohorts it sensibly against your time horizons.
It's new. A lot of what you get from an is along the lines of "Oh, you want this money in seven years huh? You should probably just buy a bunch of bonds." That's crazy. A .15% change in interest rates will wipe out a year's worth of interest on the long bond.
My thing is an invented modification of a CDO/CLO that keeps your global risk sensible while making sure that your short term objectives are preferentially met. It also makes really customized risks available at almost no cost.
Would you say it's a customizable investments that roughly equate to targeted retirement year fund? For example, a target 2025 retirement date mutual fund, but more specialized for short term investments?
A company, pretty much by definition, acts in concert. Leading up to the 2007 financial collapse, major sectors of the banking and finance sectors were acting in concert to transact fraud, or were turning a blind eye to it in their own business. Individuals bringing the matter to light were at best ignored, if not disciplined.
Customers in aggregate do not act as a collective unit. If banks, mortgage brokers, and others are lying, encouraging lying, falsifying, and otherwise systematically subverting the system, the fault lies squarely with them.
Interesting business ethics you've got there. Remind me never to to business (or pleasure) with you.
"At this time, many buyers of investments didn't do that at all."
All consumers are all the "buyers" of junk mortgages in the end, but there's no way that we knew how junk they were when the executives were willfully defrauding us.
What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all.
Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have arranged a conference call with me or a colleague, no issue. That happened like, one time.
I think the concern that my firm had at this time was principally related to the likelihood that emails like this would hit the public domain at some point.
Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors).