do trapézio e outras coisas

Benjamin Graham, famous investor and professor of Columbia University, commenting about the stock market crisis:

“We have presented this picture in order to point a moral, which perhaps can best be expressed by the old French proverb: Plus ça change, plus c’est la même chose. Bright, energetic people—usually quite young—have promised to perform miracles with “other people’s money” since time immemorial. They have usually been able to do it for a while — or at least to appear to have done it — and they have inevitably brought losses to their public in the end.”

“About a half century ago the “miracles” were often accompanied by flagrant manipulation, misleading corporate reporting, outrageous capitalization structures, and other semifraudulent financial practices. All this brought on an elaborate system of financial controls by the SEC, as well as a cautious attitude toward common stocks on the part of the general public. The operations of the new “money managers” in 1965–1969 came a little more than one full generation after the shenanigans of 1926–1929. The specific malpractices banned after the 1929 crash were no longer resorted to — they involved the risk of jail sentences. But in many corners of Wall Street they were replaced by newer gadgets and gimmicks that produced very similar results in the end. Outright manipulation of prices disappeared, but there were many other methods of drawing the gullible public’s attention to the profit possibilities in “hot” issues. (…) It is amazing how, in a completely different atmosphere of regulation and prohibitions, Wall Street was able to duplicate so much of the excesses and errors of the 1920s.”

“No doubt there will be new regulations and new prohibitions. The specific abuses of the late 1960s will be fairly adequately banned from Wall Street. But it is probably too much to expect that the urge to speculate will ever disappear, or that the exploitation of that urge can ever be abolished. It is part of the armament of the intelligent investor to know about these “Extraordinary Popular Delusions,” and to keep as far away from them as possible.”

– Benjamin Graham, The intelligent investor, chapter 9, 1973

One needs to remember that in the crisis following the Great Recession, some regulations were passed to separate de roles of the investment arm and the retail arm of banks. There started the life of Lehman Brothers, Goldman Sachs and others. Now, read again what was in the first page of the Financial Times today:

“Goldman Sachs and Morgan Stanley, the last surviving big investment banks on Wall Street, have become regulated banks. In a statement issued at 9:30pm Sunday, the Federal Reserve said it had approved their applications to become bank holding companies, subject to regulation by the Fed. The move by the Fed to regulate Goldman and Morgan Stanley in effect spells the end of the investment banking industry as a separate sector, leaving behind only small boutique securities firms. In doing so, it ends the decades-old division of the US financial industry into two halves, which dates back to legislation passed after the Great Depression.”

Plus ça change, plus c’est la même chose…

PS. Interesting enough, the FT changed the words of the article. Maybe it was seen as too… er… contrary to equity holders interests. Not that it made any difference today.

This entry was posted on Monday, September 22nd, 2008 at 8:08 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.