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Flame Grilled

Point your fingers to no one

The Toyota Prius recall was a major blast to the Japanese car manufacturer. In fact, a report by BussinessWeek’s Richard Tedlow reveals that no one wants to admit that they have anything to do with the defect. He writes, “Toyota’s top people were in denial, just as the public was. By denial, I mean that they stopped being honest with one another. And they stopped being honest with themselves. If Toyota’s products were as fatally flawed as they were, that would be too awful to be true. Therefore, the awful truth was brushed away. I’ve seen this happen in so many companies that I was compelled to write a book about it.”

And I thought the denial ends there.

It’s been two years since the housing bubble crushed the real estate industry and so many versions of the real causes have been exchanged by critics, analysts, Wall Street mavericks and ordinary people who have a thing or two to rebut to anybody. But the recent Congress investigation has created more issues this time. Citigroup recently faced the grilling that irked the public a lot. Thomas Maheras, former trading chief, defends, “We were negative on subprime, as a matter. We were, from the very earliest part of ’07 and the end of ’06, we were in most of our business areas reducing our risk around subprime. We weren’t sitting there twiddling our thumbs and assuming that housing could never go down. We had in our base case that housing was going down during ’07 and would likely continue.”

Don’t you wonder why rising mortgage delinquencies finally took their toll in the bank? Perhaps, Maheras is attempting to go around the bush.

Then there’s BusinessWeek’s cover story about another stubborn bank, Goldman Sachs. Appropriately entitled, “Goldman Sachs: Don’t Blame Us”, the report opines, “The defense mounted by Goldman lacks critical details, a consequence, the firm argues, of its overriding need to protect the confidentiality of its clients. But the overall message was emphatic and unified: Goldman did nothing for which it owes anybody an apology—and it doesn’t owe anybody any money, either. Its brilliance has been wildly overestimated. Goldman managers were smart, but not that smart. Above all, Goldman insists it played by the same rules as everyone else.”

Now this got me into thinking: are bankers in need of escape goat when their plans become doomed after a spree of corporate greed?

Enter Lehman Brothers. A Wall Street Journal report shows another defensive official. A spokesperson for Mark Walsh, the head of Lehman’s Global Real Estate Group, who is blamed for some of Lehman’s most disastrous deals, proudly states, “After a yearlong exhaustive inquiry that involved over 250 interviews with different individuals and the review of over 4.7 million documents, the Examiner did not identify any wrongful or improper conduct by Mark Walsh,” a spokesman for Mr. Walsh said in a statement. “Indeed, the report contains no suggestion that Mark ever intended to act other than in the best interests of Lehman, its shareholders, and his investors.”

That was said after a bankruptcy examiner found that, “Mark A. Walsh … was one of the most successful and trusted operators at the firm,” Mr. Valukas wrote. “Management believed that Walsh could invest Lehman’s capital wisely and could distribute any excess risk to other investors.”

Are you kidding me?

If this is so, then somebody please help explainWSJ’s incisive report that strongly answers them back: “Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky… The paper said on Friday 18 banks, including Goldman Sachs Group, Morgan Stanley, J.P. Morgan Chase, Bank of America and Citigrou, understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period. The banks had increased their debt in the middle of successive quarters.”

Perhaps, Tedlow has a point when he asked on his Toyota report: “What happens to the bearer of bad news? Does your company shoot the messenger rather than heed the message? There are indications that this may have been the case at Toyota.”

Mr. Tedlow, tell that to the banks too.

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