In our initial Greedy article, I have argued that Financial Institutions have largely put aside Fiduciary Trust – and now have a new primary goal – their own wealth with perhaps some coincident client gains but only for a carefully selected class. In this article by Steven Pearlstein at the Washington Post – you see another take on this issue:
“You have to wonder what they’re smoking up their on Wall Street. With the housing decline still accelerating, the US Dollar tanking, buyout deal cratering, commodity costs soaring, you’d think investors might be a bit anxious. But instead of worrying how much further stocks might fall, the Wall Street chatter is all about when the markets might reach record highs. The Dow Jones Industrial Average finished up 191 points at 14,088. And during the session it surged to an all time high of 14, 116. ….
But more vexing is the hyper-confidence generated by the Federal Reserve Board’s recent rate cut, as if it were some magic cure-all for the markets and the economy. Never mind that the market price for overnight lending… stands at half a percentage point above the Fed’s target for the federal funds rate. And never mind that longer term rates that determine borrowing costs for businesses and consumers have increased, not decreased. For the generation of young hot shots who now dominate trading on Wall Street, what happens in the real economy hardly matters. For them, the markets are reality – a virtual reality that unfolds minute by minute on the computer screen flashing before them. But it also has become dangerously uninformed by history, unconcerned about value creation and unhinged from common experience.
Financial markets used to prized for being so forward looking. How ironic that in the process of becoming bigger and more efficient, they also seem to have become more inward-looking.”
Note one of the key ingredients for traders confidence – that Fed will always come to the rescue no matter what mess they get the markets into. More on this in our next Greedy posting.