Bill Gross excoriates his fellow financial practitioners. Quite some polemic!
(It's difficult to refrain from posting the entire article, it's so good. Just read it all)
Having been part of this process and even a member of the rogue's gallery itself, I know one thing for sure: This is not God's work – it has the unmistakable odor of Mammon. PIMCO, while Mammonesque, is a company to be proud of. I can say with confidence that there are very few clients who have not benefited from our investment management over the years. Some of the rest of this industry, however, I'm not so sure of: rating agencies that perpetually fail at commonsensical quality judgments, bankers that make loans to subterranean credits and then extend the beggar's bowl for themselves, and 80% of active money managers that underperform the market. As a profession we have failed miserably at our primary function – the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, Lehman and the resurrection, instead of the reformation, of Wall Street, are major sins of the modern era of money. Hang your heads, moneychangers. And no, it is not yet time to move on, as many banking CEOs suggest. How can bond traders make ten, one hundred, one thousand times more money than an engineer or social worker given their dismal historical performance? Why is it that some of today's doctors are using food stamps while investment banking executives complain about millions of dollars in compensation that might be deferred in case of a future bailout?
Financiers have lost their high ground and, if truth be told, we began to lose it a long time ago when we figured out that money was more than a medium of exchange or a poor substitute for a store of value. We figured out a turbocharged way to make money with money and proclaimed ourselves geniuses in the process. Well, we're not. We may be categorized as "opportunists," to be generous, but society's "paragons" and a legitimate destination for a significant percentage of college graduates? Hardly. To paraphrase Paul Volcker, the only productive invention to come out of the banking industry over the past generation was the ATM.
This metaphorical devil’s bargain has its equivalent in the credit markets these days. Central bankers have lowered the cost of money for 30 years now, legitimately following global disinflationary forces downward, but also validating increased leverage via lower real interest rates. Today’s rock-bottom yields, however, have less to do with disinflation and more to do with providing fuel for an asset-based economy that promotes unsustainable wealth creation and a false confidence in perpetual capital gains. Real 10-year interest rates fell from over 5% in the early 1980s to just under 1% in recent months and have arguably been responsible for 3,000–4,000 Dow points and 2–3% annual appreciation in bonds over those three decades.
And no, it is not yet time to move on, as many banking CEOs suggest
Are you listening 'Dave'?
If not, you ought to be.
Edited by Red Karma, 03 February 2011 - 11:05 PM.