Sunday Musings: The Blame Game

Ulli Uncategorized 2 Comments

As you know from my writings, I am certainly not in favor of some of the strong-arm tactics or empty promises that are used by certain brokerage firms to land new business at all costs. However, I also believe that there should be some responsibility on the part of the party agreeing to any deal. After all, we are not living in a country where someone is holding a gun to your head. We have the freedom to say no.

I was reminded of that when I read a blurb by 24/7 Wall Street titled “Merrill Lynch May Face A Judge:

Merrill Lynch sold the city of Springfield Mass a financial instrument which lost 90% of its value. According to The Wall Street Journal “Merrill violated state law by not properly informing the city what it was buying.”

Christopher Gabrieli, who runs the city’s finances, wants his money back.

Gabrieli and his friends are one in a parade of boobs who appear to have wanted big returns but were not willing to apply proper due diligence to what they were buying. The man may be unhappy, but the result should be that he is pushed out of his job. He says Merrill did not send him details on the investment until it was too late. The real question is why he did not ask for them before he wrote Merrill a check.

Over the next few months, countless municipalities and institutions will complain that firms like Merrril robbed them. In reality, the buyers failed to read the fine print.

Caveat emptor.

While I can imagine what the city of Springfield is going through, was there not some due diligence required on the part of Gabrieli? We had the same situation in Orange County, California, back in 1994, and it cost the treasurer and others their job, and rightfully so.

If you are appointed to handle a city’s finances you better be well versed on all investment topics, or you’re simply just a chair warmer now crying foul and trying to save a job. In this case, it sounds like sour grapes to me as Gabrieli is trying to pass the buck and the blame.

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Comments 2

  1. These stories are going to become so commonplace we’ll end up missing most of them. But at the end we’ll see that they were all about incentives.

    Here’s a great example of Florida public officials asleep at the wheel:;=aj3K4H7aXnBM&refer;=home…

    And look at the list of characters involved in this debacle:

    * Director of the Florida State Board of Administration (in charge of the largest public money market fund in the U.S, until November, then he resigned),

    * Lehman Brothers,

    * The Chief Financial Officer of the state of Florida,

    * Former Florida Governor Jeb Bush (now of Jeb Bush & Associates and a consultant to Lehman Brothers),

    * Florida state Governor Charlie Crist,

    * Florida Attorney General Bill McCollum.

    These aren’t some recently degreed MBA’s just starting their careers running a money market fund. The bottom line here is these stories aren’t just about banks offloading junk investments. They’re about public officials chasing extraordinary returns and the inevitable bonuses that they will realize when the returns are realized.

    They got caught out.


  2. Well yeah, yeah and yeah but, look at yur credit card agreement or the loan for yur car or any of the admenments that come every year with the credit card renewal. Home loan. I am sure its more of the same with these instruments. The people writing up the documents are very highly paid to make the contract the most obscure it can be. To obsure the real risk. Why not some truth in lending/honesty. Summarize the bullet points for 15%return yu are liable for this this and this. Sure contracts have to spell everything out but we all know every one of them is written to hid the real terms and exceptions. So I doubt any government worker is in the same league with the best wall street has to offer. Yeah buyer beware is well er so passe’ dont yu think not unlike our tax code intentional.

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