Constitution Day Losses

Today we celebrate Constitution Day, when our nation was established. Under the Constitution, the executive branch was empowered with the role of carrying out the laws. This is a very dismal day, that sees huge losses in our financial system because the occupied White House abdicated its role, though it did not leave office. Instead, the nation has been subjected to loss upon loss because the Constitution has been violated, rather than protected and defended. Today's great losses are financial, but they are much, much deeper than that. Trust of every kind has been betrayed.

This talk about burying the dollars in a can in the backyard, except that you don't have a backyard any more, isn't the big giggle that it was even just last week. I admit I do have an account at Chase Bank (Morgan Stanley offshoot) and am just as glad it is not that big an account. I do have a backyard, though for many of us that is no longer true. The debacle around us is growing, and it is shocking.

Underlining all the good news (an impressive quarter of earnings) lies the same issue Goldman Sachs (NYSE: GS) is going to have to acknowledge in the coming months and years: The future of the investment banking world is bound to look absolutely nothing like it does today.

For Morgan Stanley and Goldman, that could mean one of a few things. Either they end up merging with a retail bank like Wells Fargo (NYSE: WFC) or Washington Mutual (NYSE: WM) to gain access to deposits that provide a stable source of capital, or they're going to get regulated into the floor by a government that's been caught asleep at the wheel. Former independent investment bank Merrill Lynch (NYSE: MER), which executed an emergency sale to Bank of America (NYSE: BAC) over the weekend, took the first approach, which may have been its only option after the land mines left by Lehman.


Please don't wait until it's too late
Both Morgan Stanley and Goldman expressed their reluctance to give up their current independent structures. For both firms' shareholders, that's probably not the best of news. If the prevailing thought that the current investment banking system is broken turns out to be correct, holding onto the past and not addressing problems until the last second is a recipe for shareholder destruction. Every financial collapse this year -- Bear Stearns, Lehman, Mac 'n Mae, and AIG -- came extremely suddenly and with little warning. After a wretched week of financial failures, let's just hope the remaining survivors won't bury their heads in the sand.

The reluctance is understandable, these are responsibly managed banks that are caught up in the massive collapse of a system that was betrayed by unprincipled investment purveyors using worthless paper to create an illusion of wealth where there was no value. Mortgages given to obviously uncreditworthy buyers were a vitiation of credit underpinnings, and has made all credit precarious. Your money is declining in value too.

The investment banks are tumbling down, but the real crooks are those regulators who took the opportunity of this lawless maladministration to do away with the regulations created to protect the banks, the investors, and the public. We are only protected if the laws are kept, and they have not been observed or administered.

If the Constitution had been respected and followed, your dollar would not be worth less today than it was in 2000.

Funny, I was out taking pictures of New Mexican ghost towns this past week, below is one of Grand Quivira. Reminds me of what Lehmann must feel like now, and maybe next week Chase Bank.