Posted by Nick Mehta on Mon, Oct 27, 2008 @ 03:21 PM
I know we have become somewhat desensitized to the daily triple-digit losses in the Dow Jones Industrial Average. But in case you have been asleep the past year, it's been pretty bad out there, no matter where "there" is.
As humans, it's natural for us to go through the various stages of grief:
- Denial
- Anger
- Bargaining
- Depression
- Acceptance
I think the first "D" (Denial) was pretty much the last ten years.
We are squarely in "A" (Anger) right now, as far as I can tell from hearing our government officials talk, though I'm guessing the Fed and Treasury Department have fast-forwarded ahead into "B" (Bargaining) with our $700 billion.
The next "D" is the word-that-shall-not-be-spoken right now.
And I'm hoping the second "A" (Acceptance) comes soon!
But we've seen the "Anger" phase before many times. Who's responsible, the public cries? Bring them before us! Let's see the evidence. Pitchforks and torches optional.
From my experience, there is only one truth to these situations. The truth is in our email. Remember the Internet bubble? Frank Quattrone (famous investment banker)'s email to his troops ordering them to "clean up" their data after being informed of a federal inquiry? Henry Blodgett (famous research analyst)'s emails that contradicted the positive ratings he was giving to technology stocks? The crazy messages sent by the Enron folks?
After that crash, a wave of email regulations by the SEC and NASD (now FINRA) forced many individuals involved in the securities business to have their email and other communications archived and reviewed. Indeed, billions of those email and IM messages are captured using our own LiveOffice AdvisorMail. But those rules were confined to the securities industry.
What did this crash teach us? Besides us all learning the intricacies of CMOs, CDOs and CDSs, the world has realized that no market is isolated anymore. Wall Street and Main Street are interconnected, whether they know it or not. From Illinois to Iceland, from ARMs to automobiles, we are all tied together financially. Hence, to find the truth, we will need to look at email and records across industries and across the world.
Case in point: bond rating agencies. These companies were the watchdogs that were supposed to measure and publicize the risk of various debt instruments. These firms were the ones that told us that sub-prime mortgages were low-risk. Ouch.
Recently, email messages from these firms were publicized:
``Let's hope we are all wealthy and retired by the time this house of cards falters,'' one e-mail from an S&P employee said.
And more:
In the September 2007 e-mail made public today, the Moody's employee said that it ``seems to me that we had blinders on and never questioned the information we were given,'' according to the congressional investigators. ``It is our job to think of the worst-case scenarios and model them.''
The e-mail continued: ``Combined, these errors make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue.''
Seriously?
Or check out this instant message trail related to debt rating to make you even more Angry.
It's interesting because having an email archive helps all sides in these scenarios:
- Less cost for the companies involved. Under the Federal Rules of Civil Procedure, these bond rating companies, like all companies under investigation, would be obligated to produce whatever they have that's reasonably-accessible regardless as to cost or effort. At least they didn't have to go back to backup tapes to get these messages and spend millions of dollars doing it.
- More visibility for the public. Obviously this information will help us untangle and get to the core of how we got here. And getting it quickly means we find the truth faster.
I don't know how all of this will shake out for our economy. I pray and hope like the rest of us. But I do know that when bad things occur, it's good to have evidence around to at least understand what happened and learn from it.