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TheStreet Open House

Western Banking: Money for Nothing

Stocks in this article: GLD

Of course, here is where it gets interesting: Credit ratings (i.e., the creditworthiness of nations) should matter in determining bond prices and interest rates. There are only two possible explanations as to how/why the credit ratings of Western sovereign debt have been totally worthless for at least 40 years:

  1. The bankers working for the credit ratings agencies are utterly incompetent or corrupt.
  2. Western bond markets are so heavily manipulated they simply do not respond to economic fundamentals.

Readers can choose the explanation they find most plausible. Note that neither is mutually exclusive.

However, such revelations pale in comparison to the recent work of German propaganda outlet Der Spiegel. While Bloomberg's apologists were merely trying to explain/defend the absurdly corrupt U.S. bond market Der Spiegel was attempting to defend/justify investment banking as a whole.

Obviously even the propagandists know it is impossible to defend the psychopathic gamblers generally lumped under the category of "traders" who spend half their time making extremely risky/insanely leveraged bets and the other half of their time scamming clients with the banksters' notorious fraud scams.

Thus Der Spiegel acknowledges these people are nothing but psychopath-gamblers, and then presents us with a myopic, tip-of-the-iceberg look at their litany of crime. However, it then attempts to differentiate these bad bankers from the good bankers: the "M&A consultants and IPO specialists".

Out come the rose-colored glasses as Der Spiegel proclaims:

...All of this insane gambling and scamming clients has little to do with traditional investment banking, say so-called M&A consultants and IPO specialists. They arrange mergers and acquisitions, plan initial public offerings and embody a completely different kind of banker. They come complete with a broad job profile and multiple foreign languages, and they've often had years of training in management consulting firms. In fact, the people working in the trading rooms are about as foreign to them as car salesmen are to professors. emphasis mine

However, as frequently takes place with these serial-apologists, the writers were unable to maintain their Grand Illusion through to the end. A little later on, the truth comes out about these "professors":

...It only gradually emerged that the bankers, with their murky forecasts, were often wrong. In fact, studies now show that every other merger was a failure. Nevertheless, the volume of such transactions increased tenfold from 1990 and 2007, to almost $4 trillion worldwide. Investment bankers, it would seem, can be very convincing - especially when they're banking on high fees. emphasis mine

Again, what is presented here is completely unequivocal: Half of all the mergers put together by the Western banking cabal were/are failures. As with credit ratings, corporate clients could have obtained equally competent "merger advice" by flipping a coin -- meaning that as with credit ratings M&A banking is (in aggregate) a 100% worthless service.

What is unclear from Der Spiegel's more-realistic characterization of investment banking is whether, like the "traders", the M&A consultants were deliberately scamming their clients for their gigantic fees or whether they were merely recklessly fleecing their clients with their gigantic fees.

Presumably the same also applies to the "IPO specialists" (since Der Spiegel made a point of grouping them closely with the M&A consultants). However, we could always seek a second opinion on this topic from Facebook (FB) shareholders.

The more general point made here by Der Spiegel -- and much, much more damning -- is clear. The services of the "good bankers," the M&A consultants (and IPO specialists?) are totally worthless in that equally competent "advice" can be obtained from a coin toss.

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