Somethin's in the air: What Happened to Scruples?

08/15/2011 11:06 am ET | Updated Oct 15, 2011

Don't know what you're thinking, but I'm thinking that somethin's in the air. In a previous blog, I asked "What Happened to Shame?" Maybe it's time to ask "What Happened to Scruples?"

Scruples is defined as "a doubt or hesitation that troubles the conscience or that comes from the difficulty of determining whether something is right."

What began as a US banking crisis back in 2008 (with Bear Stearns taking the first fall), morphed into the US/Eurozone government debt crisis in 2011 (with French banks just this last Thursday under rumored financial attack -- we'll get to this shortly). This rolling fireball doesn't seem to go away, like those candles on a cake one can't blow out.

Maybe it has to do with having been in the "eye of the storm," to sense, that what first came on to the world stage in 2008, would not end anytime soon. Bear Stearns would be the first act of many. Institutions, by the way, are like mirrors of collective human behavior with the tone set from the top.

What fix did we take when this all began? Clue -- "green shoots" wilted.

Maybe, this time, we pushed it too far. 'Cause we had the tools and know-how to accelerate and amplify markets (to create the seemingly crazy), 'cause those who did the pushing had friends in high places, 'cause those running our financial institutions exhibited hubris, not unlike the conquerors of days gone by, 'cause millions and billions in compensation blinded the few, too much, into invincibility. My dad used to call this "Too big for your britches." The "Too big for your britches" own too much of the world, at the expense of the world.

So when I stumbled upon the response this week by JP Morgan's CEO, to the S&P US debt downgrade, that it was

" target="_hplink">"Just An Opinion" -- no surprise. "Just An Opinion" was what banks relied upon in selling toxic waste to investors packaged as AAA (otherwise why apply and pay for the rating?). "Just An Opinion" is something investors relied upon when buying toxic waste packaged as AAA (otherwise why else would they?). A "Just An Opinion" attitude cost the country (aka the taxpayer) trillions -- not to mention the heartache, the human toll. "Just An Opinion" scared a lot of people on Main Street struggling to get by, unfamiliar with what a US downgrade down a notch means. They're too busy working multiple jobs to put food on the table or looking for one.

Been in the business long enough, on the line (not on a perch), to know how investors buy. Corporate investment guidelines (sanctioned by boards and board resolutions), mutual fund prospectuses etc. spell out the need for specific rating agency criteria. Even institutional investors aren't always sophisticated and therefore rely on ratings. As a broker there is such a thing as informing, disclosing, mindfulness as to suitability of investment.

No need to go into just how many investment portfolios were decimated, investors duped, by "Just An Opinion" chimeric securities. In the end, it cost us. And, rating agencies got paid a lot of money for many "Just An Opinions." Wall Street, among others made off too. Incidentally, if the S&P "Just An Opinion" had been accompanied by downgrades from the other two agencies it may have triggered an avalanche of security sales and re-pricings to realign portfolios and collateral, respectively.

S&P downgraded US debt the same week that Europe's markets seized up. It's eerie when markets seize up as they did back in 2008 -- no liquidity, meaning funding issues and disruption of the normal buying and selling of securities. Today, Greece can't borrow in the markets. Spain and Italy's borrowing costs have gone through the roof. This week the European Central Bank had to step in to calm markets -- to buy bonds of Spain and Italy. Then came trader worry about French sovereign debt, which spread to French banks (which hold French bonds). Ergo, the ban on short sales this week in Italy, France, Spain and Belgium

" target="_hplink">"to protect the banks." Correct me if I'm wrong, but the Eurozone debt problem is looking like "robbing Peter to pay Paul."

The chain of events catapults me back to March 2008, the month Bear Stearns "blew up". There was short-selling then with a major credit default swapper withdrawing from insuring Bear's credit. That's all it takes to put into motion a run on a vulnerable bank. Liquidity is like oxygen to a firm. Some 14,000 lives changed overnight. Bear was a template of what was to come. I wrote about the dangerous precedent back in 2008 as follows:

"... imagine if a large money speculator bets against a company with credit default swaps creating a feeding frenzy. It could tip a company into default. What if the bet is based on compromised premises?
A whole company and the livelihoods of those within it could disappear. These are dangerous weapons."
Cinderella of Wall Street (page 287)

Fast forward to today. Sovereign nations and banks are under siege by financial warriors. Rumors that French banks were under financial attack reverberated in the wild "zigzag" gyrations of our stock market on Thursday. Reflect upon how much transpired in the last two weeks as the US/Eurozone debt saga rolled. Market impact -- swift, deep and virulent.

So, here's my question.

If financial warfare is here to stay, doesn't it behoove those who run banks and nations to manage well (stop fighting for starters) as any one is vulnerable? And now that we've created this global financial hydra, and global world at large, how's it being managed and is it even possible?

What kind of markets will we have? Free markets? Recall the 2008 crisis-related short sale ban on our own financial institutions. Maybe the adage "with freedom comes responsibility" needs a dusting. Which takes us back to scruples.

Throughout the ages, things don't seem to change, they just play out through a different forum, regardless if it's the 21st century. Civilized societies rely on a moral compass. Maybe it's more catchy to coin it "scruples compass." Otherwise, here's a little insight from the Roman playwright Plautus, Homo homini lupus -- man is a wolf to {his fellow} man (used generically). Looting can take any form, amongst the big and small.

As we segue our way into the future, what are we looking at -- regular warfare, cyber warfare, financial warfare, political warfare. As to the latter, look no further than the national debt ceiling debate. And, I'd venture that many of us are dealing with crisis-related domestic warfare that rips at the fabric of society -- job loss, foreclosure, individual, marital and family stress, take your pick.

Maybe it's time to reboot. The Republican vs. Democrat "who done it" seesaw's gettin' old. Neither record is pristine.

Let them fight, why should we?

We're united in our desire to live freely.

Take note. Pre-crisis, who would have thought that one "venerable" financial institution after the other would be led by their Pied Pipers off a cliff, with such consistency. Those Pied Pipers who were lucky enough to be rescued, well......

Where do we want to be led? Do we really want our creditors to dictate terms of existence, to scold us for "addiction to debts?"

Really now.

Maybe there's something to the amorphous nature of life trying to assert itself here -- telling us that these man-made creations, this fast and big everything, we've imposed on to our lives, not to mention the relentless bickering (on air and off), are backfiring.

Maybe nature's just granted us a gift, an opportunity.

Let's think on this one.