No One Knew A Thing. No One Knows A Thing. And No One will Ever Know a Thing (About the Future).
Do these lines come across as Audacious?
Audacious or not, these lines are the unvarnished fundamental truths of investing.
KPMG gave Silicon Valley Bank a Clean Bill of Health 14 days before it collapsed. Not just this, KPMG also gave the Signature Bank Clean Bill of Health 11 days before its collapse in March 2023. Can you believe that a global auditor with such a solid team of intelligent and smart people could not see this coming?
Obviously, they could not.
Forget KPMG, according to Wall Street Journal, On March 8th, two banks were deemed healthy by regulators. Any guess on the names of these two banks.
Besides them, no one else (in their wildest dreams) ever thought that a successful bank such as SVB could collapse so fast.
The point is as simple – No One Knows a Thing.
What has to go wrong will go wrong.
We will never be able to control this.
Well, what we can truly control is who we believe, who we chose to work with and what we believe.
Have you heard AT1 in the last 3-4 weeks?
No, it has got nothing to do with Anti-Terrorism Squad.
Well, this is yet another creation of the financial industrial complex.
There is a lot that has been written about Credit Suisse. But did you know that $17.1 billion of the banks’ additional tier 1 (AT1) bonds will be completely written down in value. In simple words, this means the bonds will have NO Value. Zero.
That’s not the interesting part. AT1 Bonds also known as CoCos aka Contingent Convertible Bonds were introduced after the Global Financial Crisis as a way of transferring risk from the taxpayers to the bondholders (investors). The best part is that these products were marketed to clients as a relatively safe way to boost returns on bond portfolios.
The operating words here are – marketed as relatively safe, boost returns, bond portfolios (without the equity risk). Bonds are perceived as safe anyway so why not create a story that you can get equity like returns without equity like risk.
And it’s not just Credit Suisse who was doing this. But every other institution has been selling such (or other complex) products. The irony is that their own sales teams don’t understand such products (most of the time). They are given a script to parrot, and they deliver it extremely well. Best part is that such crap is called wealth management. And the clients who fall for this are wealthy/institutional and sophisticated ones.
But why do such intelligent and smart people fall for these tricks?
Because they are told that others like them are doing it. Remember Mimetic Desire. A newly minted billionaire will look at what other billionaires are doing. A retiree will look at what people like him/her are doing. There are many other reasons but another big one is that while you might be super smart and sharp in your craft or work, you might not have the skill required to spot such bullshit. You might be great in spotting bullshit in your business or vocation but spotting bullshit in financial services is not so easy. You don’t know the tricks of this trade. You don’t know the well-guarded secrets of this industry.
Additionally, money is an emotional thing.
Money = Emotions = Feelings
Big brands create a feeling of safety. They hire very smart people who are really good at making bullshit desirable. On top of that, they make you believe that you are so special and they and only they have the products worthy of your money.
And it is not just the big brands. Influencers are not to be left behind. Anyone today with or without a microphone has an opinion and many times these opinions are tightly held (often without any substance). Many such pros know that bullshit works. And Financial Bullshitting is an industry in itself.
Am I sounding too much like a grumpy uncle?
I think so.
Humour aside, will we ever learn anything from this?
I don’t think so.
Will we always continue to pardon the sins of these institutions and mis-sellers?
Because we have a very short term- memory. We forget everything. We have long forgotten the institutions and people who caused the Global Financial Crisis (GFC). The very institutions that caused the GFC continue to be flooded with clients. Forget the GFC, we have even forgotten COVID-19. Now we look at everyone wearing a mask with suspicion (I hope he doesn’t have COVID-19).
What was the point of writing this post then?
Well, for one it made me feel good. And second, I hope that at least some souls (besides the regular readers of this blog) might start seeing bullshit for what it is and do what needs to be done with such predatory people and institutions.