Last Thursday marked the three-year anniversary of the spectacular collapse and bankruptcy of Lehman Brothers. Fittingly enough, the next morning a UBS (NYSE:UBS) trader in London was arrested on fraud charges for his role in a trading scheme that triggered losses of at least $2.3 billion at the increasingly rickety Swiss investment bank.
Lehman’s collapse shattered the world financial markets in 2008 and has left a legacy of decimated retirement and life savings accounts for ordinary, Main Street investors. The revelations that a UBS trader cooked the books for perhaps as long as three years raises the specter of a banking system so devoted to greed it will ignore reality.
Wall Street’s love of easy money, along with its uncanny ability to look the other way when the truth is inconvenient, are by now well documented. Investors were sickened to learn of the risky bets and 30-1 leverage that Lehman used to pump up profits to pay handsome bonuses to its executives. Those same risky bets--made with the knowledge and blessing of Lehman’s senior management--ultimately destroyed the firm and devastated the world economy. Now, according to The Wall Street Journal, it turns out some inside UBS London knew enough to question the trader’s allegedly fraudulent conduct fairly early on, but he was allowed to keep on trading.
Is the collapse of Lehman Brothers really connected to this latest UBS fiasco? Aren’t these two events really different? Well, the players may be different, but the rules are the same.
First, whenever a bank goes bust or a trader goes bad, the press or the other banks label the fallen competition or trader an “outlier” or a “rogue.” In truth, excessive risk taking is fundamental to Wall Street’s culture. That’s how bankers and traders make huge bonuses and score corner offices. That ingrained culture of chasing risk will never change.
Next, look at the excessive risk taken by the UBS trader’s “Delta One” trading desk and the complex and opaque synthetic ETFs he was trading. They are similar in concept to the Lehman structured notes sold to retail investors by the nightmare team of Lehman and UBS.
Lehman and UBS worked together to dump Lehman’s opaque structured products on unsuspecting investors, causing catastrophic losses for investors. As a small measure of justice, investors have won virtually all of the arbitration cases filed against UBS and have recovered most of their Lehman Structured Product Note losses.
Incredibly, despite government investigations and clear evidence of manipulation of Lehman’s balance sheets to deceive investors, not one Lehman executive has faced criminal or civil charges relating to the great harm Lehman caused to investors.
The latest scandal at UBS is one of a long list in recent years: $37 billion in losses related to mortgage-backed securities, a fine of $720 million stemming from charges it attempted to defraud the federal government by interfering with the IRS’s duty to collect taxes. And on and on.
The legacy of Lehman is that Wall Street’s greed trumps any sense of obligation the banks might have to their own customers.
Just look at the latest news about the crooked UBS trader if you had any doubt.
Disclosure: Zamansky and Associates represents investors in arbitration cases against UBS regarding the sale of Lehman Brothers Structured Products.