i would argue that the SELLERS or distributors of said product are equally as uneducated on the complexities just like the prospective investors may or may not be...i believe that to be the case more times than not...this belief disproves, to me, the thought that the fleece is a major technique...in fact, the fleece is not as rampant as outsiders of the industry would think...again, i say this because we have compliance and safeguards in place to make sure there is no fleecing occurring...there are teams of people employed from within compliance units assigned to analyze transaction related products and patterns to discern appropriateness and suitability as it relates to established client history...red flags occur all the time and are subject to thorough investigation which is a good thing.
remember - the segment of the market that has been catastrophically affected directly are the ones who are supposed to be the 'intelligent' investors...the fund manager, the hedge fund, the insurance company, the bank....these institutions themselves employ hundreds upon hundreds of people whose main duty and responsibility is to analyze credits, structures and scenarios, project maximum gains and maximum losses...mom and pop of main street USA were not the ones who erred (directly)...they erred, if anything, because they picked a bad manager to manage their funds.
all in all - i agree that the lack of thorough diligence, as it pertained to analyzing these complex structures, surely can be pinpointed to the lack of knowledge and expertise of these structures...but i still maintain that competition to be the better manager was probably more to do with it...in a performance based business such as this, you're not only rated versus your peers but you're also rated relative to whatever benchmark index that you might happen to be compared to...could be the DJIA, could be the 10yr treasury note, could be the Lehman aggregate index....whatever....the competition to outperform the benchmarks got a institutions way out of position and in over their head.
That makes good sense. And I could definitely see most of the sellers not understanding the products, considering the complexity of what they sell at this point. The math "geeks" are the only ones who really understand the products in all likelihood, and those geeks often don't really understand the market itself in the way that the sellers do, so there's an interesting disconnect built into the system. Of course, that same sort of disconnect is built into compliance because if the sellers don't understand the product very well then there's no way compliance and lawmakers can reliably keep up with the continuous innovation.
When I used the term 'fleece' I was thinking about folks like Goldman who sold folks products and while they were selling those products, they were simultaneously placing side bets that the products would fail. In general, I have no doubt that the average person or even the average fund is honestly trying to make money for the investor because they rely on the continued investment for their profit...seems like Goldman does what it wants...gets an exemption from this rule (by an agency head who's a Goldman alum and still owns tons of shares because HE got an exemption), gets this rule neutered or erased altogether...I dunno...it's probably too complicated for me to figure it all out.
One of the big themes I've come up with in the last few years as my eyes have opened up more to the world around me (not just finance) is that the society that the world has built is most likely too complex for any one person to understand, which bothers me to no end. It's a pervasive problem and this time it blew up in finance...next time it could be energy supply...food supply...the law...technology...health...anywhere. And, with the added complexity that we've built in through globalization and interconnectedness, the problems, whenever they arise, are magnified to a level that's nearly incomprehensible, even as you watch them unfold. In a way I feel like the entire global society has become 'too big to fail'...but who can bail us out? Certainly a divine power could, but how do you reliably petition god for a bailout? I imagine it's possible, but I'm not sure we have good enough lobbyists.
I've never met a retarded person who wasn't smiling.
