A slow start in the stock markets so far this year is not surprising. One reason is a looming question: After governments around the world saved the global financial system from collapse in 2009, can the markets and investors stand on their own in 2010?
The reason this is such a critical question is that while so much has changed over the past year, so much has not. On the heels of the most harrowing financial market ride since the Great Depression, the key players – politicians, investors, regulators, and Wall Street executives – all agreed on one thing: this won’t happen again. All vowed reforms and changed behavior.
Some changes have been made…on the compensation front, simplifying some products, and increasing surveillance…but it is striking how little Wall Street behavior has changed. We have identified, debated, and agreed upon the big systemic issues, but we’ve done very little to protect the integrity of the future global financial system.
Here’s a case in point…a story that got little media attention in the past few weeks. YRC – a $9 billion trucking company best known for its yellow and Roadway-branded big tractor trailers, with 55,000 employees – nearly went out of business recently because a New York based hedge fund held credit default swaps on the company that would be more valuable to the hedge fund if the trucking company went bust than if it survived. It survived only after the Teamsters threatened a Park Avenue protest and the Pennsylvania state Treasurer whose pension fund is an investor in the hedge fund intervened.
If products like credit default swaps are not seriously regulated or eliminated and other reforms enacted to tighten up irresponsible Wall Street practices, the little economic optimism with which we enter 2010 will be short lived.
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