Nostalgia: The Art of the Cold Calling Cowboy--the DeRegulation of Wall Street==and what it portends

(Ed.note: The following was taken from "The Traders Little Black Book" written in 2008. Click on the post for the full book. "

Over the past thirty years there has been a transition from a structured investment environment to one that is "deregulated"---it has been marked by the end of the era of salaried brokers with higher commissions and research, to a world of $7 trades and computer simulations. It has been a movement from wise older traders to young, churn and burn robots.

"Where has been the saving,?" you might ask. I like to compare the situation to the airline industry. Years ago, when airfares were higher, and Northwest Airlines had ZERO debt, the transportation industry and financial services industry was seen as a public sector, where the government had a say in an organized and supervised code of conduct for all participants----those days are gone. When I fly, I always feel more comfortable when I know there has been maintanance done on the engines. The cheapest fare is not consoling if I see flames coming from the engines. Ditto for the financial services industry.

When investment just becomes a transaction, when people just become a transaction, and when "churn and burn" becomes the overriding element in business, the customer always loses. Consequently, I reject the notion that nostalgia for the good old days of regulation is senile and old fashioned. I believe it just makes economic sense for the investor.

Recently a lone French trader for a bank, using "proprietary trading funds", in the throes of breaking up with his girlfriend, took enormous options risk and....despite the bank even knowing about his risks, but not understanding it or choosing to ignore it for fear they would impede some gains, caused a 7 billion dollar loss.
Imagine what would happen worldwide if just a dozen or so financial professionals broke up with their girlfriends. Yes. Girls that is something to consider. You may think you are just breaking up....but you might just be causing a global catastrophe. Be True to your man....o.k.

In summary. The incredible catastrophe of ENRON was not just ENRON. The real catastrophe was that as a nation we have modeled our financial institutions on ENRON. And we have the major tactic of DELAY, the verb, not the noun.