Wall Street spreads toxic assets despite mega profits

http://bit.ly/7XwAG

After the bumper profits of last year the least the Wall Street Banks could have done is start sorting out the toxic assets mess. However in absence of any guidelines from the regulators they went about distributing fat bonus payments and the opportunity to clean up the balance sheets was lost once again.

So what have the Banks done with the toxic assets that caused the Wall Street crash and necessiated a financial support of a Trillion Dollar plus by the OECD Governments
Frankly nothing. They still lie in the Books, though some enterprising Banks like Barclays plc. have spun off different holding companies for dispensing those assets.

The reason the Banks are not doing anything to de-toxify those toxic assets is because they do not need to. The regulators have not given any guidelines, and with the history of the long standing relationship (or nexus) between U.S. regulators and the industry, it is highly unlikely that they will do so. Both Bernanke and Geithner batted solidly for the Banking industry during its time of distress. It is highly unlikely that they will take the initiative to bring in reforms when the economy is recovering and there is little public pressure, or even memory of the nuclear waste in the Banks books.

The problem is that these toxic assets will not remain for ever in the Banks books. Whenever any unsuspecting client wants to make an extra buck by buying anything other than a fixed income plain Jane type security, they could be sold a sucker. The Germans faced the music when Goldman duped IKB Bank. It is reliably learnt that their are many others in Europe especially in UK and the PIGS (Portugal, Ireland,Greece,Spain) who have been sold such duds by the uber smart salesman at Goldman Sachs. Other Banks like Morgan Stanley, Deutsche Bank and Barclay are also reportedly done similar crimes though of lesser magnitude, and less brazenly.

But why do regulators not act. Two reasons. Business as usual has no hassels, and unless Barack Obama or Senator Levin forces them to act differently, they have no reason to do so. The second and the most important reason is their mindset and their reluctance to understand the construction of derivatives the CDS , the CDO's issued which are actually less complex than they are hyped to be. The issue is not the intellectual capacity, it is the mindset that makes things so easy for Senator Levin and difficult for Mr Bernanke to take on the Blankfeins.