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  •  I'd hardly compare Madoff's boutique (3+ / 0-)
    Recommended by:
    Don midwest, divineorder, mrkvica

    to GS, Citi or JPM. They're huge, diversified and deep (with taxpayer money of course). The alleged fraud took place in only certain of their divisions, although in order to pull them off they probably had to involve others to hide their trail.

    Still, just because certain execs in the CDO or CMO issuing or trading divisions of a bank broke the law doesn't mean that the divisions that do M&A, trade currencies or manage large asset accounts have to go down or are suspect.

    It MAY happen, either because many other divisions were involved, wittingly or not, or because said bank ends up being insolvent overall, or because as you say no one wants to touch this bank, but that's no guarantee. Plus, even if it does happen, the bank's legit accounts can't simply be dissolved, but rather they get acquired by some other entity, be it another bank or the government.

    This does not have to be the Wall St. Death March some claim it would be.

    "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

    by kovie on Wed Apr 03, 2013 at 10:15:39 AM PDT

    [ Parent ]

    •  Think of it this way. (3+ / 0-)
      Recommended by:
      TheDuckManCometh, MRA NY, divineorder

      You are a $5 billion Hedge Fund and you need a new prime broker.

      5 firms come in to pitch you. One of the five is in the news for criminal behavior.

      Even if that behavior is in an unrelated division, how can you explain to your investors that you picked them? Those guys are never getting picked.

      In fact, existing customers may move!

      •  Even if it's the lowest bidder? (4+ / 0-)
        Recommended by:
        PhilJD, divineorder, mrkvica, Kimbeaux

        Even if you have a very old relationship with that bank? Even if you already have a bunch of deals and accounts active with it that would be hard to swap out? Even if that bank is tops in the specific area you are considering it for?

        I'm not so sure. In business these days, it's profits before ethics.

        Having said that, though, a bit over 20 years ago I was working for a major Wall St. firm that was involved in a huge financial scam (that I and my division had nothing to do with as it was in S&T and I was in IT supporting the IB). It ended up getting slapped with a huge fine plus other penalties, and while it was able to afford this, barely, it was so weakened by this that it got bought out several years later. I left not long after it happened so I'm not sure whether it was the penalty itself or other firms no longer doing business with it that did it in, but your point is clearly not without merit.

        Still, from a macro economic pov, I think we can manage this without taking down the financial sector or economy, if done properly. Even if these banks go down, their healthier and non-complicit divisions will just end up being incorporated into other banks, either directly or effectively.

        "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

        by kovie on Wed Apr 03, 2013 at 10:28:32 AM PDT

        [ Parent ]

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