In search of better investment returns
On August 1 a jury found ex-Goldman Sachs trader, Fabrice Tourre, guilty of defrauding investors in a billion dollar toxic mortgage deal. Prosecutors accused Tourre of misleading institutional investors about subprime mortgages that he knew were doomed to fail. Those deals set the stage for a valued Goldman client, John A. Paulson, to secretly bet against the investments—and make a $1 billion profit for his hedge fund.
The hundreds of reader comments to a New York Times article indicate the investing public thinks the conviction was too little too late. Many said the real problem rests with the well-connected executives at the top of the corporate ladder at Goldman—and that the problem is widespread.
The events leading up to this case happened six years ago when Tourre was only 28 years old. Could they ever happen again?
Very likely. Human greed without a moral compass is a recipe for another economic collapse. Wall Street needs to take the proverbial first step by admitting that it has a corporate ethics problem, or more scandals will follow. The Tourre case suggests that neither the failure nor the success of Wall Street is good for Main Street.
The authors of a recent book, Wall Street Values, came to similar conclusions. They state, "No amount of structural reform and government regulation will ensure the stability of the global financial system unless the ethical practices and values of Wall Street professionals are aligned with market efficiency and the public welfare."
Fast forward to the dilemma investors face today. Interest rates are the lowest in memory. Thirty-year Government of Canada bonds are yielding only three per cent. Most rates offered by major banks are lower than inflation. The 2.8 per cent offered by my local credit union for five-year term deposits looks pretty good in comparison.
Coffee shop banter speaks to the pressure to do better. Ordinary folks, impatient with their investment returns, don't need to look far for so-called opportunities. Everyone knows someone who is getting a "guaranteed return" of eight per cent or even better on their investments. And the longer savings rates remain in the cellar, the easier it is to ignore the age-old truth about investing: higher yields come with higher risks.
What does this mean for you? A friend who learned some financial lessons the hard way during the last downturn recently told me, "Investing is complicated. Impatience and greed are the surest way to financial ruin, especially in this time of low returns." My friend also offered advice that pre-dates Wall Street: "Wealth from get-rich-quick schemes quickly disappears; wealth from hard work grows over time" (Proverbs 13:11 NLT).
It's always wise to do your homework before investing. But even before that, check your motivations. Psalm 119:35-36 offers basic principles both you and Wall Street would be wise to follow: "Make me walk along the path of your commands, for that is where my happiness is found. Give me an eagerness for your laws rather than a love for money!"
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