Guaranteed

What does this word mean to you?

After this crisis, not much anymore. Capital guaranteed, funds protected blah blah. A whole load of financial bullshit jargon that is attempted at soothing your worries when purchasing complex financial instruments that you know as much as a first grader knows about Einstein's Theory of Relativity.

Guaranteed. Those were the times, where capital guaranteed contracts were sold to unsuspecting customers and predicated on the fact that big-name firms like Lehman and AIG would never ever need to worry about Chapter 11. Looking at Lehman's case in point, it was only part of a handful of US financial firms that weathered through a century of existence*. And yet, it couldn't take the onslaught of (what some say was) opportunistic short-selling and inadequate and untimely government intervention. Maybe, more importantly, it couldn't control greed, one of the fundamental sins of man.

On Wall Street, greed prevailed. Greed to earn ever more "instant cash" by taking on more and higher risks, greed to earn more commission by coming up with "innovative" products which, ironically, were doomed to fail. Horror stories emerged on Bloomberg about how some products were structured such that it would take 10 years of increased growth to earn the interest that was promised. How in the world did such products make it to market? Who would even pay one cent for such a product if this were made known?

The government should protect the "fraudulent" use of this word, especially on financial instruments, as it touches on an issue dear to all people's hearts. It is really saddening to hear of old people's retirement funds suddenly just wiped out in an instant without warning.

"Buyer beware" clauses should be removed so that the banks will sufficiently educate their sales personnel not to mislead customers into parting with their cash for a trashy product. Alternatively, these clauses could be in place if a proper course for the man-in-the-street were conducted, with proper certification from the authorities. Granted, this would lead to more regulation and red tape, but financial products are not necessities of life and can thus be done without. For that extra bit of profits, banks would need to work harder to give value to their customers.

In the end, governments might not want to take on that kind of risk because it simply puts the onus on them to be extra vigilant themselves. Especially in the US where class action suits are the norm, things may not be as simple as they first looked like.

*Taken from Bloomberg: Fuld Blames Lehman's Fall on Rumors, `Storm of Fear'
[http://bloomberg.com/apps/news?pid=20601087&sid=a8a9vKTJR7KY&refer=home]