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Wall Street pros talk banking industry at finance summit

Even for veterans of high finance, the murky world of Wall Street can look like a complicated tangle.

Finding what went wrong in the recent financial meltdown — and finding ways to make sure those errors never happen again — will not be easy. Securities expert Ted Weisberg said that often times, faults are spotted in hindsight. Working in the present, when securities and markets are so tightly connected, is far more difficult, he said.

Weisberg and Sandy Weill, chairman emeritus of Citigroup, spoke at the Reiman School of Finance’s April 29 forum, “The Future of Our Financial Institutions and Markets.”

Weisberg (BSBA finance ’62), founder and president of Seaport Securities, has been a frequent guest on Fox, Bloomberg, CBS, Reuters, NPR, and TV networks in Australia, Germany and China. 

Weill served as Citigroup CEO until 2003 and as chairman until 2006. He also has served on the boards of AT&T Corp., United Technologies Corp. and E.I. Du Pont Nemours and Company.  He received the CEO-of-the-Year Award from Chief Executive magazine in 2002 and a corporate leadership award from the EastWest Institute in 2005.

Weisberg described the intricacy of financial institutions and the regulations they face.

 “Wall Street today has become extremely complex” he said, noting examinations of the financial world often lead to more questions than answers.

Weisberg described financial institutions using the engineering term “tight coupling,” meaning that all parts of the company must work together. When one section fails, it can lead to a total breakdown of the entire system. It is easier to see failures in hindsight, Weisberg said, because the complexity of the system can lead to unforeseen problems.

 “Reduce the complexity in the first place,” he suggested, “rather than add more rules after the fact.” 

Weill’s speech focused on the ways in which financial institutions went wrong. Institutions such as AIG, he said, didn’t have enough transparency. This allowed them to engage in risky behavior, such as credit default swaps they could not afford and giving credit to customers they knew could not pay them back.

Weill’s suggestions for improving the financial world included keeping the banking industry competitive and to ensure that institutions are not given higher ratings than they deserve.

Weill’s parting piece of advice for moving through complex financial waters: “If you don’t understand it, don’t do it.” 

The Reiman School of Finance, which is part of DU’s Daniels College of Business, hosts finance forums during the fall, winter and spring quarters. The next forum will be in October or November.

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