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Stewardship
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Stewardship

Lessons Learned from the Lost Culture of Wall Street

John G. Taft
Wiley, 2012
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8

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Recommendation

Why did the 2008 financial crisis occur? What steps must regulators and banks take to avoid similar disasters in the future? And how can individual investors protect themselves? Securities industry leader John G. Taft provides some thought-provoking answers to these questions and more. As the CEO of one of the US’s largest full-service investment, advisory and wealth management firms and as a chairman of the Securities Industry and Financial Markets Association, Taft offers an insider view. His position lends authoritative heft to his admonition to Wall Street: Make stewardship of your clients’ interests your primary mission. By extension, he exhorts everyone to take responsibility for safeguarding the Earth’s future. Though Taft’s treatise is, in some ways, a fiduciary reiteration of familiar, sound advice – be nice to everybody – getAbstract recommends his thoughtful, knowledgeable and impassioned appeal for professional and personal accountability. It’s a call to arms no one can afford to ignore.

Summary

Stewardship in Crisis

On September 16, 2008, the popular Reserve Primary Fund “broke the buck” – which means it became unable to pay its subscribers $1 for every $1 of their investments. Although certainly not the largest money market fund, the $62 billion Reserve Primary Fund had enjoyed an excellent reputation as a safe, sound investment. Its failure set off a worldwide crisis within global short-term credit markets. Such markets are vital to corporations, which depend on short-term credit to maintain solvency and ensure liquidity.

The Reserve Primary Fund fell abruptly into major trouble because it had bought $785 million in commercial paper (“short-term debt that companies use to finance day-to-day operations”) from Lehman Brothers Holdings, which had just declared bankruptcy. Lehman’s commercial paper became worthless overnight. As news emerged that the Reserve Primary Fund was suddenly impaired, hundreds of thousands of panicky investors tried to retrieve their money. In response, the fund suspended all redemptions; it was as if a bank experiencing a run had just shut its doors.

Soon after this, Reserve Primary Fund executive Bruce Bent Sr. approached ...

About the Author

John G. Taft is the CEO of RBC Wealth Management in the US and served as chairman of the Securities Industry and Financial Markets Association. He is the grandson of former US senator Robert Taft and the great-grandson of US president William Howard Taft.

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