Carl Icahn Issues Warning; CDSs Were Extremely Risky The Way They Were Used (CNBC)

On CNBC last night, after the Ira Sohn conference, hedge fund manager and shareholder activist Carl Icahn warned there could be another "problem" because nothing has changed inside these investment banks [video after the jump].
"I do think though that there could be another major problem. Now, will it happen next week? Next year? I don't know, and certainly nobody knows. But I don't think the system is working properly. I really find it amazing that we're almost back to where it was, where there's so much leverage going on in the investment banks today. There's just way too much leverage and way too much risk-taking with other people's money."

"I know a lot of my friends on Wall Street will hate my saying this, but the Glass–Steagall thing, or something like it, wasn't a bad thing. In other words, a bank should be a bank. Investment bankers should be an investment banker. Investment bankers serve a purpose, their purpose is raising capital and whatever, but I think today, and i know a lot of people won't like hearing this, what's going on today I think we're going back in the same trap; and I will tell you that very few people understood how toxic and how risky those derivatives were. CDSs were extremely risky the way they were used, and you know, you look at Wall Street and say, hey, they did it, but then you can't really blame the Wall Street guys. You can't blame a tiger. If you take a fierce man-eating tiger and put him in with a lot of sheep, you can't blame the tiger for eating the sheep, that's his nature. And that's the nature of Wall Street guys."

Ok, I think I get it. Wall Street guys are the tigers, and American taxpayers are the sheep for bailing them out? Remember, Wall Street should have gone down with the sheep they slaughtered.

I still don't understand why investment banks haven't been disrupted by the internet and social networking yet. These i-banks obviously do not provide value in current form; well maybe for hedge funds and institutional clients that get to play in their illiquid markets (retail investors are accredited enough to blow their money on fraudulent penny stocks but not able to buy the ABX Index (credit default swaps on pools of subprime mortgage backed securities) alongside hedge fund manager John Paulson who made billions LOL, read more). Electronic investment banking has to be a trillion dollar opportunity for an internet venture capitalist. SecondMarket and (on the consumer side) are kind of making moves in this space. The problem is the existing financial infrastructure is still in place which isn't transparent and permanently misprices risk in the system. Plus the incentive structures and the assembly line of fraud at these banks, and this preposterous "accredited investor" rule, makes the problem even worse. Read my post on July 10, 2010: Accredited Investor Rule is Nonsense (Exposed in 2008), Knock Down Existing Financial Infrastructure.

Source: Carl Icahn Issues Warning (

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