What's the Difference Between Wall St. Banks and Used Car Salesmen?

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used car salesmanNobody expects someone selling them a used car to point out all of its flaws. And if you believe the salesperson who tells you that those pants look absolutely fabulous on you, you either have amazing self-esteem, or you're deluding yourself about what people will do to earn a commission.

So why should we expect Wall Street financial institutions to be any more trustworthy than the lemon-hawker down the street?

Many people are pointing at the latest controversy over Facebook (FB) as another egregious example of Wall Street excesses. Yet even with a Reuters report saying that Morgan Stanley (MS), JPMorgan Chase (JPM), and Goldman Sachs (GS) secretly reduced their estimates of the social media giant's future revenues in the last days before the companies helped underwrite Facebook's IPO, you shouldn't be shocked. Rather, you should simply realize that you can't trust investment sellers any more than you can trust a used car dealer.

Here's how the Wall Street brain thinks

Put yourself in the shoes of a big Wall Street firm: You're getting a huge fee to sell the most popular IPO in history. Everyone is clamoring for as many shares as they can get.

But at the last minute -- long after everything should be set in stone -- some bad news comes out on the company doing the IPO. It's released in a public SEC filing, but you know many buyers won't read long legal documents. After doing some research, your investment analysts say that their past impression of the company was too optimistic.

Now on one hand, you represent the company and want to get as much money from the IPO as you can. But some of your best clients want to buy shares, and you don't want them to get burned. So you start calling them to tell them about the news and your research.

Only after the IPO do ordinary investors learn about the ramifications of the company's bad news.



Trust no one

Ideally, the company shouldn't have waited until the last minute to give its bad news. In a perfect world, the underwriter should have told everyone about its findings -- at the same time.

But consumer protection laws notwithstanding, the only real way to protect yourself is to trust no one completely and remain skeptical up to the bitter end before you make any major purchase. Unless you can independently confirm everything someone tells you -- whether you're buying a car or making an investment -- don't put a single penny of your money at risk.

You can follow Motley Fool contributor Dan Caplinger on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Goldman Sachs.


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12 Comments

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Hello, Karen

"Rather, you should simply realize that you can't trust investment sellers any more than you can trust a used car dealer."
Really? Then why would I choose to do any investment on Wall Street ever? I can take my money somewhere else and know that it is safe. It may turn out the only really safe place is in a shoe box in my attic, but at least I knoknow I will have it when I need it.

May 25 2012 at 8:56 AM Report abuse -1 rate up rate down Reply
scherfy42

And I hope you put your lame ass in the picture you present. What a croc.

May 24 2012 at 4:11 PM Report abuse +1 rate up rate down Reply
Boots

Kills me how some posters bicker back and forth about Obama and Bush, news flash! Do you guys really think the President is in anyway shape or form running this country? NOT Big anonomous money powers run this world, the rest of us 99.999 percent of the population are their suckers... thats the world we live in now.

May 24 2012 at 2:12 PM Report abuse -1 rate up rate down Reply
Maverick

Used car salesmen are not usually filthy rich

May 24 2012 at 11:14 AM Report abuse rate up rate down Reply
ha6ai

How's that "hopey-changy" thing workin' out for you?

So maybe from here on its "fOrward" (well actually, more of the same: dOwnward).

May 24 2012 at 3:18 AM Report abuse +4 rate up rate down Reply
1 reply to ha6ai's comment
PeekachewsRevenj

Dude get over it. Four more years comin' too.
Put away the white hoody, and get a life.
Oh yea, stop pinching your sister's ars while
your at it, and go find a woman that your not
related to.

May 24 2012 at 5:18 AM Report abuse -3 rate up rate down Reply
ha6ai

What's the difference between Obama and a used car salesman?

Answer: your confusing a used car with a bridge.

May 24 2012 at 3:16 AM Report abuse +2 rate up rate down Reply
captsunshine2

Those spy cameras along the highways and city streets keeping track of the average citizens whereabout should be used to monitor bank CEOs and used car sailsmen to find the differences.
Better yet, get rid of those cameras and avoid resemblence to the Communists and Hitler dictatorships.
Bring back the freedoms to the U.S.A.. and let our ideals shine again, so all the world can see & admire.

May 23 2012 at 11:58 PM Report abuse +1 rate up rate down Reply
captsunshine2

Didn't know there was a difference.

May 23 2012 at 10:52 PM Report abuse rate up rate down Reply
jlcolo

The only difference between buying Facebook stock and a used car, is if you buy a used car with perhaps "150,000 miles left on it", you at least you have a tangible asset; scrap metal value in the worst case. If you buy Facebook stock you may end with an empty that has a lein on it. Your choice.

May 23 2012 at 6:27 PM Report abuse rate up rate down Reply
jdykbpl45

Used car salesmen are honest and upricht citizens

May 23 2012 at 5:40 PM Report abuse +3 rate up rate down Reply