Harvey Neiman is a graduate of university of California Santa Barbara, where he earned his bachelor’s degree in political science. He also attended the university of San Diego school law and received both his J.D., as well as an LLM degree in taxation from that institution later on in life. Harvey has had a diverse career path which included significant time spent with law firms before transitioning over to portfolio investment management positions at major financial institutions. 

Eventually, Harvey Neiman found himself in the position of heading up his own investment firm for a period of time. His combined experiences have now led him to where he is today, and those experiences will be explored in great detail within this article.

Harvey Neiman’s career history 

Mr. Neiman’s career history has provided him with an incredibly unique set of perspectives that pertain to the issues facing America’s financial industry today. His insights are invaluable as they may very well help everyday Americans better understand the true nature of the problems that we face in this country today. Mr. Neiman has spent years studying, researching and analyzing these topics and will be sharing his knowledge with marketplace liberty readers within this article series.

Marketplace liberty readers will be provided with a candid and honest look at the various aspects of America’s financial system that so many citizens know so little about. Mr. Neiman is not afraid to address any topic, regardless of how controversial it may be, as he has had to deal with these issues firsthand throughout his career through his work as both an investor and a financial services industry professional. 

It is our hope that this series of articles helps to bring these issues to the forefront in order for everyday citizens to fully understand their true nature and significance in terms of how they affect each and every one of us as Americans, as investors, and as responsible citizens who have an obligation to our fellow countrymen.

Marketplace liberty is now privileged to have Mr. Neiman bringing his unique insights to EViews readers through this ongoing article series. Be sure to check out the entire run of articles as we are confident that you will enjoy them and find them quite enlightening.

The state of finance in America

The United States financial system has been undergoing a crisis for the past few months. There are many solutions being proposed and many people look at root causes of this crisis. In my opinion much of the problem can be attributed to two primary reasons

Poor risk management systems. Lack of market discipline.

Insufficient risk management systems have played a major role in the credit crunch. The way risk management systems are supposed to work is that managers of financial institutions should set aside certain amount as reserves, so in case anything goes wrong they would have money to cover losses. This process is known as setting up a reserve or a “risk management.” however, it has been observed that banks were taking more and more risks with little or no regard to risk management. 

The reason for this behavior is the growth of their institutions, which was driven by fee-based business. In order to increase income, financial institutions engaged more in fee-based businesses such as derivatives trading and mortgage-backed securities. Thus, they have increased their risk-taking behavior. The real question is that how did the risk management systems fail to control this behavior?

Financial institutions had pressure from their investors to meet growth targets, which were measured by various ratios such as return on equity (roe), earning per share (eps) etc. So, managers started looking for ways of increasing income so they could meet targets. Risk management systems usually take time to understand and influence decision making process. 

So, managers found out ways of reducing risk taking behavior temporarily without worrying too much about risk management systems. One such way was by creating a sub-prime subsidiary, which would work only with the risky customers. This can be considered as setting up some sort of “risk aversion” temporarily to meet targets.

This was also true on a macro level in the US economy as well. The fed was increasing interest rates rapidly, which increased mortgage costs for many people at that time. Also, the interest rate volatility and supply of credit were both decreasing so it made sense to borrow money via mortgages and pay back later when the economy improves.

The story does not end here. The managers of financial institutions also found out a solution to problems created by risk taking behavior; that was the use of complex derivatives such as collateralized debt obligations (CDOs). CDOs allowed financial institutions to reduce their risk exposure in various ways by diversifying it immensely, increasing capital adequacy ratio, reducing capital requirements and many more.