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Wall Street’s Top Strategy: Besiege The Regulators

Posted by Larry Doyle on July 25, 2013 8:27 AM |

Everyday we hear of a new recommended strategy put forth by analysts on Wall Street.

Some of the supposed smartest people in the business recommend sector rotation strategies, others a new found pro-growth approach, still more prefer a style that accentuates value, and others investments that generate income.

There are seemingly as many strategies on Wall Street as there are strategists.

Of all the strategies put forth by Wall Street, though, what do you think is the top Wall Street strategy — not for you, the investor — but for the industry itself? I have no doubt as to the answer to this question.

The strategy that Wall Street is most keen in employing is one known as “besiege the regulators.” This strategy is closely aligned with that known as “pay off the politicians.”

While you may get inundated with materials on Wall Street’s voluminous aforementioned strategies, I am going to guess that you do not receive much material on the “besiege the regulator” strategy. No, we have to find the data on this strategy on our own. Let’s navigate and see just how hard Wall Street works on this key strategy.

Our friends at Corporate Counsel recently exposed the following:

Representatives of Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley & Co. are taking up the most space in the calendars of federal regulators tasked with implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to an open-government group’s (The Sunlight Foundation) new analysis, “What the banks’ three-year war on Dodd-Frank looks like.

Those financial institutions met with agency officials about the statute more often than any other organizations since Dodd-Frank became law in July 2010 in the wake of the 2008 financial crisis, the Sunlight Foundation report released on Monday shows. With 222 meetings, Goldman Sachs had the most conversations with regulators, followed by JPMorgan Chase with 207, and Morgan Stanley with 175.

Derivatives markets and products were the top topics of discussion for Goldman Sachs and Morgan Stanley, while the proposed Volcker Rule was JPMorgan Chase’s leading interest. The Volcker Rule, which has yet to go into effect, is intended to prohibit risky investments at banks.

“By most accounts, the banks’ besiege-the-regulators strategy has yielded rich rewards in sapping, slowing, and stymieing regulations intended to prevent another massive financial crisis,” Sunlight senior fellow Lee Drutman wrote on the foundation’s website. “The emerging consensus is that Dodd-Frank implementation is limping, while the big banks are poised to return to being the most profitable industry in the U.S.”

I am NOT a big believer that Wall Street and our economy simply need massive amounts of new regulations.

Regulation should not be a question of more or less regulation but rather the implementation of the right regulations that protect investors, consumers, and taxpayers while also promoting real economic growth. I am a big believer in that approach ALONG with the requisite enforcement of those regulations. We seemingly get little of either of these.

Do you think all these meetings being held with regulators — primarily the Federal Reserve — are properly representing the interests of investors, consumers, and taxpayers? NFW . . . but meanwhile we are fed a bill of goods by those charged with representing the public interest that Wall Street has been reformed.

Sure . . . and I have a bridge to sell you as well.

Navigate accordingly.

Larry Doyle

For those reading this via a syndicated outlet or receiving it via e-mail or another delivery, please visit my blog and comment on this piece of ‘sense on cents’.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Jack

    Simon Johnson writes on this topic this morning:

    Nearly five years after the worst financial crisis since the 1930’s, and three years after the enactment of the Dodd-Frank financial reforms in the United States, one question is on everyone’s mind: Why have we made so little progress?

    New rules have been promised, but very few have actually been implemented. There is not yet a “Volcker Rule” (limiting proprietary trading by banks), the rules for derivatives are still a work-in-progress, and money-market funds remain unreformed. Even worse, our biggest banks have become even larger. There is no sign that they have abandoned the incentive structure that encourages excessive risk-taking. And the great distortions from being “too big to fail” loom large over many economies.

    There are three possible explanations for what has gone wrong. One is that financial reform is inherently complicated. But, though many technical details need to be fleshed out, some of the world’s smartest people work in the relevant regulatory agencies. They are more than capable of writing and enforcing rules – that is, when this is what they are really asked to do.

    The second explanation focuses on conflict among agencies with overlapping jurisdictions, both within and across countries. Again, there is an element of truth to this; but we have also seen a great deal of coordination even on the most complex topics – such as how much equity big banks should have, or how the potential failure of such a firm should be handled.

    That leaves the final explanation: those in charge of financial reform really did not want to make rapid progress. In both the US and Europe, government leaders are gripped by one overriding fear: that their economies will slip back into recession – or worse.

    The big banks play on this fear, arguing that financial reform will cause them to become unprofitable and make them unable to lend, or that there will be some other dire unintended consequence. There has been a veritable avalanche of lobbying on this point, which has resulted in top officials moving slowly, for fear of damaging the economy.


  • fred


    Clearly, the Fed does not fulfill it’s roll as a public watchdog in performing it’s oversite responsibilities of the big banks. Where is the public outrage?

    As far as I can tell, there are 3 main issues, “too big to fail”, proprietary trading and asset valuation methodology. The argument that our “big banks” can’t compete globally is no longer valid therefore we should revisit the reimplentation of a “modified” Glass-Steagall rather than rewrite regulation into an unyieldy and corrupted Dodd-Frank.

    I believe “too big to fail” and primary dealership status should be one and the same, qualifying institutions should have FDIC status but be limited to participation in more traditional banking practices where proprietary trading is a non-issue; all the other “great pretenders” like GS, MS, JPM should be required to “man up” or lose their preferred status. FINRA should be disbanded immediately, self regulation is a joke, the SEC needs to do it’s job.

    The third issue, asset valuation methodology, should be a non issue that was decided upon long ago. The stress tests and mark to model are nothing but a big scam that is allowing banks to withdraw capital to pay dividends and bonuses. Why doesn’t the Fed, as a public watchdog agency, just use the more conservative model (market or model) to limit distributions by increasing reserve requirements? There really is no valid reason why bank earnings are spiralling higher at the same time balance sheets are still loaded with toxic assets.

    Why do we tolerate the continued expansion and deterioration in quality of the Feds balance sheet, the economy is improving isn’t it?

    Although I did not support her election to the U.S. Senate, I would prefer the appointment of Elizabeth Warren to the head post at the Fed or the SEC, at least the “tough questions” might become part of the public record for history someday to judge.

  • Peter Scannell

    Another significant besiegement facing our nation’s securities regulators today stunningly comes from a small sect of House Tea Party activist. And as I have said before, activist my ass – their singular agenda is to continue to enable the bad actors in the financial sector to rob mom and pop! An extraordinary betrayal – and the cabal’s constituents don’t have a clue.

    Hell’s bells.

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