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HomeBig Ben Will Leave His Credit Card So Wall Street Party Can Rock On
Posted by Larry Doyle on August 12th, 2009 11:10 AM |
It’s getting late but the party is going strong. The chaperone is growing weary and knows it is time for a graceful exit. The partygoers, however, are having so much fun; their youthful exuberance and enthusiasm is peaking after a difficult stretch. What is the next dance that will break out?
Welcome to the world of Wall Street and Washington, August 12, 2009. Today all eyes are on Ben Bernanke as the Federal Reserve wraps up their two-day meeting, with a Fed release at 2:15pm.
How will Ben thread the needle in the process of keeping the inflation hawks at bay while not spoiling the current Wall Street bash? ‘Fed-speak’ is carefully scripted and typically all encompassing. In so many words, Bernanke will highlight the progress made to date, while simultaneously invoking the need for continued support given underlying economic concerns.
From a practical standpoint, there is little doubt Bernanke will again reiterate his message of leaving the Fed Fund rates at 0-.25% for ‘an extended period.’ He will likely try to spin the expected end of the Fed’s quantitative easing program as purely a function of the ongoing economic recovery.
The concern, though, remains that Ben will let the party get overly rambunctious. Don’t think for a second that the Wall Street crowd is not already feeling ‘mighty good’ and ‘well lubricated’ looking forward to a quick return to those outsized bonuses thanks to Ben’s easy money policy.
In short, figuratively Ben will look to leave the festivities but will leave his credit card so the boys can rock on.
Where are the cops?
LD
Related Commentary:
Bernanke Promises to Keep ‘Punch Bowl’ Filled (July 21, 2009)
Fed May Recognize Faster Growth, Keep Rates ‘Exceptionally Low’
by Steve Matthews and Vivien Lou Chen
Bloomberg; August 12, 2009
Wall Street Wisdom: Andrew Lanyi
Posted by Larry Doyle on August 7th, 2009 4:23 PM |
Wall Street as an industry is very easily vilified. I panned it myself the other day. That said, there are a lot of great people on Wall Street just as there are great people in every industry.
On that note, I was moved by a story in this morning’s Wall Street Journal: A Survivor of Nazi Brutality Who Ascended Wall Street.
The individual profiled, Andrew Lanyi, clearly had a unique outlook on life and Wall Street. I am particularly impressed by his discipline, mentoring, and wisdom.
Do yourself the favor of reading this piece. Savor Mr. Lanyi’s life story like a fine wine. There are rich lessons here for all of us.
LD
Wall Street vs Main Street: The Great Divide Widens
Posted by Larry Doyle on August 4th, 2009 8:01 AM |
Please rank the following professions in terms of commanding respect:
1. used car salesmen
2. lawyers
3. Wall Street
4. dog catchers
5. burglars
6. politicians
Plenty could argue that dog catchers would command the most respect, with burglars a distant second. How so? At least you know exactly what their intentions are, admirable or not, and manage accordingly.
With all due respect to quality individuals in the other professions, those industries as a whole have always suffered from a very poor public perception.
Moving to the fully serious part of my writing this morning, I would venture to say that the chasm which has always existed between Wall Street and Main Street has never been wider and is widening by the day. How so?
I am being inundated regularly with comments and questions as to whether the market is truly representative of the fundamentals in the underlying economy. Others have asked me how an industry that is supposedly once again making sizable profits can shamelessly impose credit card rates of upwards of 30%!!
It is my sense that the American consumer and investor feels woefully neglected at this point in our country’s history. As such, I have little doubt that many people have exited the markets with the intention of NEVER returning.
I would not pretend that I can appreciate the level of anxiety and disgust of everybody in our country today, but I share your contempt for a crowd both in Washington and on Wall Street that has done little to nothing to protect your interests.
This contempt welled up this morning as I read The Wall Street Journal’s, Geithner Vents at Regulators as Overhaul Stumbles:
Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration’s faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.
The proposed regulatory revamp is one of President Barack Obama’s top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf.
While I could wax poetic on the topic of regulatory reform, I will abbreviate my remarks with a very succinct and direct statement: “THESE PEOPLE DON’T GET IT!”
The fact remains, “Future Financial Regulation: Not a Question of Sufficiency, but of Transparency and Integrity.”
Does the American public understand how thay have been abused by both their political and banking representatives? I strongly believe they are gaining a greater awareness of this phenomena every day.
In coming full circle, my respect rankings from top to bottom would be:
1. dog catcher
2. burglars (at least you know their intentions)
3. used car salesmen
4. lawyers
tie for 6th between politicians and Wall Street
How about you? Please share your thoughts and rankings!!
LD
Wall Street Compensation Collusion
Posted by Larry Doyle on July 30th, 2009 2:44 PM |
Gaining market intelligence is one thing. Colluding with market participants in business practices is an entirely different issue. The Wall Street compensation process has always operated dangerously close to that line, and would appear to have gone over it in 2008.
This potentially collusive practice is easily disguised in the midst of excessive profitability, but is blatantly obvious when revenues disappear. The Wall Street Journal highlights this practice in writing Banks Paid Big Bonuses as Profits Slid:
Several of the banks hit hardest by the economic downturn and those that got the most U.S. government aid nonetheless handed out huge bonuses to hundreds of employees last year, according to New York Attorney General Andrew Cuomo.
Many of the banks that took money from the U.S. Treasury Department’s Troubled Asset Relief Program had been saying they wanted to pay it back as soon as possible, largely because of restrictions put on compensation that came with the funds.
Many of the banks have already paid the money back, but some, such as Bank of America Corp. and Citigroup Inc., haven’t yet done so. Mr. Cuomo said his office has been investigating compensation at many of the banks, including the original nine banks that took TARP funds, over the past nine months. The study refers to 2008 bonuses — those that would have been paid before any of the banks repaid their government bailout money. (more…)
The Downfall of Kidder Peabody or Taking ‘the House’ to ‘the Cleaners’
Posted by Larry Doyle on July 28th, 2009 12:24 PM |
Some of the greatest financial heists in Wall Street history have been ‘inside jobs.’ What do I mean? Virtually every financial con on Wall Street has been predicated on the ability to control the flow of funds and information from the ‘back office.’
For this very reason, Federal Reserve rules now dictate mandatory two weeks of consecutive vacation for bank employees involved in the markets. Why? During that time period, compliance and control officials can check the books and records and make sure there are no illegal or illicit activities.
I am reminded of this rule in reading a Bloomberg report Kerviel Lawyer Says SocGen Knew of Trading Positions:
Jerome Kerviel, the trader blamed by Societe Generale SA for a 4.9 billion-euro ($7 billion) loss last year, told a French court that his superiors were aware of his activities.
Kerviel never tried to hide his trades and about 300 of the Paris-based bank’s employees would have been able to see his trading positions on his computer, Kerviel’s lawyer Olivier Metzner, said in an interview today. Metzner filed arguments to a Paris court countering prosecutors’ recommendation that Kerviel be tried for abuse of trust, falsifying documents and computer hacking. The filing repeats Kerviel’s long-held stance.
“In 2007, he was making money and they let him go on,” Metzner said. “In 2008, it all went bad, the machine was exposed, they unwound the positions in a panic and they created losses.”
The defense argument is the final step before a decision by investigating Judges Renaud Van Ruymbeke and Francoise Desset in September on whether Kerviel should be tried. The judicial inquiry began less than a week after Societe Generale disclosed the loss on Jan. 24, 2008, after selling Kerviel’s positions.
Societe Generale said Kerviel made trades without proper authorization and hid them with faked hedges.
“The bank wasn’t aware of the extent of Kerviel’s positions,” said Jean Veil, Societe Generale’s lawyer. “That’s been proven by reports by the financial police department, by stock market regulators and by the Banking Commission.”
Whether SocGen management knew of Kerviel’s trading activity or not is for the courts to determine. Either way, though, there was an enormous breakdown in risk management and internal controls.
During my career, the downfall of Kidder Peabody – a 130 year old firm – in 1994 was the greatest example of ‘taking the house’ to ‘the cleaners.’ How did this occur? A government bond trader by the name of Joe Jett figured out a scam to ‘arb his back office,’ meaning he gamed Kidder’s internal systems to create the illusion of hundreds of millions in profits. In the process of doing so, Jett’s trading book in his sector of the market ballooned to astronomical levels. (more…)
Wall Street 2009: Too Smart for Our Own Good?
Posted by Larry Doyle on July 28th, 2009 8:03 AM |
Did the world’s candlemakers openly rail against Thomas Edison and his development of the light bulb? I have to imagine those candlemakers weren’t all that happy at the time. Edison embodied the American spirit. Capitalism thrives on the entrepreneurial spirit. That spirit promotes competition and has propelled our economy, our country, and our world over the years.
Capitalism also thrives on honest, open, and fair markets. Major financial and economic scandals over the years have often centered on self-dealing, abuse of insider information, and some semblance of unfair trade. These practices often capture enormous profits for a period of time but ultimately they kill trade. Why? Profits are a function of increased productivity, increased margins, and increased market share. To the extent that questionable, if not unethical or illegal, business practices initially promote greater profitability at the expense of future business flows, the foundation of that business has serious flaws.
Welcome to the world of finance 2009. In one way, shape or form, we have seen increasingly abusive business practices coarse through our markets and economy over the last few decades. From questionable asset securitizations to various forms of electronic trading, the practitioners have often reaped initial windfall profits while enacting real long term damage. How and why does this happen?
Highly intelligent people who are not properly regulated will drive profits to levels which are initially euphoric but if not properly monitored and managed are ultimately fatal. How so? When market participants feel that playing fields are not open, level, free, and fair, they will take their bat, ball, and capital and go play elsewhere. In so many words, the best and the brightest who implement trade strategies and computer programs are often simply ‘too smart for their own good.’ This scenario repeats itself regularly! (more…)
Barney Frank: “…Now They’re Starting to Hate Me…”
Posted by Larry Doyle on July 1st, 2009 12:21 PM |
U.S. Rep. Barney Frank (D-MA), House Financial Services Committee Chairman
Barney Frank should not be so presumptuous to think that it is just “now” that a large percentage of America is starting to hate him. The displeasure, if not the contempt, for Barney and his minions who have run our country into the ground over the last twenty years is soaring!!
As the Wall Street Journal reports this morning, Finance Lobby Cuts Spending as Feds Targeted Wall Street:
Wall Street’s spending on efforts to influence policy making diminished at the start of this year as the image of financial institutions has suffered with lawmakers and the public. Some of the sector’s major advocate groups lost funding and staff. Their spending declined just as the administration was hammering out its proposal for the biggest reorganization of financial-market oversight since the 1930s, details of which the White House released last month.
Industry lobbyists met last week to craft a response to the White House’s draft regulatory overhaul, particularly its creation of a consumer-oriented regulator for financial products, which could force major changes in how financial instruments are created and marketed. Whether or not the industry can influence this top administration priority, now that the plan is in the hands of Congress, will be a big test of its remaining clout.
The gig is up!! (more…)
Turbo-Tim Takes ‘Indirect’ to a Whole New Level
Posted by Larry Doyle on June 25th, 2009 6:48 AM |
Is it too much to expect increased transparency and integrity in the Brave New World of the Uncle Sam economy? Don’t expect to get a ‘direct’ answer from Turbo-Tim Geithner. Why?
Geithner just redefined ‘indirect’ buying in our U.S. Treasury auction process without a hint that this major piece of information was even up for review. Let’s look deeper into this sleight of hand. The Wall Street Journal sheds a little bit of light on this development in, Is Foreign Demand as Solid as It Looks?
The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world’s central banks are still willing to help absorb the avalanche of supply, mightn’t be all that it seems.
When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.’s budget deficit.
But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.
Why is this development so meaningful? Very simply, as the United States deficit explodes and Treasury auctions skyrocket, our funding needs will increase accordingly.
With BRIC nations (Brazil, Russia, India and China) threatening to purchase fewer Treasuries – if not outright sell our debt going forward – we become ever more dependent on finding other outlets for our bonds. If ‘indirect’ buyers, that is foreign entities, purchase fewer Treasuries, then it is not a stretch to envision our interest rates moving higher to attract other buyers.
Rather than waiting for a potentially unpleasant development, Geithner appears to have proactively used some artifice in redefining ‘indirect’ buyers to include not only foreign entities but also domestic buyers who place orders to purchase Treasuries through a primary dealer.
By broadening the definition, Geithner and team are able to disguise the true level of foreign buying. When questioned on this redefinition, how did Tim respond?
Treasury officials didn’t respond to requests for comment.
So much for increased transparency and integrity. Why should we be surprised? Although healthy markets love transparency and integrity, tax cheats are not typically fond of these principles.
LD
Wall Street Plays Washington
Posted by Larry Doyle on July 7th, 2009 5:15 PM |
Politicians and bankers work the stage while the media maitre’d pretends to care how you really feel. Ultimately, the curtain goes down, the lights go on and you’re stuck with a bill that leaves you aghast.
Welcome to the Brave New World of the Uncle Sam economy 2009.
Today Bloomberg releases news that Delinquencies on U.S. Home-Equity Loans Reach Record:
The ABA is not exactly timely with this news in regard to home equity lines of credit; Sense on Cents shared similar color on May 20th in “Bank Stress Tests: Vigorous or Sham? Let’s Review HELOC Losses”:
This brings us to the topic of losses within the banking system and the integrity of the Bank Stress Tests. The Wall Street banks were more than happy to “put on a show” with Secretary Geithner leading the orchestra and the FASB in a supporting role given their relaxation of the mark-to-market. Now we get to revisit the fact that banks are still sitting on hundreds of billions in embedded losses. (more…)
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