Thursday, July 29, 2010

Let's All go to the Lobby

Show's over folks. Financial regulation has passed and been signed by President Obama. Basel III has had its teeth removed and its testicles cut off by the usual lobbyist-armed suspects. The (seemingly stress-free) stress tests for European banks have been and gone, with anxiety over European sovereign debt on hold until the summer holidays are over.  And Tony Hayward has been banished to Siberia just as BP's gusher in the Gulf is about to be sealed. Time to head for the lobby for a snack and to wait for previews of things to come.
Summer is the silly season in Europe, when the Brits, French, Germans and Italians head for the beaches. Those who stay in the nearly-deserted cities think up fun things to do like sailing regattas, horse racing or polo matches to keep them occupied. Little gets accomplished in the business world in August, and everyone accepts that normalcy will resume in September.
But wait - in America the wheels keep on spinning. I was shocked when I moved here to see that major conferences, press briefings and cocktail parties were scheduled in August. A good PR in London knows that there if there is no one around to attend you don't throw a party. I, of course, do not attend anything in August. My mindset is stuck in summer mode and it would seem sacrilege to do 'real work' in August.
But, because the wheels of American commerce do keep spinning I have to keep up with the news. So it was that I found, buried within thinly disguised political crap-stirring, an article from Fox Business News. It said that the SEC is now allowed to withhold information about its goofs - I mean investigations. This was a little clause hidden within the new financial regulation bill, apparently.  According to the New York Post: "A provision buried in the week-old law allows the Securities and Exchange Commission to deny any public request for information under the Freedom of Information Act, a time-honored tool that's exposed scores of scandals from Washington to Wall Street for the past 44 years."
Looking into it further the clause is said to strengthen an existing rule that enables the SEC to keep any information it receives from brokers and banks away from public access. Otherwise the brokers and banks wouldn't want to give the SEC anything. This makes sense. If your bank turns over confidential client trades to the regulator, Fox News (or I) should not be able to requisition those documents for a story. But we could, under the FOIA, so I wonder how many brokers and banks refused to turn over their records in the past.
After the May 6th flash crash it was obvious that the SEC and the CFTC were struggling to get the information necessary to investigate the causes. Was this because the industry participants were afraid of what would happen to them if they did? Clearly if a broker's client fat fingered a trade and the broker didn't catch it because it provides naked access then the broker would appear culpable. No broker wants the reputation of having loosey-goosey risk management practices. If a bank was 'making bets' against its clients' trading positions and it got caught by the SEC, then that bank would be very unhappy if it hit the press.
And now, with the inevitable deployment of some version of the Volcker Rule, if a broker dealer was running a book bigger than its client business required, it would be considered proprietary trading. Again, not something it wants anyone to know about.
If the SEC were staffed with highly experienced ex-traders, trading managers, risk managers and securities business lawyers I might have faith that they could sensitively handle these issues. To date, that has not been the case. Which leads me to believe that journalists probably should have the right to requisition relevant documents. I hate to agree with Fox News or the New York Post, but....

Thursday, July 15, 2010

Hands Off my Mental Health

The Economist Magazine reports this week that companies are no longer satisfied with coercing employees to get physically fit (mainly to save on insurance bills, not for any philanthropic reason) and are venturing into managing their mental health. Apparently this arises from "management gurus" who are discovering the "joys" of psychology.  I have never held much stock in management gurus, and the idea that they might be dabbling in psychobabble scares me. Especially here in America, where you are measured by the size of your smile and the eagerness of your greeting.
Personally, I do not want to be surrounded by a bunch of perky cheerleader types at work (or at all). In my experience, they waste time with gossip and meetings and rarely achieve very much of note. In fact, the Economist's article states that "history shows that misfits have contributed far more to creativity than perky optimists". I agree. Some of the most productive sales people and traders I have worked with were also the grumpiest. They barked and growled and got on with the job, leaving the cheerful (and often overly sensitive) wannabes in the dust. On the other hand, when you got the grumpy ones on their own for a drink or a meeting they were civil, informative and good fun.
Some of the worst time wasters I have known were the friendliest, chattiest people who wanted nothing more than to bend everyone's ears at meeting after meeting. Even now as a freelancer working from home I am often interrupted by bored fellow home-workers who want to wane away hours at the local coffee house gabbing. They can never understand why I am "always working".
So next time you see a grouchy curmudgeon at work, leave them alone to do their jobs. Do not bring in a psychologist or a management guru with a 'certificate' in pop psychology to examine their mental health. Instead be grateful that they are productive, hard-working employees.

Friday, July 2, 2010

Wall Street 1, Main Street nil

If ever there had been any question as to who runs the United States, it has been answered. Wall Street has once again run roughshod over Washington and Main Street by pulling the teeth out of the financial regulation bill, one by one.
The pressure from banks, hedge funds, lobbyists, CNBC, talk show hosts, and - it seems - the markets (which tend to puke conveniently whenever 'finreg' looms) wore Washington down. Although the bill made it through the House, the Senate now wants to sit on it and percolate (i.e. find a way to squirm out of more stuff) for a few extra days.
Standing up to Wall Street takes real guts. So it makes sense that the bill did not touch upon one of the biggest culprits in the financial crisis - bankers' compensation. That is a hornet's nest that even the bravest reformers dared not tackle. And it will be a miracle if the Volcker Rule makes it through unscathed.
The latest victory for the bulge bracket was to strong-arm Congress and the House to remove the $150bn bank levy, as well as the $19bn tax on large banks and hedge funds. The deciding voter, Massachusetts Senator Scott Brown, crumbled under pressure from his Republican leaders (presumably also from the not-insubstantial financial services constituency in Boston) causing him to flip-flop like a pro.
I am not saying that the levy or the tax, intended to help fund the next crisis, were great ideas. They were more of a sop to shut up protesters who didn't want another taxpayer-funded bailout. But these same protesters don't want banks to have to hold higher capital reserves to help cover their own losses, claiming this will stop them from lending to "Main Street".
Had anyone on Capitol Hill been reading the business press, they would have known ages ago that capital requirements are poised to become more stringent anyway due to Basel III. Capital reserves will be raised regardless of Wall Street's weeping and wailing and gnashing of teeth. (The Swiss are not known for bowing under pressure, especially from nosy Americans which want them to reveal their banking secrets.)
The time that passed since the crux of the crisis and the drafting of the bill dulled the urgency needed to propel the stiffer rules forward. The only fly in that ointment was the flash crash on May 6th, which threatened to derail the banks' anti-regulation rally. The violent moves brought Wall Street and high frequency trading back into the headlines and questions again arose about reckless trading practices.
Luckily for the banks the flash crash is now nearly forgotten by almost everyone except the SEC and CFTC, who are still scratching their heads as to how to do the forensics. The panacea of circuit breakers seems to have satisfied politicians enough that they can once again canoodle with their Wall Street lobbyists.
That circuit breakers were not mandated market-wide across ECNs and exchanges from the onset of Reg NMS is the mystery. Many blame the regulators for being asleep at the wheel, with the excuse that they have no money hence cannot hire the necessary expertise.
One contact at an exchange calls the new market structure "a monster created by Wall Street and Washington", who did not realize - or ignored - the repercussions. He believes that the regulators have no money and no teeth by design - to benefit a very influential constituency, i.e. Wall Street. Banks were behind the formulation of many ECNs, after all. And they pushed the exchanges to embrace automated trading and decimalization, so that their algorithms could do their work - making money and obfuscating regulators.
As Michael Lewis said in his column for Bloomberg: "The oath of the Financial Crisis Inquiry Commission, is: 'We pledge to find out, by the year 2050, what exactly happened on Wall Street in the early part of this century. We pledge to reform Wall Street. Or, failing that, to be taken seriously. Or, at a bare minimum, to attract a bit of media'." 
Media attention it got. Results, not so much.