USA: desperate search to increase tax revenue

It is ironic that in a week when the helpless US Treasury Secretary Tim Geithner pens a letter complaining about presumed unfair treatment of US alternative investment funds in the EU the US passes a law ('Foreign Tax Compliance Act') that forces all non-US financial institutions to report their dealings with US citizens. Against the background of a dysfunctional Congress and an administration that is spending money like a drunken sailor this desperate measure should not come as a surprise. The underlying philosophy is that a citizens' money really belongs to the state and it is up to the politicians to spend it. We do not expect the authorities to give a clear 'Njet' to this effort to extend the reach of US legislation one step further into other sovereign countries but it will do nothing to make it any easier for the US to fund its deficit in the future. Already some institutions have decided not to have any financial dealings in or with the US and as the next step may well be that the USA tries to help themselves to the wealth of non-US citizens we would advise investors to sponsor fund managers that take precautions for that eventuality.

AIG: Compensation Policy in Disarray

News that Peter Hancock is joining AIG with a compensation package worth up to $ 7.5 mio per year drives another nail through the credibility of the Obama administrations attempts to control pay in the financial sector - and in particular in the companies dependent on government support.

Michael Mayo Testimony - Financial Crisis Inquiry Commission January 2010

Nobody has the time to read everything of relevance - but occasionally we like to the highlight little gems such as Michael Mayo's testimony to the Financial Crisis Inquiry Commission.

The Fed CAN monitor systemic risks

A senior fellow at the American Enterprise Institute argues that the Fed cannot monitor systemic risk as that would be tantamount to ask a thief to police himself. Without going into the details of his argument several aspects come to mind that would negate this judgement: until now the mandate of the Fed was not strongly focused on playing the role of a regulator of the financial markets and system. Instead, price stability and economic growth were given priority if not exclusive attention. That mistakes were made in this department cannot be denied (and they are partly due to the mixed message sent by the duality of the set targets). But that does not mean that the Fed could not be more effective if it is empowered to be a more forceful regulator. We would also hope that the Fed does not only monitor risk but will have the tools to prevent them in good time.

Regulators too close to Lobbies

Reading that Jay Levine, the former head of Royal Bank of Scotland's US Capital Markets Business, has made substantial donations to Chris Dodd, the head of the US Senate Banking Committee, makes one wonder who is more at fault. Accepting money from someone who you are supposed to police must be as questionable as channelling money into the coffers of your regulators. (Sunday Times, 8 Feb 2009)

London vs. New York - A Tale of two Cities

We do not think that the ascendancy of London as a financial centre to rival - and even overtake - New York should surprise anyone. The issue of overregulation in the US may be a factor but sheer demographic realities make it difficult for New York to maintain its position as undisputed leader among financial centres. This position was a legacy of two world wars and now that Europe is not cut in half by the Iron Curtain London is the natural financial centre for a region with a population of 600 million inhabitants. London is also geographically much closer to the Middle East and Africa and even Latin America is not that much farther away from London than from New York. London also offers a much more diverse workforce than New York as it is close to a multitude of different countries whose languages are regularly needed to conduct business effectively around the world.