EU Alternative Asset Management Regulation

The present plan to regulate the alternative asset management industry in the EU suffers from a number of serious deficiencies: Number one is the lack of a definition of the problem that it is supposed to solve. If there is no problem it is quite tough to design a proper regulatory regime. As far as we can see, apart from the usual rant from social engineers to the left (but also the authoritarians on the right) of the political divide there has not been a convincing proof that hedge funds or private equity funds pose a serious problem to anyone individually or to 'society' in general. So we are left with a legislative 'free-for-all' that gives underemployed and overpaid bureaucrats that represent no one but themselves (and their prejudices) carte blanche to cook up more schemes to make it difficult for ordinary citizens to make a living. As there is no clearly defined problem in the first place it is impossible to pass judgement whether or not the proposed measures are appropriate - an ideal world for the legislators as no one can call them to account or do a cost-benefit analysis of the proposed legislation. (As if anyone would to that in Brussels or any other capital). On the most basic level a major criticism has to be that it is not sensible to regulate hedge funds and private equity funds in the same law. They are similar in nature but it takes a bit of experience to understand that they are two very different animals. We rest our case as it is impossible to convince the average EU bureaucrat that he is barking up the wrong tree. Better to prepare for the wholesale decampment of the alternative investing industry to friendlier shores!

UK: is regulation 'clinically insane'?

The regulation may not be clinically insane (as per Jon Moulton) but it certainly requires a special individual to be able to find one's way through the thousand plus pages of the assorted rules and regulations passed by the FSA. One wonders how many of its staff would pass an exam that tests them about detailed knowledge of all the rules, - we would take bets that the present chairman would not be able to pass the exam. We do not even want to get into the question of democratic accountability as the British Parliament is not fit for the purpose it is designed for. There is no 'talk' (french: parler) as the stooges peopling its benches are basically told what to nod through by the government.

Capital Ratios still at pathetic levels!

There is still more talk than action in banking reform. Volcker rule, Basel III, contingent capital - all these buzzwords are worthless if nothing gets implemented at some stage. News of generous bonus pools give the impression that all is back to normal in the banking world but when we had a look at the capital ratios of some large banks we were genuinely surprised - if not shocked - about the abysmal capital ratios that some of them reveal. Balance sheet totals seem to expand and the simple ratio of pure equity is in the low single-digits, and falling!

Santander to float Bradford & Bingley?

It is just a bit over one year that the shareholders of B&B got expropriated by the British Government and saw control of the business handed over to Banco Santander shortly afterwards. So it may ruffle a few feathers among the investor community if there is talk that Banco Santander may float a stake in Bradford & Bingley or some other holdings in the UK on the public markets here. While Santander appears to be the laughing third party in this sorry affair one would hope that the effort of the previous owners of B&B to get satisfaction in the courts gets a boost from this slap in their face. After all, the situation at B&B cannot have been all that bad. Forensic accountants to the fore! And what about all that talk about 'Human Rights'?

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.

Apology to Wall Street

Just how strong the Anti-Wall Street feeling is can be seen from this article on - of all places - Marketwatch. Is it not time that someone listens? (or is everyone AWOL in Davos?)

Austria: Back to the Past

Austria demonstrates that political control of banking institutions by no means assures that banks are managed in a responsible fashion. Numerous banking problems during the past 30 years (Laenderbank, Bawag, Kommunalkredit, Bank Burgenland) prove this point. The most recent example of a bank that was the plaything of politicians and got into trouble while the regulators turned a blind eye is the Hypo-Alpe-Adria Group in the southern province of Carinthia. The bank had to be rescued by the Federal Government in December 2009 and to cap it all two members of the political establishment have now been appointed to the supervisory board. Plus ca change....

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.

Banking Reform - 2009 a year of lost chances

News that the former CEO of AIG, Hank Greenberg, is trying to have the regulators and politicians look into the circumstances of the bailout of AIG in the autumn of 2008 is just one symptom that the after-effects of the 2008 banking crisis will be with us for quite some time. Most of the ongoing problems can be traced back to the fact that bail-outs were executed in an arbitrary fashion devoid of any principle and in addition there was no democratic oversight. At least the citizens of Iceland have a say in the (non)payment of the bailout money they are asked to contribute to. In the past year there has been zero progress towards creating a banking system that does not explicitly or implicitly rely on future bailouts by the taxpayers. We are not confident that 2010 will bring more progress.

Productive vs Unproductive Lending

Interesting comment by Bob Prechter about US Banks growing lending to consumers at the expense of lending to business.