Germany: Compliance Madness

It is well-known, that thanks to Karl Marx Germany 'gifted' Communism to the World. He may not have been the sole inventor of this creed but he certainly perfected a system that brought unhappiness to millions of people in its wake. Germany may not be considered to be at the cutting edge of the development of financial markets but the unreformed bureaucracy that holds the country in its grip certainly makes a meal of it when it comes to throw an -ever-tightening net of useless and costly controls over the activity of German citizens. Officialdom still lives in Kaiser's times when a citizen could truly be called an 'Untertan'. Little does it matter that the problems of German banks are mostly due to political interference in the Landesbank system that should have been abolished decades ago. Little does it matter that managements of certain private banks were making serious mistakes (and have in some cases been rewarded with princely retirement packages). But the bureaucrat's reaction is typical in as much as statism calls for ever-tighter prescriptive controls in order to 'improve' the system. Logic dictates that the end of this process is an ossified system that will at some stage resemble Cuba, North Korea or the former Soviet Union. Every step will be controlled, have to be submitted to approval by a 'commissar'. That the 'Elites' of Europe at this moment congratulate themselves (the utterly silly finance minister of France was seen to clap her hands at the signing ceremony) to have initiated another scheme to reward to undeserving (called EU 'Safety Net') is fitting testimony to the utter contempt they hold the subjects in their member states. It is offers little consolation that the situation is hardly any better in most other countries as governements seem to be in a concerted arms race to more control rather than proper reform of their economic and political systems. Unfortunately, the dominating system of 'pseudo-democracy' will allow the creation of more and more bad legislation. Only a system of direct democracy which we advocate will allow citizens to reign in unaccountable politicians and bureaucrats.

Banking: Maturity Mismatch continues

Reports about increasing levels of stress in bank funding should surprise no one. One of the key lessons - if not THE key lesson - of the Credit Crunch should have been that the Banking System was in need of a complete overhaul of the liability structure. Financing long-term assets and loans with shorter-dated liabilities may have worked in the days of sedate financial and economic structures in the period after WWII up to the 1980s. But an existence relying on hand-to-mouth feeding of liquidity from deposits that are for periods of days, weeks or even months was - and is - a recipe for disaster. Money Market Funds feed the illusion of liquidity on the asset side and are a further contributing factor to this asset-liability mismatch as is the enormous amount of commercial paper rolled over by companies as well as financial institutions. 

FSA behaves like a traffic warden

The FSA is a enough of a burden for the ordinary saver in this country. More than 4000 bureaucrats are well paid to push around paper and a corresponding army euphemistically called 'compliance officer' has to be fed on the other side of the fence . That those prosecuted face an inquisitorial regime becomes obvious from this case: like the victim of the traffic warden who faces extortionate costs if he does not immediately pay up the FSA's victims face the insult that they have to pay for ludicrously high prosecution 'costs' when the bureaucrats in their secure job (and without any proper accountability) are already paid their safe salaries by the taxpayer/saver. As in all legal cases in this country there are no proper checks on fee gauging as in other countries where the lawyer's fees are set in strict accordance to the amount of the claim.

Bank Chief: Savers should lose in bank failure

We tend to agree with Peter Sands, chief executive of Standard Chartered, who said "that people with savings above any sum guaranteed by law — £50,000 in the UK — should be hit with other providers of capital if a bank fails" (The Times). But we think that a small - but important - group that was left out in the proposals were the senior executives of the banks. Having their money at stake did not stop senior management of Bear Stearns and Lehman to run their companies into the ground but in this post-crunch area it would certainly be a useful addition to the armoury of regulators if managements would have more at stake than just their jobs in case a bank should get into trouble. Given the vast amounts of bonuses, share options and other perks the compensation beyond a reasonable basic salary should be mandatorily vested during their employment and for a minimum period after they leave the bank.

Dubai debt settlement leaves sour taste

With members states of the UAE sitting on reserves and investments worth hundreds of billions it is - to say the least- astounding that there is not enough money to pay off the contractors and creditors in one fell swoop. Do the 'authorities' think that this will increase their credibility (or do they need the money for urgent purchases of new race horses?). On a more serious note this is just another nail in the coffin of the internationalisation of bank lending. Closer to home the idea that lending to governments - at home or abroad - is a safe bet is being tested to the limit. It may well be a good idea to leave lending to governments to private and institutional investors. Why should it require the insertion of a bank balance sheet to fund government spending? This just increases balance sheet risk rather than remove it from the banking system. If governments become bankrupt the value of the outstanding bonds will decline in value and allow an orderly resolution of the situation via a reorganisation of debt.

Banks are still allowed to play in Private Equity?

The lack of banking reform becomes evident in the fact that Goldman Sachs is still able to play the private equity game with its own money.

Abacus CDO Deal: Moral Equivalency

It is surprising how many commentators see nothing wrong with the Paulson/Goldman Sachs Abacus CDO deal. We admit to disagree. In our business that kind of behavior would mean that we try to place a candidate we know is to be dodgy or helping to sell a business that suffers from substantial deficiencies. Thanks to our loyal clients we are in the fortunate position not to be that desperate to make a buck!

Neo-Feudalism will kill London Financial Centre

News that the FSA has reputedly blocked the appointment of John Hyman by Nomura will send a chill through the UK's financial centre. As we predicted a short while ago, any self-respecting banking professional will think twice about moving to or staying in the City of London where he is subjected to an inquisition by faceless and unaccountable bureaucrats who in all likelihood are less qualified than the people they are supposed to vet. Box-ticking and political correctness will be at a premium and who knows - the old-boy network, titles and knowing the right people will also help applicants. The right kind of leadership is essential to the success of any organisation and this vetting system will insure that over time the quality of leadership in the City will be on a downward trajectory. Hong Kong, Singapore and New York will love this!

Financial Non-Reform in the US

Should one laugh or cry? The solons have given birth to a mouse, some will love it, but who will have the last laugh?

SEC: non-report on 1000 point drop in Dow Jones

After a weekend of heavy-duty gardening your correspondent is back to the real world. This comment on the SEC's effort to bring light into the precipitous 1000 Dow point decline on May 6 caught our eye: "If the SEC were charged with writing a report on the causes of the New Orleans flood, it would provide a hundred pages telling us how many cubic meters of water there were, how many molecules of oxygen and hydrogen the water contained, and plenty of assurances that water is usually good for the health, but it would forget to mention hurricane Katrina and the broken levy." (Mark Mitchell on www.deepcapture.com). We could not have described the lame response of the 'regulators' much more accurately. Thank God the 'accident' happened in the USA as a similar incident in London would have led to the creation of a 'Royal Commission of Inquiry' at the cost of millions of pounds in lawyer's fees.