Single Capacity to protect counterparties - notes on Goldman/LIA dispute

Not a question of being smarter, though that may well be the case. It is a question of morality - or lack thereof. When firms are feted as being the 'most powerful' investment bank this may go into the head of staff and senior management. That success is only measured by the size of the pay packet shows that morality is unlikely to be top of the priorities in the organisation. The setup of financial markets invites problematic relationships between firms and their customers (client would be an inappropriate term though it is used ad nauseam by staffers). A lawyer is smarter than the average user of legal services, but only in this narrow field of expertise. No one would need a lawyer unless he has an informational advantage, i.e. knows the law better than the client (here the term can be applied with justification). Goldman and other financial service providers WILL know more than the client, that is their job. But the (moral) imperative is not to abuse this advantage. This particular case will make its way through the courts but it appears from the outside that the Libyans were in all likelihood even more in need of being protected as a client and not just considered a counterparty in an equal exchange. A system of single-capacity, splitting market making and 'advice' would go some way in preventing similar scenarios. It would not automatically eliminate conflicts of interest, maybe a code of practice for the protection of customers would also be appropriate. Self-styled 'Business principles' devised by the firms themselves are not sufficient.
Goldman Sachs profit on disputed LIA trades back in focus (Financial Times)

QE - should you laugh or cry?

More and more desperate calls for all-out QE in the Eurozone make me laugh and cry at the same time. Laugh because it is not very likely that the hoped-for revival of the economies in the weak member states of the zone will happen. One has to look at the micro-economic aspect of the problem: why would any business invest/hire just because the rate of borrowing has declined by some small fraction? Given high tax rates - and they are going up all the time, openly or in stealth fashion (think 'fees' and 'charges' by public bodies) it should be expected that the entrepreneurial class will cut back on its work load. Why not take it easy if the larger part (60, 70pct if one adds in tax on taxed income, i.e. VAT, stamp duties etc etc) of additional income is confiscated by a parasitic caste of politicians, bureaucrats and their favoured beneficiaries? And why would I cry? Because the chances that the march into ever-higher control of our lives via the permanent avalanche of ill-thought-out legislation and higher taxation/spending is not going to be reversed anytime soon.

Does Bini Smaghi pass the competency test?

Lorenzo Bini Smaghi may have many (too many?) fine qualifications, but he is basically an academic and bureaucrat who never in his life made a loan or traded a security. So it is not clear whether he would pass the newly-introduced tests that are now de rigueur under the UK 'senior persons regime'. It may well be that he would not want to undergo this water-boarding by anonymous and unaccountable regulators - understandably so as it is nothing but a new version of a black-balling that belongs to a long-gone area. But if he is seen as competent enough to supervise one of the largest banks in Europe one wonders what all the ink and paper worth on banking regulation has really been wasted for.
Regulators must check all senior bankers (Daily Telegraph)

Being a 'Global' Bank brings extra Risks

One has to wonder if being a 'Global' Bank is really an intelligent business proposition. It requires Superman/woman to manage far-flung empires and activities that can span more disciplines than any normal human can realistically be expected to fully understand. And a particular risk factor are differences in business culture that senior management - be it located in New York, London, Frankfurt, Zurich or Tokyo - can hardly be expected to appreciate to the extent that would be required. Deutsche Bank lending money to build another hotel/casino in Las Vegas? Citigroup lending money secured by warehouse receipts in Chinese Ports? An Austrian Bank lending money to a steel business in Russia? Do these activities make sense or would concentration on a geographical area one understands and is familiar with be more profitable in the long run?

Succession planning at Santander - an example to follow

Yesterday's announcement of the death of Emilio Botin, the man behind the immense growth of Banco Santander over the past decades, highlights the need to prepare for the smooth handover of leadership. While Santander may appear to be a special case - the succession is clarified on the next day - every business should be able to replace key personnel without delay. This applies not only to CEO roles but all managerial positions in the organisation. Internal promotions should be the rule as they boost morale and team spirit and usually are cheaper and quicker to realise.

Regulators know no shame when they are after taxpayer's money

European Commission to investigate possibility of levy to fund EIOPA (IPE)The EU is particulary shameless as there is no proper supervision by any real government and the pretend-parliament is just a resting place for party hacks.

7-Yr Bonus Clawback? You must be joking!

That is what a former Wimbledon Champion would probably say to the psychopathic politicians and regulators (including reckless Bank of England officials busy stealing from Savers). How anyone can be expected to work for seven long years and not be sure that the hard-earned money will be his for good is beyond me. Anyone contemplating a career in banking in the UK should have his head examined. Meanwhile our politicians are busy cleaning up the problems they or their predecessors created, safe in the knowledge that however big the waste of money they will NEVER be asked to compensate the taxpayer.

Why UK's new bonus regime could be the world's toughest (CNBC)

Regulatory Nightmare is here and now!

I quite often said that the control freaks in charge of our lives - i.e. psychopathic politicians - will not be satisfied with extending ever-more intrusive regulation into all aspects of society. In the realm of banking and finance that would mean that - in addition of the armies of 'compliance' staff that is an expensive millstone around the necks of savers and investors - there would ultimately have to be one 'Kommissar' next to each productive employee. Ultimately the whole economic system would atrophy under this burden - the direction is clear for anyone who has seen the 'success' of the Cuban economic model.
U.S. Seeks Eyes Inside Banks' Offices (Wall Street Journal)

European Bond Markets have come full Circle

A few years ago (2005) we warned that anyone continuing to hold Italian government bonds yielding a measly 15 basis points more then German Bunds would be reckless. Now it is time to put out the warning again. While conditions may not yet be as extreme as in those days it is only prudent to consider an exit and take what is effectively a free option. Unless you believe in full political and fiscal union in the Eurozone this prepares you for the next (inevitable?) economic and financial storm.

TLTRO - a can of worms

Last week's announcement by the head of the ECB, Don Draghi, that the Eurocrats will pump up to € 400 billion into a 'targetted' long-term refinancing operation immediately makes me curious about how exactly this new bureaucratic monster is supposed to operate.
Leaving aside the question whether or not this new confetti money will do much good to the real economy in the Eurozone area there is a number of problems even a cursory look at the scheme brings to mind. So when one member of the Commentariat calls the TLTRO the "Star of the Show" (Gilles Moec, Deutsche Bank) we would warn him to be less star-struck and more dispassionate. But maybe his employer really does need this shot in the arm (or gift from heaven, maybe that is the star Moec refers to)?
So I cannot wait for the full details to be published. A few critical points that need answers: Who shall be the beneficiaries of the additional lending? Giant Buy-out funds speculating on ever-rising share prices certainly will not be among them though there is a displacement effect as banks may well use the TLTRO money to fund one group of clients and therefore have more money available to property, buy-out groups and companies seeking to finance M+A deals.
And what exactly counts as a small (and possibly mid-sized) borrower? And who is going to monitor that the TLTRO money really goes into ADDITIONAL lending to this privileged group of clients. And what if most or all of the lending is done in 'stable' economies such as Germany or Austria?
One thing is certain - programs such as these will inevitably lead to additional jobs for the boys and increase the ever-expanding number of bureaucrats working for the ECB, the local Central Banks and favored 'Consultants' charging exorbitant fees that are ultimately paid by savers and taxpayers who as usual have no say in these dirigist extravaganzas.