Greece: Banks and Hedge Funds must watch out

The present crisis in and about Greece may look like a god-sent opportunity to make money but banks and hedge funds must be careful not to take too high a profile. Speculation against the Euro and Greece may well backfire if it turbo-charges downward pressure on the Euro and Greek bonds. The days when speculation was a cottage industry and could be ignored are long a thing of the past. Speculative moves do not reflect reality but they actually CREATE reality (a thankful nod to George Soros' theory of reflexifity). So this is not a harmless crap game but the lives of millions of citizens are at stake - and they will not tolerate for ever that a few make millions on the back of ordinary working people. Recent criticism (James Rickards in last week's Financial Times and today's Neue Zuercher Zeitung) pointed the finger at Goldman Sachs. But its competitors should not gloat but may well find themselves in the firing line as well. The New York Times points out that the same investment banks that now point the finger at Greek profligacy when they issue their research reports were more than willing to lead the country deeper into the debt trap. Can you really have it both ways? Even with the help of God?

Bank Tax: Brown barking up the wrong tree

When statists sniff an opportunity to extract more tax from their subjects they usually find an excuse quite quickly. Gordon Brown certainly thinks that the solution to all of our problems is to invent a new tax. So it is no wonder that taxing banks is his solution to the global credit crunch. How that is supposed to absolve us from problems such as excessive borrowing, mismatch of maturities in balance sheets or simply bad lending is not explained to the public. In addition we have to expect the worst when it comes to disposal of the loot: will the tax money end up in some sort of reserve fund? or is it a pay-as-you-go scheme like the national 'insurance' or unemployment 'insurance' schemes that we are so familiar with?

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.