A good first move, but almost a year late.
It still remains to be seen if it can pass with any teeth in it through a deeply conflicted and compromised Congress. The devil is in the details, loopholes, and exceptions.
Allowing the banks to speculate for their own accounts in the markets inexorably intermingles their risks with those of the broader financial system. It is also a tilt to the playing field to allow these market makers with access to proprietary information, very favorable positioning with the exchanges, and the Fed discount window and special programs to sit at the same table with other investors and funds.
This is so basic a move that one has to wonder why Obama waited so long to propose it. Or rather to listen to Paul Volcker who has been advising it, and largely unheeded.
Goldman and perhaps Morgan Stanley will give up the charade of commercial banking to become a full time investment bank, aka hedge fund, again. One positive outcome is that the next time they get into trouble they are on their own. And given their blind greed it won't be all that long before they do.
It is nice to see Paul Volcker gaining a voice in an administration dominated by Wall Street sychophants.
Let the threats, whining, tales of doom, financial media spin, and an army of lobbyists now go forth from Wall Street to try and stop this very basic reform.
It's a beginning. Barney Frank is already talking about putting a five year transition period on the change. Ludicrous really considering the banks that just grabbed their charters. Barney is part of the problem. A bigger part than most people probably suspect.
A good next step would be fire Larry Summers and Tim Geithner, and to permit Bernanke to gracefully step aside and go back to grading term papers. Obama needs to nominate someone with a stronger practical experience profile in that job. Volcker could do quite well.
National Post
Wall Street reels over plan to ban prop trading
Jeff Mason and Kevin Drawbaugh, Reuters
January 21, 2010
WASHINGTON -- President Barack Obama proposed stricter limits on financial institutions' risk-taking Thursday in a new populist-tinged move that sent bank shares tumbling and aimed to shore up the president's political base.
Mr. Obama, a Democrat who is just starting his second year in office, laid out rules to prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
He also called for a new cap on the size of banks in relation to the overall financial sector that would take into account not only bank deposits, which are already capped, but also liabilities and other non-deposit funding sources.
"We should no longer allow banks to stray too far from their central mission of serving their customers," Mr. Obama told reporters, flanked by his top economic advisors and lawmakers.
"Too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward."
The rules, which must be agreed by Congress, would also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.
Proprietary trading involves a firm making bets on financial markets with its own money, rather than executing a trade for a client. These expert trading operations, which can bet on stocks and other financial instruments to rise or fall, have been enormously profitable for the banks but also increase market volatility.
The White House blames the practice for helping to nearly bring down the U.S. financial system in 2008.
Mr. Obama's move is the latest in a series to crack down on banks and comes as he reels from a devastating political loss for his Democratic Party in Massachusetts on Tuesday, when a Republican captured a U.S. senate seat formerly held by the late Democratic senator Edward Kennedy.
Bank shares slid and the dollar fell against other currencies after Mr. Obama's announcement.
JPMorgan Chase & Co fell 5.8%, helping push the Dow Jones Industrial average lower.
Citigroup Inc fell 6.36% and Bank of America Corp fell 7% while Goldman was down 5.5% despite posting strong earnings Thursday.
"This is going to have a tremendous impact on big-name brokerage firms like Goldman Sachs and JPMorgan," said Ralph Fogel, investment strategist at Fogel Neale Partners in New York.
"If they stop prop trading, it will not only dry up liquidity in the market, but it will change the whole structure of Wall Street, of the whole trading community."
Mr. Obama targeted banks for taking big risks while assuming taxpayers would bail them out if they failed.
"When banks benefit from the safety net that taxpayers provide, which includes lower-cost capital, it is not appropriate for them to turn around and use that cheap money to trade for profit," Mr. Obama said.
"That is especially true when this kind of trading often puts banks in direct conflict with their customers' interests," he said.
Before the announcement, Mr. Obama met with Paul Volcker, the former Federal Reserve chairman who heads his economic recovery advisory board and who favors putting curbs on big financial firms to limit their ability to do harm.
The House approved a sweeping financial regulation reform bill on Dec. 11.
The House bill contains a provision that empowers regulators to restrict proprietary trading by financial firms subjected to stricter oversight because they are judged to pose a risk to the stability of the financial system.
The Senate has not yet acted on the matter, but the Senate Banking Committee continues to seek bipartisan agreement on financial regulation reform.
21 January 2010
Obama Proposes to Restrain the Banks from Speculation
Employment Numbers Surge (at the New York Fed) To Manage Its Bank Subsidy Programs
It is good to see that the downturn in employment is being counteracted by robust hiring and promotion in the cost-plus, quasi-governmental, financial service sector, or more specifically, a bull market in central banks managing subidies to the banking sector.
It appears that this flurry of promotions and hiring is for the new group that will oversee the bank's investments in Maiden Lane III and of course, AIG.
Ah, to be employed in a cost plus monopoly. What a sinecure.
NY Fed
New York Fed Creates New Group and Names Sarah J. Dahlgren Executive Vice President and Head of Group
January 21, 2010
NEW YORK—William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York, announced today the formation of a new Special Investments Management Group. The Bank’s board of directors promoted Sarah J. Dahlgren to executive vice president and named her as head of the new group. She will also become a member of the Bank’s Management Committee.
This move represents an additional enhancement to the Bank’s governance and risk management in light of the tremendous expansion of the Bank’s balance sheet over the past eighteen months by separating out the management of the new investments from the Bank’s financial risk management. Among the Group’s responsibilities will be managing the Bank’s credit extension to AIG and its Maiden Lane LLC portfolios.
Ms. Dahlgren has been the senior vice president in charge of the AIG relationship since September 2008. Prior to that, Ms. Dahlgren was responsible for the relationship management function in the Bank Supervision Group, with oversight responsibility for the Group’s portfolios of domestic and foreign banking organizations. Previously, Ms. Dahlgren was responsible for the Bank Supervision Group’s information technology and payments systems exam programs, as well as its Year 2000 readiness efforts....
NY Fed
New York Fed Names Seven Senior Vice Presidents and Ten Vice Presidents
January 21, 2010
NEW YORK – The Federal Reserve Bank of New York announced that its board of directors has approved the promotion of seven senior vice presidents and ten vice presidents.
NY Fed
New York Fed Names 11 Assistant Vice Presidents and 29 Officers
January 21, 2010
NEW YORK—The Federal Reserve Bank of New York announced that its board of directors has approved the promotion of eleven officers to assistant vice president and named twenty-nine new officers at the Bank.
20 January 2010
Morgan Paying Out 62% of Revenues in Bonuses and Pay While Average Families Face 'Years of Pain'
One has to wonder how much of that 'revenue' is merely the result of artificial mark to market accounting and prop desk speculation, and not real cash flow from commercial banking operations.
That is not the pay method for a bank. That's a hedge fund. And that would be all very well and good if they were a hedge fund and responsible for their own failures and successes, but they are obtaining the discount window and federal guarantees and subsidies from the taxpayers as though they were a commercial bank.
This highlights the problem with this 'trickle down' approach that characterizes neo-liberal stimulus versus the approach of, let's say, the Roosevelt administration, that of putting people to work and keeping their savings safe as the first priority.
The US and UK are packing the banks with public money to 'save the system.' Their hope seems to be that as the banks recover, they will start lending to the private sector again, and eventually this money will trickle down to the public as real wages generated by organic economic activity.
Another approach would have been to guarantee the people's savings in banks and Credit Unions, the cash value of insurance policies, and money market funds, up to let's say $2,000,000 per individual and $5,000,000 per couple.
Keeping the people whole, the government would have then been able to effectively place the banks in receivership as required, and work them through the resolution of their problems, handing out some stiff losses to shareholders and speculators and the debt-holders.
No mechanism to do this? They could have nationalized the banks temporarily with a single executive order, as readily as it took Hank Paulson and Tim to type up a ten page document to give away $700 billion. The guarantees on all savings and private investments would have prevented a panic from the public, but quite a few more bankers and hedge funds might have taken the hard results of their recklessness.
This would have placed all the bailout money in the hands of the people, who could have chosen where they wished to place it after the nationalization process as the banks were either shuttered or restored. We would have ended up with fewer big banks, but more regional banks with real depository bases.
As it is now, the money being given to the banks is being 'taxed' at a fairly stiff rate by the unreformed bonus system, and the problems are not being resolved, since the bankers have every incentive to keep the money and not write down their losses, which is the great lie in this 'profit' picture being spun for the bailouts.
This is not over, not by a long shot. And if the bankers keep taking 50+% of all the cash that touches their hands from the public subsidy, then what trickles down to the people won't accomplish anything. Years of zombie-like stagflation look to be the prognosis.
As Bank of England Governor Mervyn King said, "Families face years of pain...The patience of UK households is likely to be sorely tried over the next couple of years" as inflation cuts into their meager wages in order to pay for this. Families Face Years of Pain - UK Telegraph. Don't expect such honesty from the US Federal Reserve or the government. The realization of how bad stagflation is going to be will sift slowly down through the smug layers of the stuporati.
The economic hitmen and the corrupt politicians are taking their pay, and the people and their children and most likely grandchildren will be stuck with unpayable debts. Just like a third world nation, which is what the US will look like when they get done cutting health, infrastructure, education, and basic services to pay for this.
Daily Mail UK
Morgan Stanley ignores calls for restraint and doles out £8.8bn to bankers
By Simon Duke
20th January 2010
Wall Street giant Morgan Stanley has defied the growing calls for restraint after doling out huge rewards to its staff.
The salary and bonus pot at the bailed-out U.S. firm jumped 31per cent to £8.8billion last year (about $14.4 Billion), despite turning a profit of just £705million (about $1.15 billion) in 2009, it revealed today. An astonishing 62 per cent of revenues were set aside for pay - the highest level in at least a dozen years and nearly twice the 33 per cent level earmarked by rival JP Morgan.
Under Morgan Stanley's Premier League-style wage structure, an average employee will have banked £144,500 ($235,400) in salary and bonuses for their efforts last year. However, many of its high-flying traders and rain-makers will have 'earned' seven- and eight-figure pay days.
In 2008, the average Morgan Stanley worker took home £150,000. The company, which employs around 5,000 staff in the City, added 15,000 to its global workforce after buying the Smith Barney brokerage from ailing rival Citigroup.
The lavish payouts are likely to anger taxpayers on both sides of the Atlantic, who will have to pay for the cost of the mammoth banking bailout for many years to come.
President Barack Obama last week slammed the 'obscene' rewards dished out on Wall Street at a time when many 'continue to face real hardship in this recession'. The U.S. government is now planning to hit American banks with a punishing levy to help re-coup the estimated £72billion US taxpayers have lost from bailing out its financial industry.
New York-based Morgan Stanley was rescued from the edge of oblivion with a £6.1bn taxpayer handout in late 2008. Although it has since re-paid the loan, it still operates with an effective guarantee of the taxpayer.
Morgan Stanley's pay-outs came as rival Goldman Sachs prepared to publish its 2009 financial results tomorrow. Wall Street's most profitable firm is expected to reveal a dramatic bounce in the bank's profits thanks to the colossal economic packages implemented across the world.
The earnings bounce is expected to see Goldman raise its total pay pool to more than £12 billion. This equates to a pay and bonus of nearly £400,000 for each every worker of the firm, which employs around 5,500 people in London.
However, Goldman has delayed telling its staff how much they'll receive for their efforts in 2009 in the wake of Obama's planned raid on Wall Street.
