Summit Notebook
Exclusive outtakes from industry leaders
Angelides: People make mistakes, take Alan Greenspan and Captain of Titanic
Phil Angelides, Financial Crisis Inquiry Commission chairman, says he’d rather see some taking of responsibility than hear another “I’m sorry.”
“Personally I don’t see my role as … to obtain apologies. What I don’t hear is a sense of responsibility and self-assessment about what occurred. There seems to be a disconnect between the practices that people undertook and the financial collapse,” he said at the Reuters Global Financial Regulation Summit.
“I’m struck by the extent to which all fingers point away generally from the person testifying,” Angelides said.
And it’s not just Wall Street executives that he’s talking about.
“When Alan Greenspan came in front of us he said he’d been 70 percent right, 30 percent wrong. Well, you know, the captain of the Titanic was probably 99 percent right and one percent wrong. It’s the enormity of the mistake that matters,” he said.
(He is of course referring to the former chairman of the Federal Reserve who could do no wrong until the financial crisis hit, sinking his star along with the markets).
Was Greenspan asleep at the wheel?
Where disaster and compensation intersect you’ll find Kenneth Feinberg
You can call him mediator, or you can call him negotiator, but don’t call him pay czar.
Kenneth Feinberg says he doesn’t like the shorthand title that’s used to describe his role as the administration’s supervisor of compensation practices at firms that received money under the government’s Troubled Asset Relief Program.
“A very unfortunate term,” he said at the Reuters Global Financial Regulation Summit. “Pay czar implies that I’m issuing some sort of imperial edicts, arbitrary edicts on pay, without regard to consensus or the input of the beneficiaries of these decisions.”
Au contraire. Feinberg says he tries to develop consensus with the companies. “I’m the pay mediator, I’m the negotiator.”
Although with his next breath he does acknowledge having the power. “I must say the statute ultimately gives me final authority so if you don’t work something out I’m obligated by law to make the decision. But I’m not looking to impose my will on these companies.”
But one of the wonders of Feinberg is that he seems to end up in the middle of the crossroads of money and disaster, sometimes trying to make unthinkable equations as when he had to determine payments to the families of September 11 victims or distributions from a fund setup in the aftermath of the Virginia Tech shootings.
So why does he keep ending up at that intersection?
Shunning bankers
Banker bashing has become a bit of an international sport — and fraud allegations against Wall Street giant Goldman Sachs and a U.S. class-action suit against Germany’s Deutsche Bank has added more grist to the mill. So it’s small wonder that a bank lobby group struck a wistful note at the Reuters Global Financial Regulation Summit in London on Tuesday.
“No politician, for the next couple of years, is going to be close to a banker, hug a banker, be friendly to a banker,” said Mark Austen, the acting chief executive of AFME (Association for Financial Markets in Europe). “They (banks) are seen as institutions that have caused a crisis … We are still faced with a public’s anger to the banking community … It will take time to rebuild that trust.”
“The only thing we can do is be as constructive and neutral as we can possibly be.”
But some lawyers note bank lobby groups appear as powerful as ever. From a starting point last year, in the wake of the financial crises, where regulators discussed breaking up big banks, discussions are now centering on higher capital and liquidity buffers, living wills and bank levies. “Regulators and governments in major financial jurisdictions have really backpedalled over the last year,” says one.
Written by Kirstin Ridley in London.
Eliot Spitzer loved politics, so will he run again?
This much is clear — Eliot Spitzer loved politics, he loved being New York governor, he loved being New York attorney general.
So will he run for public office again?
Well here it gets a little bit like watching a tennis ball going back and forth over the net.
Asked at the Reuters Global Financial Regulation Summit whether he was considering running for office again, Spitzer replied “No.”
But had he ruled it out? The answer from the Democrat was not quite as precise.
“I’m not yet ready to throw in the towel,” he said, joking (we think) that it’s like the goal of winning Wimbledon.
“You never quite give up on anything and rule things off the map. And so have I said I’m never running for office again? No. Have I said am I thinking about it at this moment? No. Did I love politics? Yes. Did I grow up at the age of 2 saying it’s the only thing I want to do with my life? No.”
His resignation was a huge mistake.
Just how much a mistake was demonstrated by the the SC Governor who refused to resign after being caught and Senator from Louisiana whose name appeared on a list of clients for a house of prostitution in DC.
Both would not even consider resigning and haven’t. Nor has the Senator from Nevada in the midst of a cheating/payoff scandal investigation.
Resigning may have been what the higher ideals he ascribes to demanded of him, but clearly political peers feel very differently.
Considering the overwhelming good he did in his public positions fighting crime, his personal transgression was not enough to justify this nation losing one of the most effective champions for justice and fair play.
His crime was personal, consensual. He betrayed trust true, but he did not commit a crime that inflicted harm or loss on anyone save himself and his family which in many ways is punishment in and of itself.
If he had stayed in office many of the big bank gamblers would be on their way to jail.
Only his resignation stopped that in its tracks.
Wall Street let out a huge cheer when he left office, because they knew the most effective champion for capitalism lost power to stymie their transformation of our nation from a capitalist country into a kleptocratic nation where thievery is legalized and operates as the norm in our financial markets.
Odd how few realize he is the one who fought to keep capitalism honest.
America needs our champions very badly, and we can’t afford to waste one, because they failed to live up to standards higher and stricter than the common man’s.
Few if any would have lost their job for what he did, even if picked up by the police and convicted, and we know what fellow politicians have done afterwards – stay in office regardless.
We are all Imperfect, flawed.
Expecting our heroes to be perfect is self-defeating as well as naive.
It’s their imperfections that make them so able to catch the real criminals that hurt hundreds, thousands Etc.
We have to stop judging the public professional by his private personal life and judge him by his “public performance”.
I truly hope he runs and wins big.
The nation needs as many Eliot Spitzers as it can get.
Put regulation in the hands of politicians and, well, it becomes politicised.
That, anyway, is what Europe’s new kid on lobbying block, the Association for Financial Markets in Europe (AFME’s), told the Reuters Regulation Summit about EU plans to crack down on opaque derivatives markets by insisting on central clearing of standardised contracts, trade reporting and even exchange trading.
The European Commission will propose its draft European Markets Infrastructure Legislation (EMIL) in June which should make for some pointy headed pool side reading during the summer consulation period.
EMIL implements the G20 pledge to shine a light on derivatives but there is one additional aspect that is already coming under pressure — an idea to force clearing houses to link up with each other so that users are not limited in their choice of clearer — and hence trading platform. It’s part of wider efforts to create a cheaper bloc-wide securities market.
But there are already whispers that Germany and France feel this may be a step too far — cynics would no doubt speak about shielding Clearnet in France and Eurex in Germany. Europe’s exchanges may well soon call for the European Commission to ditch the interoperability idea from EMIL and make it part of the review of EU MiFID share trading rules.
With such background maneouvres, it’s not surprising that AFME’s acting CEO Mark Austen thinks the market can and should move ahead with creating an integrated pan-EU clearing and settlement system.
Legislation is too unpredictable.
“Decisions would be made on trade-offs between which member-states benefit, not whether it’s in the interests of market participants in general,” he added.
Impasse over model haunts raters again
Credit rating agencies are back in the spotlight and, just like a year or two ago, for all the wrong reasons.
Last week a U.S. Senate panel said the clout of Wall Street’s big banks and the thirst for profits drove ratings agencies to inflate ratings on subprime mortage-related products, helping to fuel the worst financial crisis since the Great Depression. Making things worse for Moody’s, S&P and Fitch, the Senators pointed to securities backed by subprime loans that Goldman offered in 2007 — now the subject of an SEC fraud lawsuit — as further evidence of questionable industry practices. Goldman has rejected the accusations.
The latest dose of self-inflicted misery for the raters is unlikely to prompt any fresh regulatory action.
The basic flaw in the whole business model is still unresolved — that the issuer being rated pays the rater and no amount of blue sky thinking over the past three years since the crisis began has come up with a better idea that works.
Have the regulators signalled defeat on this long standing problem?
Greg Tanzer, secretary general of the International Organisation of Securities Commissions told the Reuters Regulation Summit this week that its key focus is on making sure IOSCO members across the world, such as the FSA in Britain and the SEC in the United States, apply its code of conduct for rating agencies — a code the EU sniffily dismissed as ineffective and opted for a harder version in law last year.
For Tanzer, until the boffins come up with a practical alternative to the current ratings business model, the focus has to be on making sure agencies manage conflicts of interest, disclose them and improve the quality of ratings. Regulators have been criticised in the past for failing to follow through on principles adopted so IOSCO is keen to make sure its code takes effect on the ground before considering a further review.
boffins/eggheads/pumpkinheads/thebigchee ses! You made me go look it up. Gotta love that slang.
The rating agencies have a job to do and they aren’t doing it. Once again Goldman was able to coerce Moody’s to squeeze out an AAA rating because the bankers know what has to be in a prospectus before hand.
So there is much ado at cherry picking, especially when stacking the barrel to be loaded with the rottenest of apples under risky cherries for Abacus. How is that possible? Where is due diligence when this can happen? (over and over again)
The money has the power and that’s what has to stop. Wallstreet has to be reigned in and good solid regulation has to do it or it will come crashing down. Are bankers betting long or short on that?
Yes I know bankers will resist as they don’t like to be held back and feeling restricted … as they are now adrenaline junkies from making risky stupid loans and deals with other people’s money.
Against high Hill drama, SEC chief mum on Goldman
First of all, Securities and Exchange Commission Chairman Mary Schapiro would not talk about Goldman Sachs.
There was no drawing her out. The head of the agency that filed a civil fraud lawsuit charging that Goldman misled investors would not say a word about the case.
Quite the opposite from the high-drama being played out at the same time on Capitol Hill where Goldman Sachs executives were facing the fusillade at a Senate hearing, where one senator kept repeating “shi–y deal.” (There are two t’s missing from that word).
Schapiro in an interview at the Reuters Global Financial Regulation Summit just was not going to go there. “I’m not going to comment on Goldman,” she said before one reporter even got the question out.
Even while responding to a tangential question, she began by saying “put the Goldman case aside,” careful to make sure her answer would not be linked to the investment bank.
Asked whether this could be seen as the start of the SEC’s war on Wall Street, Schapiro replied: “Well first of all, I’m not going to comment on Goldman. There is no war on anybody.”
She went on to say: “I guess what I would like to see is people take a big step backward and think about who are we here to serve, and how do we best serve them?”
FDIC Chair Bair: think before you point that finger…
The latest blame game circulating in Washington on financial regulation may end up with those who point fingers finding that they have three fingers pointing back.
During the debate on tightening financial regulations, there have been some backhanded jabs at regulators with the implication that perhaps they were asleep at the wheel. Just this morning on NBC’s “Today” show, Democratic Senator Claire McCaskill said Wall Street had been creating things just to bet on — “they were like the casino, but they had less regulation than Las Vegas.”
Well hold on. Who’s fault is that?
We asked Sheila Bair, chairman of the Federal Deposit Insurance Corp.
She said when it comes to regulating many of the complex over-the-counter derivatives, the blame actually fell into the lap of Congress which decided against putting them under the oversight of the SEC or CFTC or insurance regulators. And in fairness to Congress, the Federal Reserve and Treasury condoned that action, she said.
“On derivatives, Congress did that,” Bair said at the Reuters Global Financial Regulation Summit. “That’s all history now.”
The CFTC does regulate exchange-traded derivatives such as futures and options, but it’s the over-the-counter stuff that’s unregulated.
Is she saying that Feinberg and Levin themselves could arguably be prosecuted for fraud too? Well, Ms Bair, why don’t you elaborate about that indirect accusation. Maybe investors have another source where they can recuperate defrauded money and send their kids to the college of choice!
What if there were no “too big to fail”? Fed’s Hoenig has a vision
Democrats and Republicans alike on Capitol Hill say they want to toss out the concept of “too big to fail” in the financial regulation reform they are tussling over. That way if a financial firm is going to go under, it will go under, with no thought for a taxpayer handout.
Since the concept of “too big to fail” has yet to be erased by law, and its demise yet to be tested by a failing financial institution, it was interesting to hear how Kansas City Federal Reserve Bank President Thomas Hoenig envisioned the financial industry without that concept to lean on.
Looking back in time — “If you had a clear resolution process, and you had clear rules on leverage,” a domino-like string of large bank failures may have been less likely.
“And if the other institutions were sound but only had liquidity problems, the discount window could have been and would have been used in those instances,” he said at a Reuters Global Financial Regulation Summit.
“So, I don’t know the counter-factuals, but I know there’s a reasonable case to say if the market knows the rules are firm, that the resolution process is under the rule of law, that you will be held accountable, and here are the steps we’re going to take, would you have had the same outcome?”
“If you cannot say that we can address this, then you need to break them up,” he said.
Hoenig sees financial regulation reform as a measure of prevention that will mitigate another banking crisis. “But no one can guarantee anything. But I do know that if we don’t address it, then I know exactly what the outcome is.”
They are “too big to be FRAUDULENT”, not too big to fail.
We want the big crooks to fall, but not the investors’ money innocently invested in their companies.
Breaking them up alone won’t do.
They’ll just structure themselves like brother and sister companies and continue their fraud behind the scene, off the official books,i.e., they’ll find legal loopholes to continue their fraud if the “regulation” is so tangential, and failed to target fraud.
The real deterrent comes when those, such as the ex-Lehman Brothers executives and accountants, who cooked the books, hid the loss from investors, siphoned out investors’ remaining assets to fatten their own pockets, then protected their personal loot under bankruptcy laws with the help and acquiesce of then, head of Treasury H Paulson– all those involved must get stiff penalty for the fraudulent culture. That’s the only way to start REAL CHANGE. H. Paulson should not be too big to fall— him falling would send a message that their deceitful behavior will not be tolerated.
No CORPORATE VEIL, No BANKUPTCY PROTECTION FOR FRAUDULENTLY OBTAINED MONEY, No ADMINISTRATIVE IMMUNITY for GOVERNMENT OFFICIALS WHOSE DECEPTION WAS AS EGREGIOUS AS H PAULSON’S. Only then, will the BIG CROOKS FALL, and we want them to fall, BUT COUGH UP THEIR LOOT– then the economy, more precisely, the confidence of investors and consumers in the entire world will recover.
CFTC’s Gensler explains the present with the past
Gary Gensler, chairman of the Commodity Futures Trading Commission, likes to go to the past — sometimes as far back as 1,000 years — to explain the financial situations of today.
For example, derivatives existed for 145 years, since the Civil War, and they became regulated in the 1930s, he said at a Reuters Global Financial Regulation Summit in explaining that derivatives need regulation.
If you only want to go back a couple hundred years, Gensler had this to say: “Somebody in the 19th century invented street lights, somebody invented stop signs, somebody invented traffic lights.”
And that probably raised costs just like regulation of derivatives may do. “Just like a street light protects you from dark and dangerous highways, we need something to protect us from the dark and dangerous market that right now is over-the-counter derivatives,” he said.
Asked about the Goldman Sachs trader who’s been in the headlines in recent days, Gensler said he would not comment on any specific firm, but he reached back even further for explanation. “For thousands of years there’s been good people, there’s been bad people.”
Gensler, a former partner at Goldman, was asked how he felt about the firm that he left 13 years ago showing up in the headlines these days.
“My daughter called me up one day and said daddy you’re in Rolling Stone magazine,” Gensler said, adding that she said it was not a favorable article.
When has Greenspan been right?