Opinion

Ben Walsh

from Counterparties:

The BoE orders a 7 and 7

Ben Walsh
Aug 28, 2013 22:06 UTC

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Bank of England governor Mark Carney has delivered “a radical change of monetary policy in the world’s sixth largest economy”, says the FT’s John Aglionby. For the first time, the BoE will tie its monetary policy to the unemployment rate.

Unemployment, currently at 7.8%, will have to fall below 7% for the bank to even begin thinking about raising interest rates, Carney said: “When unemployment reaches 7% the MPC [Monetary Policy Committee] will reassess the state of the economy and the appropriate stance of monetary policy”. In addition, Carney set a goal of bank capital ratios reaching at least 7% by the end of 2013; Barclays, Lloyds, and RBS are in total $41 billion short of that mark.

Carney’s aim, he said, is to push Britain past barely avoiding a triple-dip recession, and toward a “period of sustained and robust growth”.

Ben Southwood of the Adam Smith Institute thinks Carney is moving in the right direction, but hasn’t gone far enough:

from Counterparties:

The Rocky road away from QE

Ben Walsh
Aug 26, 2013 22:18 UTC

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Hanging over this year’s Jackson Hole gathering is the same policy question that has been kicked around in economic circles all summer: How quickly and aggressively should the Fed slow quantitative easing?

Caroline Baum thinks this WSJ headline says it all: “At Fed conference, everyone knows how to make an exit”. The problem, the WSJ’s Victoria McGrane reports in the story that follows, is that while opinions are everywhere, agreement isn't.

from Counterparties:

Enforcement season

Ben Walsh
Aug 20, 2013 22:35 UTC

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Phil Falcone has been forced to say he was wrong. The hedge fund manager has settled charges with the SEC that he improperly put investor money to personal use, and the SEC struck a hard bargain: an admission of wrongdoing, a $17 million fine, and a five-year ban from the securities industry, which will probably force him to liquidate his fund. He will be allowed to continue to run his bankrupt wireless network company.

Falcone’s case is the latest in a veritable spree of regulatory enforcement. The SEC’s charges against hedge fund manager Steve Cohen may be on hold, but only because the Justice Department is busy prosecuting its case against Cohen’s firm, SAC. And despite agreeing to a $410 million settlement over energy manipulation charges, at least eight federal agencies are still investigating JP Morgan; the DOJ is also now looking into JPMorgan’s energy market behavior.  The SEC is examining JP Morgan’s Chinese hiring practices, and the bank recently said its regulatory costs might hit $6.8 billion above its current reserves.

from Counterparties:

The London small fry

Ben Walsh
Aug 15, 2013 22:14 UTC

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It “is not who is being charged, but who isn’t". That’s Stephen Gandel’s assessment of the most interesting part of the US government's case against two JP Morgan employees connected to the bank’s $6.2 billion London Whale loss. Reuters’s Emily Flitter and David Henry write that while the government is charging Javier Martin-Artajo and Julien Grout with fraud, "the complaints make only passing reference to their former bosses". Conspicuously unmentioned are Ina Drew, who ran the Chief Investment Office, and Achilles Macris, who oversaw the now infamous derivative position.

David Benoit’s who’s who in the whole saga does give Martin-Artajo and Grout top billing, but it’s unlikely that would have been the case before the charges were filed. CEO Jamie Dimon, Drew, and Bruno Iksil -- nicknamed the "London Whale" for his role in accumulating those outsized derivative positions -- have been far more prominent figures in l’affaire baleine. Iksil has negotiated a non-prosecution agreement with authorities and will be testifying against his former colleagues.

from Counterparties:

Pink slips for Fannie and Freddie

Ben Walsh
Aug 7, 2013 22:08 UTC

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President Obama wants to eliminate a government-owned company that just made a $5 billion profit. More specifically, he wants to eliminate both Freddie Mac and its sister Fannie Mae by 2018, and replace them with a new "common securitization platform" for mortgage securities where private investors bear mortgage risk, not the government: “For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag... It was ‘heads we win, tails you lose.’”

Sober Look thinks that Obama’s plan is a “hell of an undertaking”: 84% of the mortgage-backed securities issued so far in 2013 have been government backed. And, Sober Look says,  there’s no surefire plan to transfer that risk to private investors. House Republicans have proposed eliminating not just Fannie and Freddie, but also pretty much every form of government support for the housing market. There’s also bipartisan Senate bill that broadly mirrors the President’s preferences.

from Counterparties:

Bad to bad-but-not-terrible

Ben Walsh
Aug 2, 2013 21:22 UTC

There were two ways of seeing July’s jobs report: it was either bad or bad-but-not-terrible. The US economy added 162,000 jobs in July; the consensus expected more like 184,000. May and June’s job totals were also revised down by a total of 26,000 jobs, and the unemployment rate edged down to 7.4%. Here’s a breakdown of the reactions, with the caveat that the distinction between weak and not-particularly strong is in the eye of the beholder.

The bad:

Neil Irwin called it the “Groundhog Day of jobs reports” and Matt O’Brien remarked that job creation remains ploddingly consistent, just like it has been for two and a half years.

Unemployment may be ticking down ever so slightly, but employment isn’t rising. At the current three-month average of 175,000 new jobs a month, we won’t get back to a pre-recession number of jobs for 11 months, more than five years after the recession began. Even worse, if you take into account new people coming into the workforce (and you should), we won’t close the jobs gap for another 9 years. Another estimate by the Chicago Federal Reserve puts that number at five years, which puts the over-under on the return to full employment at between a decade and a decade and a half.

from Counterparties:

Wall Street’s thin white line

Ben Walsh
Jul 30, 2013 22:01 UTC

The ink on SAC’s indictment is barely dry, but Dylan Matthews argues that the entire case should be dropped. In fact, he writes, insider trading should be legalized. Laws against insider trading are “justified as providing an even playing field for small investors” despite the fact that a “playing field doesn’t exist”.

Bethany McLean looks at the history of the market-as-level-playing-field notion and concludes it “isn’t level, it never has been, and I’m not sure it can ever be”. Attempts to achieve fairness have all sorts of perverse effects, she writes, from the deteriorating quality of stock research, to financial folly by individual investors. “Nobody”, Matt Levine says, “goes around saying ‘let the little guy compete with trained neurosurgeons in neurosurgery’”.

John Carney, who has been, in his own tongue-in-cheek description, “an insane idiot on insider trading” for years, notes that the argument for legalizing insider trading isn’t new: it was first proposed in 1966 by academic Henry Manne. (The WSJ has a good summary of his arguments, or if you’re looking for something lighter, an animated bear.)

from Counterparties:

The fight for Dell

Ben Walsh
Jul 18, 2013 21:32 UTC

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Michael Dell is in an awkward position, and not just because earlier today a lack of shareholder support forced him to postpone a vote on his $24.4 billion, $13.65-a-share buyout proposal to July 24. Dell is trying to convince shareholders that the growth prospects of his eponymous company are limited. Supporting the founder’s buyout, write Reuters’ Nadia Damouni and Anna Driver, are investors who are “ready to cash out of a company increasingly vulnerable to a crumbling PC market and already a shadow of an earlier self that led the global market and stood as a model of industry innovation”.

Dell's gloomy pitch seems to be winning last-minute converts. Michael de la Merced reports that “a number of big institutional investors switched their votes to yes” last night, including Blackrock, Vanguard, and State Street. Some of those investors, Merced says, may have been waiting in hopes that a higher offer would materialize.

from Counterparties:

Banks’ problem with success

Ben Walsh
Jul 16, 2013 22:16 UTC

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Things are almost too good for US banks right now, Tom Braithwaite argues. Goldman Sachs is the prime example: it handily beat expectations for its quarterly earnings today, making $1.93 billion in profit. That’s double last year’s number. Wells Fargo’s second quarter earnings were $5.5 billion, up 20% from a year ago. And JP Morgan’s profits in the second quarter jumped 31% to $6.5 billion; the bank is now on track to earn $25 billion this year -- that’s basically $100 million every working day. Even the phrases “Citigroup earnings” and “soundly beat Wall St expectations” are now appearing in the same sentence.

The problem, Braithwaite writes, is that these are the exact banks who “have spent a lot of time, energy and money warning of the potential ill-effects of ramping up regulation”. Kevin Roose doesn’t think we should pay attention to what bankers had to say about regulation at all.

Being a CEO has never been more valuable

Ben Walsh
Jul 2, 2013 22:13 UTC

There are a number of reasons no one is particularly worried about wage stagnation among CEOs:

    Over the last 30 years, CEO pay increased 875%, according to the Economic Policy Institute

    In 2012, CEO pay at large companies rose 6.5%, according to Equilar

    The average ratio of S&P 500 CEO pay to employee pay is 204 to 1, according to Bloomberg (the ratio rises to 273 to 1 when companies outside the S&P are included).

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