Comments on: Regulatory failure datapoint of the day, Citigroup edition

By: Danny_Black

Danny_Black — Thu, 01 Dec 2011 19:16:33 +0000

+1. Fantastic book. His other book, inventing money was also fantastic, shows what a journalist can write when he bothers to learn the basics and fact check.

By: MikeCooper

MikeCooper — Thu, 01 Dec 2011 19:11:13 +0000

DEVIL’S DERIVATIVES really is a great book – not just insightful and sharp-eyed, but beautifully written. I wish more financial journalism was done so well; the only other author I can think of who writes so clearly is John Lanchester (albeit aimed much more at general readers). Anyway, regulatory capture is the least of it: Dunbar’s explanations of how and WHY the instruments were structured are consistently fascinating.

By: SteveHamlin

SteveHamlin — Thu, 01 Dec 2011 16:42:44 +0000

@EpicurianDealmaker: thank you for clearing up your point: that strong, knowledgeable and independent regulators are necessary and net_beneficial for the banking sector.

For I was going to remark that you seem to equate bankers with criminals and military opponents, both of which are net negatives to society, and if of sufficient size, are classified as potential destabilizing forces that threaten the state and its citizens.

But other than that, I won’t comment on your Kinsley gaffe.

By: EpicureanDeal

EpicureanDeal — Thu, 01 Dec 2011 16:37:51 +0000

@Curmudgeon — Thank you for the kind words, but I am neither senior nor wealthy enough yet to commit career suicide as you suggest. I will continue to comment pseudonymously from deep within the belly of the Beast.

By: JayTrader

JayTrader — Thu, 01 Dec 2011 16:19:57 +0000

@epicureanDeal – You are correct. I did not mention that Americans are suspicious of regulators and policymakers in general. Unfortunetely, this is self evident.
Where we diverge is that Americans don’t necessarily feel that regulators are incompetent are plain dumb, but that they are all captured by the industry that they are supposed to oversee. Of course we all want smart, nimble, and well paid regulators just like we want our women all to look like Heidi Klum. This is not in the cards under the current structure.

By: Curmudgeon

Curmudgeon — Thu, 01 Dec 2011 16:01:09 +0000

@epicureanDeal, you seem relatively reasonable, candid, and open to opposing viewpoints. You are a longtime insider, and clearly senior. Your blog seems to be relatively respected in an industry that garners little of that commodity.

Let me suggest that you shed your anonymity and speak out in favor of the financial industry that you envision. It will almost certainly be better than the one we have now.

By: EpicureanDeal

EpicureanDeal — Thu, 01 Dec 2011 15:39:16 +0000

@KingCanute — I was not clear. Prevention is my goal, not clean up. But to do that, you need to embed skilled, knowledgeable regulators deep within banks’ trading and lending operations for realtime oversight. Banks won’t like it, but one benefit they will get is access to regulators who have a much better view of *aggregate* market behavior and trends, which will be extremely valuable to their own risk control.

@JayTrader — You are correct. Until we sever or tightly control the access of money to politics, such an idea will go nowhere. What you did not mention is the fact that Americans (everyone?) tend to be rightly scared and suspicious of smart, capable regulators. We prefer them dumb. That is a whole other issue.

By: klhoughton

klhoughton — Thu, 01 Dec 2011 15:15:13 +0000

Gee. Felix, when Ron Suskind points out that the s4b who ran the NY Fed in 2006 and turned a blind eye to The Big C’s mismanagement moved to a certain position in the Current Administration and continued shielding them from any real action, you (and Brad DeLong and several others Who Should Know Better) defend him.

Want to mark that belief to market now?

By: JayTrader

JayTrader — Thu, 01 Dec 2011 15:15:08 +0000

Who do you think funds the regulators? CONGRESS.
Who do you think is captured by the Banking Industry? CONGRESS.

What we have seen over the last 10 years is that the SEC and other regulatory bodies have gotten their budgets cut by Congress. These guys don’t regulate when they had a bloated budget.

What EpicureanDeal says on the surface is correct. We do need a smarter, more nimble, tough regulatory body to crack heads but that will never happen as the bought and paid for Congress won’t allow it. I can see it now. Congress funds regulatory black opps squad to regulate Wall Street. You actually think Congress would ever allow a government agency to do such a thing?

By: KingCanute

KingCanute — Thu, 01 Dec 2011 15:08:24 +0000

I think EpicureanDeal’s viewpoint is flawed – he wants policing instead of prevention. I would much rather have beat cops and career detectives walking the streets and understanding the neighborhood and building a relationship with the community than, as is currently the case, heavily armed cops sitting in patrol cars waiting for another call to bang heads together. SWAT teams are useful and all when the crap hits the fan, but why not just prevent crime in the first place? Why let banks still engage in all these complex transactions, when odds are they will still slip through the cracks of these highly-paid regulators?

By: EpicureanDeal

EpicureanDeal — Thu, 01 Dec 2011 14:51:18 +0000

Police departments have learned you cannot fight sophisticated, heavily armed criminals with beat cops and career detectives. In response, they have created SWAT teams.

The military has learned that you cannot attack and defeat sophisticated, highly mobile enemies with conventional ground and air forces. In response, they have created special forces.

I continue to be mystified why there is so little interest and/or so much resistance to the idea of creating regulatory SWAT teams of highly-trained ex-bankers and lawyers–properly compensated, controlled, and overseen to minimize cognitive and direct regulatory capture–and embedding them within the trading and lending operations of systemically important financial institutions. There is literally no other way we will be able to catch and prevent similar blowups in the future.

By: JayTrader

JayTrader — Thu, 01 Dec 2011 13:32:21 +0000

Felix-
We can blame the regulators
We can blame the ratings agencies
We can blame the banks
We can blame the MSM
We can blame busted economic theories and models.

I have read Devils Derivatives and let me tell you that the one thing people are missing is the actions of people like Nick Dunbar and the industry that he represents. This guy worked at Risk Magazine. Did anyone at Risk ever make the point that these derivatives (CDS, CPDO, CPPI, etc) were devious? No they did not. They are every bit responsible for creating this culture.

By: MarkWolfinger

MarkWolfinger — Thu, 01 Dec 2011 01:20:04 +0000

Linked to get book title and discovered that I have a copy right now – it’s on loan from the library.

It’s been moved to the top of the is list.
Thanks