Comments on: How to duck regulation, MF Global edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: FifthDecade Thu, 07 Jun 2012 14:49:39 +0000 I imagined disincentives were at the nub of your point. The problem with regulation is that it concentrates on completing the paperwork, it seldom questions the quality of any actions or advice the paperwork refers to. So in that sense, a higher transactions tax would be a consideration for players. However, if you kill transactions completely, it doesn’t just hit speculators, it also hits everyone else.

IMO there should be some kind of long term, ongoing financial responsibility for the dealmakers. At the moment the deals are measured as successful or not at the point of transaction, not when they fall apart down the line. If the person who made the money from creating and selling them had to pick up the tab when they went wrong, that would be a fair result.

The trouble today is the ‘blame everyone else’ culture. This applies to finance, politics, and even everyday life. Once upon a time we looked upon honourable behaviour as being meritorious – these days it’s Mammon and Greed that drive behaviour – with a dose of religious indignation as a cover of course.

By: InfiniteThought Wed, 06 Jun 2012 10:56:46 +0000 Sechal: You validated my point. I don’t expect the auditors to understand the risk and report them appropriately. if they had the expertise, they would turn themselves into a hedge fund.

FifthDecade: I know that 1% sounds steep but my intention is to disincetivize speculation. My point is that financial industry today has no entry barrier in taking risky positions. You probably need more regulatory compliance to open an office cafeteria than become a player in the market. And invariably it is the investors and the country at large that pays the price when many a bets go awry.

Imagine, if JPM lost $20 bn instead of $2 bn. Wouldn’t it take us closer to recession when there is no underlying macroeconomic situation (talking about this in isoloation rather than in conjunction with Europe situation)

By: FifthDecade Tue, 05 Jun 2012 22:09:08 +0000 I’m in favour of a financial transactions tax, but surely 1% is a bit steep? As for the ‘glory boys’ of MFGlobal and others – including JPMorgan – this clearly shows that just because something is legal doesn’t mean it was right, and that morals really should be more closely followed in the world of banking.

By: Sechel Tue, 05 Jun 2012 19:56:18 +0000 Both MF Global and JP Morgan were audited by PWC, who did not flag JP Morgan’s VAR issues, its’ governance and compliance issues and certainly did not flag any of the issues regarding risk and compliance or repo to maturity issues at MF Global.

By: InfiniteThought Tue, 05 Jun 2012 18:27:50 +0000 Can i surmise that the twin problem of banking is the following:

1. Regulators are one step behind and are trying to define how banks should adhere to guidelines when they have very little idea about the complex financial instruments that banks are creating

2. As you pointed out, most mega-banks accept customer deposit and don’t turn it around for commercial and personal lending and use it to earn money based on high-risk investment banking activities.

In my view, the government should stop catching up with the industry because they never can. I think they should define a playing field that is aligned to the main economy. In summary, why not define commercial banking as trade ops, third party treasury, loans and working capital mgmt and personal banking as personal loans, mortgages and credit cards. If loans/deposit ratio is less than 95%, the banks pay a 5% tax on the differential as calculated on a daily basis and paid quarterly.

Any money that banks receive and invest in other areas outside this will be permitted if and only if they pay a 1% financial tax. Propreitary trading – Great. Pay 1% tax on the transaction. complex financial products like swaps, CDS etc – go ahead, but pay 1% of the overall exposure – either for managing the bank’s risk or earning or for customers.

In my view, what this will do is to unwind and make the financial world lot smaller than the 10x current global GDP and at the same time allow a market for derivates and other products that can be money generators without the bank investor unknowinggly taking a lot of risk.