Counterparties: No hope for change

March 19, 2013

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“Mistakes were made”, Ina Drew said last week, somehow managing to both accept and reject responsibility for JP Morgan’s $6.2 billion trading loss. But reading the Senate’s exhaustive report on the London Whale, Jesse Eisinger doesn’t think lessons were learned. Despite repeated assurances to the contrary, he argues, things haven’t changed since the financial crisis:

Bankers aren’t acting cautious and chastened. Risk managers aren’t in the ascendance on Wall Street. Regulators remain their duped and docile selves.

Alexis Goldstein echoes Eisinger, pointing out that JP Morgan complained that the Volcker Rule unfairly presumes banks “will camouflage prohibited proprietary trading to evade the rule”. That now appears to be a perfectly fair assumption. Goldstein’s solution to the mess is to finalize the Dodd-Frank rules, and then try to implement Senator Sherrod Brown’s proposal to effectively break up the biggest banks.

Carl Levin, meanwhile, tells Joe Nocera that he held the Senate hearings, in part, to “stiffen the spine of regulators”. The tortuous process of Dodd-Frank rulemaking, described by Haley Edwards in the Washington Monthly as “the seventh level of bureacratic hell”, is grinding on, and the Volcker Rule is remains particularly contentious. “This should help them”, Levin says of regulators’ attempts to push back against financial industry lobbyists.

That may, but here’s something which won’t: Promontory Financial Group, which employs 400 full-time staff and 1,400 consultants to build a “shadow network between banks and regulators”, as American Banker reports. “The firm is a sort of ex-regulator omnibus, capable of forecasting, mimicking and occasionally even substituting for the financial industry’s supervisors”. On top of that, as David Henry and Lauren LaCapra write, regulators “may not have the time or sophistication” to understand the risk models they are responsible for approving. — Ben Walsh

On to today’s links:

EU Mess
Ex-governor of Cyprus’ central bank: “What we are witnessing is the slow death of the European project” – Bloomberg
Choose your own adventure, the Cyprus version – Crooked Timber
A much better alternative for Cyprus – Felix
Lee Buchheit’s simple, genius solution for Cyprus – SSRN
Nobel Prize-winning Cypriot economist: “I am appalled by the decision of the euro group” – Businessweek
Andrew Ross Sorkin gets his Cyprus math wrong – Kid Dynamite

Farmland prices are teetering on an unstable bubble, largely based on corn prices – NYT

Your Retirement Plans 
57% of American workers have less than $25,000 in retirement savings – WSJ

Right On
It’s not just about unlocking cell phones, “once we buy an object — any object — we should own it” – Wired
“It’s time to legalize cell phone unlocking” – The White House

If Vodafone sells its Verizon stake, the whole board should be fired – John Hempton

Tax Arcana 
America’s most important industry is the best at keeping profits abroad – Tim Fernholz

The terrifying rise of emoji – The Verge

Old Habits
Noam Chomsky spends 6-7 hours a day answering email?! – FT

Sheer madness: Lululemon responds to its see-through Yoga pants recall – Lululemon

Popular Myths
No, government spending really isn’t going up right now – Jared Bernstein

Microsoft is investing $150 million in Apple – CNET

Crisis Retro
Citi agrees to pay $730 million to settle class action over cris-era disclosures – Reuters

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