Counterparties: No hope for change
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â€śMistakes were madeâ€ť, Ina Drew said last week, somehow managing to both accept and reject responsibility for JP Morganâ€™s $6.2 billion trading loss. But reading the Senateâ€™s exhaustive report on the London Whale, Jesse EisingerÂ doesn’tÂ think lessons were learned. Despite repeated assurances to the contrary, he argues, things havenâ€™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 â€świll camouflage prohibited proprietary trading to evade the ruleâ€ť. That now appears to be a perfectly fair assumption. Goldsteinâ€™s solution to the mess is to finalize the Dodd-Frank rules, and then try to implement Senator Sherrod Brownâ€™s proposal to effectively break up the biggest banks.
Carl Levin, meanwhile, tells Joe Nocera that he held the Senate hearings, in part, to â€śstiffen the spine of regulatorsâ€ť. The tortuous process of Dodd-Frank rulemaking, described by Haley Edwards in the Washington Monthly as â€śthe seventh level of bureacratic hellâ€ť, is grinding on, and the Volcker Rule is remains particularly contentious. â€śThis should help themâ€ť, Levin says of regulatorsâ€™ attempts to push back against financial industry lobbyists.
That may, but hereâ€™s something which wonâ€™t: Promontory Financial Group, which employs 400 full-time staff and 1,400 consultants to build a â€śshadow network between banks and regulatorsâ€ť, 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”.Â On top of that, as David Henry and Lauren LaCapra write, regulators â€śmay not have the time or sophisticationâ€ť to understand the risk models they are responsible for approving. — Ben Walsh
On to todayâ€™s links:
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 -Â Kid Dynamite
And, of course, there are many more links at Counterparties.Â