The popular image of Wall Street institutions involve swagger: the ability to absorb the competition’s blows, taking no prisoners, raking in the money… until it seems like the government could force them to rein in their excesses. It’s at that point that Wall Street’s tough guys suddenly sound wounded.
In Tuesday’s Wall Street Journal, an article about the derivatives legislation being considered in Washington has this comment from Bank of America spokesman James Mahoney—the bank is “concerned that we won’t be able to provide our customers with financial products they need to manage risk and grow and that foreign banks will step in and take that business.”
There are several layers of bruised egos at work here – the assertion that America’s economic future is imperiled by the regulation of derivatives, and the boogeyman specter of a “foreign bank” that will take over. Add the obligatory reference to customers (which recalls the braying from various corners about how the threat to BP’s dividends are really an attack on “pensioners” and “retirees”), and there’s a lot of guilt being laid on in the statement.
Our question: Is Bank of America right? Every time the government gets ready to regulate any business, members of those communities warn of doom, apocalypse, you name it, and start using buzzwords like “risk appetite” and “free markets,” no matter how stifling those things can be if left completely unchecked.
Kevin Flynn of Avalon Asset Management put it well in his commentary this past weekend: “Talk of regulating any derivatives market, and the players immediately get on the phone to the press and politicians, feeding them lurid tales of vanishing liquidity and withering markets, killing all hope of economic recovery.”