The Great Debate UK
from Felix Salmon:
On Tuesday I moderated a panel at the New York Forum which featured, inter alia, Duncan Niederauer, the CEO of the New York Stock Exchange, and Richard Robb, the CEO of Christofferson Robb, a money management firm which does its fair share of speculation.
My question at the beginning of this clip, for Niederauer, didn't come entirely out of the blue. Amar Bhidé had previously talked about the casino aspect of markets, and Andrew Ross Sorkin had talked about the distinction between speculation and investment. But Niederauer was not happy when I pushed him on these concepts. Wall Street is increasingly a game of speculation rather than investment, I said, and asked how a casino operator pushing people to make bets over the course of a millisecond was not part of the problem. Rather than engaging with the question, he simply shut me down: "I thought my job description was quite different than what you just described," he said. "So you must be talking to someone else."
Niederauer then used all his media training to pivot and give a mini-speech instead about how self-regulation was better than Dodd-Frank. But Richard Robb, to his credit, engaged, even if what he said doesn't stand up to scrutiny. "I don't know what the difference between investing and speculation looks like," he said, throwing up a straw man of everybody working at peoples' tractor collectives. Robb's prescription was essentially to do nothing but ban a few of his competitors: stop big banks from doing what he does, leave him alone to do anything he wants, and "let innovation find its own way, and if it's parasitic and unproductive, it will not be rewarded by the capitalist system."
That's clearly false, of course: we can all think of parasitic and unproductive Wall Street innovations which have made millions of dollars for bankers and traders and money managers. Richard Robb himself gave a good example earlier on in the panel: structured investment vehicles.
Europe's corporate treasurers can pop open the champagne. After much lobbying, they have won an exemption from new European Commission rules forcing over-the-counter derivative trades to be centrally cleared. But the decision could create a loophole that allows companies to take on big positions and pose a systemic threat.
The G20 group of leading nations last year agreed that all derivative trades should, where possible, be moved onto clearing houses. The thinking was that central clearing spreads risk, reducing the chance that the failure of a single large counterparty can drag down the financial system.
from The Great Debate:
- Steven Miller is managing director of Standard & Poor’s LCD, a unit not part of Standard & Poor’s ratings business. The opinions are his own and not those of S&P.-
As the worst credit crisis since the 1930s recedes, investors are starting to boil down the lessons of the past two and a half years.
In 1873, Walter Bagehot wrote that "the business of banking ought to be simple; if it is hard it is wrong." He would have struggled to recognize today's banking system.
It is not just ever more ornate derivatives that bend the mind. Financial firms themselves have become fabulously complicated. Citigroup lists 2,061 subsidiaries and affiliates while the institutional chart of JPMorgan Chase is 267 pages long.
The Obama administration formally sent its plan for regulating derivatives to Capitol Hill today. And to no one's surprise, the key proposal in the 115-bill is a plan to regulate "standard'' derivatives on regulated exchanges of clearinghouses.
As I've pointed out a number of times, Team Obama has yet to come-up with a workable definition for a standard derivative. The administration seems content to kick the issue down the road.
It's taken awhile, but a deadline for filing claims in the Lehman Brothers bankruptcy has finally been set and it's Sept. 22.
A Sept. 15 deadline, the one-year anniversary of Lehman's collapse, would have been more appropriate. But maybe that would have just been rubbing everyone's face in it.