James Saft

By James Saft

(Reuters) – A banking union, as espoused by the European Commission, is probably totally unworkable unless accompanied by a full fiscal union.

Which is to say a euro zone which features banking union is no different than the current state of affairs, the solution to which, short of a break-up, also almost certainly requires much greater centralization of taxing and spending.

The Commission, the European Union’s executive arm, on Wednesday floated the idea of a banking supervision union to run alongside the 17-nation currency zone.

“A closer integration among the euro area countries in supervisory structures and practices, in cross-border crisis management and burden sharing, towards a ‘banking union’, would be an important complement to the current structure,” the Commission said.

This could include a single deposit guarantee fund and allow greater flexibility to the European Stability Mechanism, a sort of permanent bailout fund set to take effect this July.

By James Saft

(Reuters) – It is perhaps the single easiest rule of thumb in investment: favor the simple over the complex.

Complexity, whether it be in a strategy or in a financial product, makes investors vulnerable: to being overcharged, to misunderstanding risks and to being unable to exit the position easily and economically.

To understand why this is true, on so many levels, look no further than JP Morgan’s chief investment office disaster. It involves a trading position which, despite being put on and overseen by people who ought to be the best in the world, landed the bank with a loss that is almost literally unquantifiable.

May 24 (Reuters) – It is perhaps the single easiest rule of
thumb in investment: favor the simple over the complex.

Complexity, whether it be in a strategy or in a financial
product, makes investors vulnerable: to being overcharged, to
misunderstanding risks and to being unable to exit the position
easily and economically.

To understand why this is true, on so many levels, look no
further than JP Morgan’s chief investment office
disaster. It involves a trading position which, despite being
put on and overseen by people who ought to be the best in the
world, landed the bank with a loss that is almost literally
unquantifiable.

By James Saft

(Reuters) – After years of insulating risk-takers from the consequences of their decisions, maybe it’s finally time to try something else.

Europe’s current crisis, and specifically the death spiral some of its banks and peripheral sovereigns are locked into, may provide just such an opportunity. It may now be time to cross that red line and force some bank bondholders, even senior bondholders, to take losses.

Throughout the now five-year-old global financial crisis, writing down bank debt when banks are insolvent is a step that policy-makers have been almost universally unwilling to take.

By James Saft

(Reuters) – The Facebook IPO, which started as a global search for a greater fool, developed on Monday into a circular firing squad.

Facebook’s newly minted stock tumbled well below its issue price on Monday, falling as much as 12 percent, as it struggled in its first day trading without the full support of its investment banking syndicate.

The problem, of course, is that too many buyers were playing the same game, looking to lay off their exposure quickly to some other patsy. As they say in Silicon Valley, this isn’t a bug, it’s a feature.

By James Saft

(Reuters) – Like all massive risks, holding large amounts of stock in your employer is a way to make an investment home run, but an even better way to strike out.

The sad tale of Chesapeake Energy employees is a reminder of a series of oft taught but seldom learned lessons, namely that when you hold too much of your employer’s stock you imperil your retirement, impair your ability to manage risk and set yourself up for expensive, emotionally driven investment decisions.

A massive 38 percent of Chesapeake’s main 401(k) retirement plan’s assets were in company stock, despite only 5 percent of those assets still being tied up in a vesting period.

By James Saft

(Reuters) – A spreading bank run could hasten Greece’s exit from the euro zone but it certainly doesn’t have to end that way.

It is far less clear what the impact would be should the wave of withdrawals accelerate in other peripheral states such as Spain or Portugal, which are further from outright revolt over German-led austerity, and which, due to their sheer size, will enjoy a vastly improved negotiating position.

Greeks have been withdrawing hundreds of millions of euros of deposits from their banks in recent days, driven by a rational but dangerously self-reinforcing fear that a Greek exit from the euro will leave them holding far less valuable new drachma.

By James Saft

(Reuters) – JP Morgan Chase’s loss is the perhaps inevitable result of the interaction of two policies: too big to fail and zero interest rates.

JP Morgan lost $2 billion when trades put on by its chief investment office blew up, prompting a sell-off in its stock, an investigation by regulators and new calls to limit speculative activities by banks.

Too big to fail, the de facto insurance provided by the U.S. to financial institutions so big their failure would be disastrous, provides JP Morgan and its peers with a material advantage in funding and as counterparties. Depositors see it as an advantage, as do bondholders and other lenders. That leaves TBTF banks flush with cash.

By James Saft

(Reuters) – Venture capital investors put their money down with dreams of backing the next Facebook, but the reality involves high fees and much disappointment.

A new study by the Kauffman Foundation, an entrepreneurship charity and a heavy and long-time backer of venture capital, makes disturbing reading oo.gl/eAp9E, detailing 20 years of disappointment, a failure by venture capital firms to deliver and of the foundation itself to take the needed steps to protect its own interests.

Kauffman, which has $249 million in venture capital, is providing insights which, because of tight disclosure agreements, are almost impossible to obtain elsewhere.

May 10 (Reuters) – Venture capital investors put their money
down with dreams of backing the next Facebook, but the reality
involves high fees and much disappointment.

A new study by the Kauffman Foundation, an entrepreneurship
charity and a heavy and long-time backer of venture capital,
makes disturbing reading oo.gl/eAp9E, detailing 20 years of
disappointment, a failure by venture capital firms to deliver
and of the foundation itself to take the needed steps to protect
its own interests.

Kauffman, which has $249 million in venture capital, is
providing insights which, because of tight disclosure
agreements, are almost impossible to obtain elsewhere.