James Saft

Geithner allegations beg Fed reform: James Saft

Jan 22, 2013 06:04 UTC

By James Saft

(Reuters) – Allegations that Timothy Geithner, then head of the New York Federal Reserve, may have told banks ahead of time about a surprise policy move in 2007 underscores the pressing case for reform to safeguard the integrity and independence of the central bank.

Specifically Congress needs to act to make the lines between the banking industry and the governance of the regional Federal Reserve banks cleaner, guarding against a “we are all boys in this together” attitude and ensuring a diversity of views from outside the financial services industry.

As revealed in transcripts released last week of Fed meetings from 2007, Richmond Fed President Jeffrey Lacker said Geithner, now the outgoing Secretary of the Treasury, discussed with banks an upcoming change in the discount rate, a move which proved highly price sensitive when it was publicly announced.

“From conversations I had prior to the video conference call on August 16, 2007, I was aware of discussions among a few large banks about borrowing from their discount windows to support the asset backed commercial paper market,” Lacker said in the statement.

“My understanding was that President Geithner had discussed a reduction in the discount rate with these banks in connection with these initiatives.” ( here )

Goldman’s smart move on pay

Jan 17, 2013 20:52 UTC

Jan 17 (Reuters) – This is how capitalism is supposed to

Goldman Sachs has cut back sharply on employees’
piece of the revenue pie, taking it to 21 percent for the fourth

For long-suffering shareholders, this is the best news out
of Wall Street in, well, maybe forever.

Goldman paid out 37.9 percent of revenues in compensation in
2012, down from 42.4 percent from a year ago. It is the lowest
payout ratio since the firm went public in 1999. The bank did it
by shedding people. Average compensation actually rose 9 percent
to just under $400,000, helped by a 19 percent increase in

JP Morgan, margins and speculation: James Saft

Jan 16, 2013 21:03 UTC

By James Saft

(Reuters) – The risk controls may have changed but many of the preconditions for JP Morgan’s epic speculative loss remain – for all too-big-to-fail banks.

JPM on Wednesday released both its fourth-quarter earnings and a 129-page report into the details of its $6.2 billion loss in its London-based Chief Investment Office. The two documents are a good pair, demonstrating why banks are likely to fall into the same pattern of taking on principal risk to make up for the declining profitability of core banking. here here

It is impossible to understand why JP Morgan found itself so far out on a limb without reckoning with two facts: it, and other banks, are awash in deposits, but face dwindling profits from loans.

ECB saves euro, lets economy hang: James Saft

Jan 15, 2013 13:01 UTC

By James Saft

(Reuters) – Mario Draghi has saved the euro, for the time being, but seems less inclined to help the economies in which it is used.

After stepping in last summer to put the full faith and power of the European Central Bank behind the vulnerable euro zone common currency, Draghi’s central bank has been strikingly less aggressive than its peers in taking steps to address unemployment and recession.

With central banks in the U.S. and Japan easing aggressively, that leaves the euro liable to continue its recent gains, making countries in the currency area less able to export their way out of their problems.

Active management’s slow bleed

Jan 10, 2013 21:40 UTC

By James Saft

(Reuters) – Punished by another year of bad performance from active investment managers, there is some encouraging evidence that investors are finally wising up.

Call it the triumph of experience over hope, or simply a case of slow but steady learning, but last year equity-trading volume slumped and the flow of funds into low-cost options like exchange-traded funds continued to gain momentum.

A record $188 billion poured into U.S. ETFs in 2012, according to IndexUniverse, taking assets under management in ETFs to $1.35 trillion. The vast majority of the money is in low-cost index-based vehicles. While that’s only about 12 percent of the $11.6 trillion industry, at least it represents a growing minority that is accepting the boring but rewarding reality that handsomely paid managers are not worth it because they are not going to consistently beat the market.

Earnings rest on shaky legs: James Saft

Jan 9, 2013 21:16 UTC

Jan 9 (Reuters) – There are two big-picture reasons to doubt
corporate earnings: they are improbably high and there are
significant reasons to think they are being gamed.

The U.S. corporate earnings season kicked off this week with
a creditable performance by bellwether Alcoa and amid
expectations that fourth-quarter reports for the S&P 500 would
grow by 2.7 percent. That compares well with a disappointing
third quarter, when earnings for the group barely grew, nudging
up just 0.1 percent.

Even that modest growth, though, if it comes, will be
recorded during a period which is, by many measures, extremely
unusual. So unusual that it may make sense to apply a large
discount to discover the underlying truth. This is not an
argument about the fiscal cliff, or the cost of capital, but
simply put we may be in one of those periods when we need to
take a couple of huge steps backward to get the right

Basel’s golden ticket for bankers: James Saft

Jan 8, 2013 05:04 UTC

By James Saft

(Reuters) – Bankers may just have gotten another golden ticket.

The Basel Committee on Banking Supervision, a global group of central bankers and regulators, unveiled on Sunday newly diluted plans intended to make banks capable of withstanding the next crisis, giving banks more time to meet softer requirements and, critically, hugely loosening proposed rules over the kinds of assets banks will be encouraged to hold.

This will fuel demand for riskier debt, such as mortgage-backed securities and corporate bonds, and takes the financial world a substantial step backwards towards its pre-crisis set of incentives.

But what fuels a boom for banks, capital markets issuance and riskier assets may not translate into a boon for the actual economy, as the new regulations may prove a disincentive to making loans, especially to smaller companies.

Shunning Japan gets riskier: James Saft

Jan 4, 2013 15:29 UTC

By James Saft

(Reuters) – After 23 years of being the smelly wet dog of global markets Japan may be at a turning point.

With many massively, and understandably, short on Japan, the possibility that new policies actually work, or fail memorably, means investors are carrying considerable, and growing, risk. Now might be a prudent time to move closer to a benchmark allocation, which for most of us means putting money back in Japan.

A set of radical new fiscal and monetary policies being pushed by newly-minted Prime Minister Shinzo Abe might finally succeed in bringing inflation and growth back to Japan, but also could easily end in a financing or banking crisis.

The speculator republic: James Saft

Jan 2, 2013 21:35 UTC

(James Saft is a Reuters columnist. The opinions expressed are his own.)

By James Saft

(Reuters) – Short term movements in the stock market don’t tell you much, and one of the main things they don’t tell you is how to make public policy.

The idea that a given policy can be justified by its impact on the stock market, or that movements on the stock market in and of themselves call for (usually pacifying) public policy is one of the great fallacies of our time.

The “fiscal cliff” farce is a prime example, with lawmakers urging a deal on the grounds that stocks would fall if one was not forthcoming and analysts nodding their heads approvingly when news of the deal, at best a temporary balm, was met with a sharp rally in stocks on Wednesday.

COLUMN: UBS and too-big-to-punish – James Saft

Dec 26, 2012 20:33 UTC

Dec 26 (Reuters) – As well as too-big-to-fail it looks as if
we must think of our largest banks as too-big-to-punish as well.

After comments from top U.S. Justice Department officials in
the wake of the $1.5 billion settlement with UBS over
interest-rate manipulation, the bank’s counterparties,
employees, clients and competitors certainly will.

UBS was fined and a subsidiary pleaded guilty to one count
of felony wire fraud over its part in a wide-ranging effort to
doctor key benchmark interest rates such as the London Interbank
Offered Rate (Libor).