Links 4/28/10


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  2. fresno dan

    “US Equity Markets Feel an Unfamiliar Twinge of Fear Jesse”

    There has been a real complacency about the losses in wealth. Greece, and the other pigs, are having losses that may be substantially higher for sovereigns than in past incidents.

    The idea that these losses can be disguised forever is in my view incorrect – maybe they can, but if you accidently saw off your arm, eventually you will discover that you cannot do with one are what you used to be able to do with two.

    Debt is wealth, borrowing is income.

        1. aet

          And would not have keeping it to his left have produced the same end result, with but a difference of direction??

  3. Rex

    Re sailor story
    “keeping the coast to his right and … ended up sailing in circles around Sheppey [island until he ran out of fuel]”

    Sounds like a nice metaphor for how our economy keeps itself moving along. If he wanted a navigator, Alan Greenspan could have kept him comfortably on that course.

  4. attempter

    Re fiduciary duties:

    The whole kleptocracy is riddled with details like this which seem to belong in satire. It’s obvious on its face that the same cadre can’t function as both an adviser and a merely functional broker who’s also free to take action against the investments of those for whom he merely moves things around. (And even the broker himself is clearly in a position to trade upon inside information if he’s also a trader in his own right.)

    It’s clear that the same firm can’t legitimately perform these contradictory roles.

    For anyone who still operates according to a moral compass, this is a no-brainer, and the laws of any moral community would harshly punish such conflict-of-interest fraud.

    So it’s quite a testament to the complete moral and from that legal abdication of this system that there’s even any question about this. (Indeed the fact that there even has to be a broader debate about it at all is a sad commentary on the lack of moral vigor among the people in general.)

    I have to laugh when I read about how hapless clients of the likes of Goldman are reduced to begging to be told, “Are you saying that now as my adviser or just as a broker?”

    Here’s my own post on the Goldman testimony:

  5. RueTheDay

    Is Yves aware that Google Ads is serving up a big “Chamber of Commerce: Stop the CFPA” banner ad at the top of Naked Capitalism?

  6. goinsouth

    In reading an article on Bloomberg about yesterday’s hearing, I came across information that led me to do a little Googling. The results made me think this story will make a great novel or screenplay some day.

    Blankfein and Bernanke were Harvard classmates (’75). They were even both in Winthrop House, the “Kennedy” house. Bernanke was an academic All-Star–PBK and summa. Blankfein wasn’t in that league, but had good enough grades and LSAT score to get into Harvard Law.

    Neither came from wealthy families. If you saw the 60 Minutes fluff piece on Bernanke, you saw him walking around his little Low Country South Carolina hometown where his family owned the drug store. Blankfein grew up in Brooklyn and went to a predominately black high school. His father worked for the post office.

    Bernanke went on to MIT and became an academic, teaching at Princeton. Blankfein became a lawyer and bounced around a bit before a self-described “mid-life crisis” brought him into investment banking and eventually into Goldman Sachs when GS bought his employer.

    Now think about how each came to his current position. Bernanke took over from Greenspan just as the last of Uncle Al’s bubbles was getting ready to burst. Blankfein was handed the reins when Paulson left (bailed out?) to become SecTreas. As Hank departed, GS was very long residential real estate. I also wonder how unusual it is for a lawyer to head up GS. Blankfein’s lack of comfort with some of the more technical aspects of trading showed in his testimony yesterday.

    So you have two guys who come from relatively modest backgrounds, without any family connections, who take over their institutions right as things are about to go belly up.

    My tin foil hat is getting signals that both of these guys were put in place as fall guys.

    Do you suppose these guys will show up for their 35th next month?

    1. tyaresun

      Don’t know much about Lord Blankie but I certainly felt that Greenspam was leaving at the right time and had found a nice fall guy. If they were not expecting a crisis why promote an academic who is supposed to be an expert on the great depression.

    2. fresno dan

      Thanks for the info – that is very, very interesting. Small world. It certainly makes me wonder if there was a long term friendship – or at least a worldview that says AIG needs to pay GS 100% on the dollar.

  7. john

    I think the Fiduciary duties thing is the way to go. The cool thing about is that it’s judge-made law that can change with the times. So there’s no need to try and get bought-and-paid for Congress critters to pass new regs with each new crisis. If Goldman were deemed to be a fiduciary, then they basically have to sit in front of a judge/jury and the judge/jury decides if Goldman behaved with the highest standard of care. (see ). Goldman could basically be held liable for behaving unethically which means there is no way they would have gotten away with some of the shit they’ve pulled on clients.

    A commenter to the original article said that you can’t impose a fiduciary duty on market makers. That may be true for market makers who essentially see the order flow as coming from anonymous entities, but Goldman isn’t acting as a market maker when they actually push crap on clients … and most any judge/jury would say that shorting that same crap is unethical and a breach of fiduciary duty.

    Basically, I think Congress should do the following:
    (1) Impose a fiduciary duty on all financial entities who have a client relationship
    (2) Market makers who merely take orders and who don’t try to influence the order originator in any way would not have the fiduciary duty
    (3) Entities (inclusive of sub and parent companies) who do both should be required to completely spin off either (1) or (2) above.

    It seems like doing the three things above would go a long way to prevent future crises, but I’m not an expert in this area and would like to hear others’ opinions. All I know is that no way could Goldman stand in front of any judge/jury today and claim that they upheld the obligations of a fiduciary to their clients. Congressional dog and pony shows are nice, but judges/juries can funnel the full rage of populism at Goldman without any lobbyist intervention.

    1. Peripheral Visionary

      That seems like an excellent suggestion, and the direction I have been thinking of late. Fiduciary duty should be such that if a company has it to any of its clients, its entire operations as a firm should reflect it. If companies want to act as market makers and/or trade their own portfolios without having to worry about conflicts of interest, they should not be allowed to provide services to clients at the same time.

    2. anon

      GS’s whole “we’re the market makers so don’t have real duties to investors” was completely disingenuous. Yes, they are the market makers but they are also the ones who put together the financial products, hired the collateral managers, selected the ratings agencies, sold the securities, bought the securities, etc. Not only were the they house, they were the ones who made the rules (and switched them during the game), the dealer, some of the parties at the table, the agents of other parties at the table, and probably some other roles. Sure, maybe purely as market makers it would be unfair to expect them to look out for their clients but when they chose to have multiple roles in a transaction how ridiculous is it for them to expect that the least onerous (to them, least favorable to the other parties) rules should apply to all their roles in the transactions?

      Although I like the gist of your proposal, not all fiduciary duty rules are the same (nor are they necessarily judicially created). E.g., many consumer groups think that the fiduciary rules in the House’s proposed financial reform package would dilute the existing rules. US citizens and residents need to carefully monitor exactly what any proposed fiduciary rules require.

      “The regulatory overhaul approved by the House of Representatives in December included a section that would require a new fiduciary standard for brokers, one that would be defined by the SEC. Consumer advocates say that would likely end up being less onerous than what investment advisers now face. . . . Letting the SEC come up with a new fiduciary standard for brokers will likely mean a lighter standard that won’t match the accountability of the investment advisers, according to the North American Securities Administrators Association, which represents state regulators of brokerages.”

      I think there should be rules for issuers, collateral managers, and the ratings agencies too. The ratings agencies should have real fiduciary duties to the people who rely on their ratings. Issuers should at least have a normal contractual duties like good faith and fair dealing WRT other parties and their selection of collateral managers, ratings agencies, etc. Collateral managers need to be accountable to investors as well. I’m leaning toward a weak version of fiduciary duty, though I don’t know enough about the industry to be sure. Further, some of the conflicts should be prohibited. There is no way to adequately regulate them.

  8. MyLessThanPrimeBeef

    There is only place for robots – in robot factories designing and manufacturing more robots, making themselves self-sustaining and eliminating all that unnecessary human robotic and software engineers.

    Once that chain reaction gets going, it will be a brave new world.

  9. MyLessThanPrimeBeef

    Juries convict attractive people less often?

    What about wrinkly older people? Do juries convict them more often in contrast with younger, healthier and more attractive looking people?

  10. Peripheral Visionary

    Interesting piece this morning; particularly interesting coming from Politico, which tends toward favorable coverage of the political class.

    Why reporters are down on President Obama (Politico)

    . . . Obama and the media actually have a surprisingly hostile relationship — as contentious on a day-to-day basis as any between press and president in the past decade, reporters who cover the White House say.

    Reporters say the White House is thin-skinned, controlling, eager to go over their heads and stingy with even basic information . . .

    My comment: This is not just an empty complaint, Politico has facts to back it up: 242 Q&As for Clinton in his first year in office, vs 147 for Bush, vs 46 for Obama. For all the time Obama spends on camera, he spends precious little of it answering questions from the press, at least outside of highly controlled interviews with carefully selected interviewers. The vast majority of his time on camera is teleprompter time in front of sympathetic audiences or no audience whatsoever.

    And the reason for that fixation with controlling the message goes right back to a frequent complaint on this blog:

    “It’s a natural outgrowth of campaigning, where control of the message is everything and where a very tight circle controls the flow of information,” The New Yorker’s Packer said. “I just think it is a mistake to transfer that model to governing. Governing is so much more complicated and is all about implementation — not just message.”

    But it isn’t governing, it’s campaigning. As impressive of a campaigner as Obama was, people naturally wondered how well he would govern. What they didn’t realize is that it wouldn’t be governing–it would be campaigning non-stop.

    1. aet

      Seems rather a common characteristic of most governments, of most modern economies, it seems to me.
      Par for the course.

  11. Tom Stone

    Yves got a nice mention at huffpost by Martin Luz,who refers to her as “Him”.Yves,is there something you have not told us?

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