Money Market Debate Drags On; Blankfein Speech as a Game of Telephone

Receiving Wide Coverage ...

Money Market Funds Redux: Take 2 on money market funds is coming from the Financial Stability Oversight Council. The SEC couldn't get its act together on regulating money market funds — which have a longstanding tradition of telling investors they have a fixed value even though they kinda don't — so FSOC's stepping in. The council has told the SEC to pick the issue up again, though it's not being didactic. The SEC still can choose whether a floating net asset value or capital buffers would be appropriate. But if the agency doesn't act, the FSOC says it will. The concern for the money market industry is that, at some point, regulators get so fed up that the FSOC simply delegates the issue to the Federal Reserve and imposes a fluctuating asset value on the funds. That's "the easiest solution," one expert tells the Washington Post. While the mandate to the SEC is being viewed as the first instance of the FSOC flexing its muscles, we're not sure that it's proof of the council's robustness. Ever since a major fund "broke the buck" during the financial crisis and caused a massive dislocation in the short-term credit markets, pretty much everyone aside from the funds themselves has agreed that money markets are in clear need of greater regulation. The Financial Times provides a reminder of how slow and cautious the FSOC process is: the body is still working to determine whether AIG is systemically important, though the determination is under "advanced consideration."

What Did He Say? Did Goldman Sachs Chief Executive Lloyd Blankfein give three speeches yesterday? Because none of the major papers seem to quite agree on what he said. The New York Times says that Blankfein told a Merrill Lynch financial services conference that his investment bank and trading powerhouse is going to get slimmer in the face of increased regulation. "For the first time, it's clear that size and complexity come with a higher cost," Blankfein said, citing Basel III as something that would require banks to use more "discipline" about how they allocate capital. Blankfein also spoke "optimistically" of the Volcker Rule, The Times says, saying it would stabilize the firm's earnings and be a net positive. Something sounds a little odd here.

The Journal's take on Blankfein's comments are more focused on his suggestion that Goldman will thrive even as bond trading becomes computerized and margins shrink. Automation offers "more earnings for the winners of the concentration sweepstakes," Blankfein said. "It's our aspiration, and we have achieved it to some extent, to be the low-cost provider of these kinds of services." Goldman Sachs: the Charles Schwab of investment banking? Somehow, that’s hard to believe.

Finally, the Financial Times' estimable Tracey Alloway sums up Blankfein's talk as urging the industry to "not go overboard" in cutting staff. Alloway also highlights that Goldman's gotten very stingy about granting new partnerships to its employees. If you read just one of these three articles, go with this one.

The Wall Street Journal