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Diary of Dodd-Frank: Wall Street didn't have a lot of luck in stopping Capitol Hill from imposing restrictions on its activity in the wake of the financial crisis. Now it's stepping up efforts to roll back new laws it doesn't like by challenging them in the court. The latest example came Friday when two industry trade groups-the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association-sued to block limits on speculative trading. Their suit challenges the Commodity Futures Trading Commission's so-called position limits rule. The New York Times reports that the CFTC adopted the rule in October to cap the number of contracts a trader can hold on 28 commodities and that it is a key part of the Obama administration's efforts to enforce the Dodd-Frank Financial Reform Act. Specifically, the industry lobbies accuse the CFTC in their lawsuit of failing to evaluate the rule's economic impact on Wall Street. (They did not, notably, call for any study of the economic impact on the world economy of Wall Street's derivatives-based implosion.) "The evidence is overwhelming that position limits are, at best, unnecessary and may, at worst, negatively impact commodity markets and users," ISDA chief executive Conrad Voldstad said in a statement. Countered Sen. Carl Levin, liberal Democrat of Michigan, in a retort that summed up what has been obvious for months to even the most casual observers: "The financial industry tried to water down Dodd-Frank before it was enacted, has been trying to chip away at it since it became law, and is continuing that effort." For those involved of all political stripes, the lawsuit's intent is clear-undermine Dodd-Frank's so-called Volcker Rule, which itself aims to curtail Wall Street's speculative activity by restricting proprietary trading and private equity investments. The Wall Street Journal notes that Gibson, Dunn & Crutcher, the firm representing the industry lobbies, successfully represented the U.S. Chamber of Commerce and the Business Roundtable in suing the Securities and Exchange Commission over a new rule that would have allowed investors to more easily oust corporate directors. The so-called proxy access rule was overturned in court, and the SEC decided not to appeal the ruling. The decision incited fear among regulators, and even caused several agencies to re-examine their Dodd-Frank rules, according to the Times. As an indication of how rabidly the Street opposes bids to limit its trading activity, the Wall Street Journal reported in October that industry attorneys were stuck pulling all-nighters following the release by American Banker of a draft proposal of the Volcker Rule. The CFTC's position limit proposal alone has elicited 15,000 comment letters. No letters have been received so far expressing sympathy for sleep-deprived Wall Street lawyers. New York Times, Wall Street Journal
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Pay Masters: It might be a crummy year for Wall Street bonuses, but "in the alchemy of high finance, bankers are hoping to turn the slump to their advantage" by doling out cheap stock, the Times reports. "This year is the perfect situation where they can say it is a modest bonus season, but in the end, it could end up making many of them zillionaires," said an unnamed professor of corporate law and finance at Yale, parroting the point the New York Times had already made. Yes, it's true that moves to make Wall Streeters eat the same dog food as shareholders and investors can turn out well for them. Such was the case after Credit Suisse in 2008 set up a Partner Asset Facility filled with mortgage-backed securities; initially, it went over about as well as hosting a Wall Street holiday party at a Fuddruckers; it eventually struck recipients as a pretty good idea after rocketing in value, just as the Times would have it. Not that the political agendas of owners matter in journalism, of course, but the Wall Street Journal has a piece making the point 180 degrees opposite the Times'-namely, that those downtrodden souls at MF Global are learning the hard way about the risks of gambling on their employers. That story illustrates how, in an impressive feat of lousy timing, MF began requiring workers to put portions of their pay into company stock around the time new Chief Executive Jon Corzine began converting the firm into a giant roulette wheel. In this unscientific sampling of one, the results have not been happy. Speaking of unhappy pay stories, both the Times and Journal have items on Wall Street diversity. Yes, it turns out, there are more women and minorities treading the halls of the nation's financial institutions. But the average white guy made 55% more than did the average woman between 2005 and 2009, according to a study from the City University of New York's Center for Urban Research. Among minorities, most of the employment gains were for Asians and white Latinos. Blacks made little progress. New York Times, Wall Street Journal
Euro Euphoria?: European leaders will take yet another stab at fixing their debt crisis this week after the failure of their fourth rescue blueprint sparked intensified concern that the 17-nation euro area was on the brink of unraveling, Bloomberg reports. To further the efforts, German Chancellor Angela Merkel and French President Nicolas Sarkozy reportedly did lunch in Paris today. In what might be regarded as a session on learning from mistakes, U.S. Treasury Secretary Timothy Geithner will then arrive in Frankfurt tomorrow to share his crisis-management thoughts with members of the European Central Bank. On Dec. 9, the action shifts to Brussels for a European Union summit. All the moving around comes amid hopeful signs that the continent's political leaders are stumbling toward a semblance of stability. In a story titled "A Break in the Debt Gloom," the Wall Street Journal notes that bond yields last week staged a reversal of their previously relentless November climb. The yield on a key Italian 10-year bond finished Friday at 6.56%, down from 7.16% a week earlier and in line with levels two weeks ago. It was likewise a very good week for stocks. Helping to lower the anxiety level today is news that Italian technocrat turned Prime Minister Mario Monti has made his parliament an offer it can't refuse. It involves administering a dose of austerity upon their compatriots' admirable Southern European lifestyles. Financial Times, New York Times, Wall Street Journal
Wall Street Journal
Here's a job MF Global's former chief executive Jon Corzine might qualify for: Director of Lehman Brothers Holdings' bankruptcy estate. What is left of Lehman is reported to be close to naming a new board to help wind down tens of billions of dollars in assets for the benefit of Lehman creditors. Those interviewed for board seats are said to include those with big-time bankruptcy experience. Among them: Sean Mahoney, a current director of auto-supplier Delphi Automotive PLC, and John J. Ray III, former chairman of Enron Corp. Unlike Corzine, of course, those candidates gained their bankruptcy expertise after the collapse.
Chase, the retail side of the nation's biggest bank by assets and deposits, has hired a new chief financial officer. It is David Owen, former head of online and mobile banking at Bank of America Corp. His challenge at JPMorgan Chase will be to help press on in expanding consumer banking amid sliding profitability. Owen's move represents yet another executive-level departure from Bank of America, which in recent months has managed to wrest away from Citibank the title of Public Enemy Number One.
The land of happy bankers apparently lies north of the border these days. Royal Bank of Canada and Bank of Nova Scotia both posted better-than-expected fourth-quarter profits Friday. Their strong performances were supported by a resilient Canadian economy, yet reflect dramatically different strategies. RBC, the country's largest bank by assets, continued its home-field dominance while Scotiabank showed international strength, despite global economic uncertainty.
Who's to blame for the U.S. and European financial crises? Regulators, according to an opinion piece by Peter J. Wallison. The U.S. financial crisis was made substantially worse because banks and other financial institutions were encouraged by the Basel capital rules to hold the very assets-mortgage-backed securities-that collapsed in value when the U.S. housing bubble deflated in 2007, argues the senior fellow at the American Enterprise Institute. "Today's European crisis illustrates the problem even more dramatically. Under the Basel rules, sovereign debt-even the debt of countries with weak economies such as Greece and Italy-is accorded a zero risk-weight.
Financial Times
Foreign exchange traders are braced for an unusually volatile end to the year after a sharp fall-off in volumes signaled that many investors have closed their books early, reports the FT. Trading floors at investment banks are reporting a drop in demand from their major clients-many of which have lost money trading the euro, due to its unexpected strength in the face of deepening debt woes across the region. Volumes for some currency pairs were up to 30% lower in November than in the previous two months, according to estimates by Citi for the whole market, using data from the EBS trading platform.
New York Times
MF Global's disgraced boss Jon Corzine may have been foresight challenged when he blew up his firm by loading it up with European sovereign debt, but he does deserve credit for loading up on white-shoe lawyers as soon as his firm collapsed. In a further indication of his ability to create value in the form of billable hours, Corzine has been compelled by a unanimous vote by the House Agriculture Committee to appear at a hearing on Thursday. Can you say "Fifth Amendment right"?
Gretchen Morgenson, who has been left almost single-handed to bring gravitas to what's left of the Sunday Times business section, zeroed in this week on a Bloomberg story she says sheds new light on "the magnitude of financial aid that the Federal Reserve bestowed on big banks during the 2008-09 credit crisis." Yes, admits Morgenson, Wall Street welfare is hardly new. But she argues that the report reveals a new level of untruthfulness by financial institution bosses. Says the story: "During the first three months of 2009, for example, when Citigroup's Fed borrowing apparently peaked, Vikram Pandit, its chief executive, hailed the company's performance. Calling that first quarter the best overall since 2007, Mr. Pandit said the results showed 'the strength of Citi's franchise.'"
Lloyd Blankfein buddy Edward C. Forst is leaving Goldman Sachs. A member of the company's influential management committee, His departure was officially described as a retirement, but the Times indicates that the 51-year-old was guilty of failing to play well with others-a major no-no at we're-all-in-this ("this" being getting filthy rich) together Goldman. "Complaints about Mr. Forst's management reached a boiling point after he failed to show up for an important meeting in Europe" several weeks ago, the story says.
Everybody loves Nobel laureates. Or so it seems, based on the Times' joint profile of two recent Nobel-prize winning economists, Thomas J. Sargent and Christopher A. Sims. The piece describes the duo as reluctant celebrities that "Conservative voices, like the editorial page of The Wall Street Journal" have wrongly claimed as their own…Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are long-time Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve." And how would the Times sum up their work? "They have shown that fiscal and monetary policy are inextricably linked, and their research reflects the broad shift in economics from words to numbers - toward a level of empirical analysis that few outside the profession can readily grasp." Apparently, it's complicated.
