Receiving Wide Coverage ...
More ‘Muppets’: Greg Smith’s not-so-fond farewell to Goldman Sachs remains the talk of the town. Over at JPMorgan, CEO Jamie Dimon emailed colleagues on the operating committee to warn them against indulging in schadenfreude. “I want to be clear that I don’t want anyone here to seek advantage from a competitor’s alleged issues or hearsay — ever,” he wrote, according to the FT. “It’s not the way we do business ... We respect our competitors, and our focus should be on doing the best we can to continually strengthen our own standards.” The headline for another FT story says some of Goldman’s clients are “stand[ing] by” their investment bank, though it turns out these customers are not so much defending the firm as acknowledging they have no illusions about whom they’re dealing with. “They are indeed very aggressive and you better not turn your back on them,” one industrial executive says of Goldman. In other words, these clients won’t be taken for “muppets,” the term Smith says his former colleagues used to describe gullible clients. FT columnist Frank Partnoy (whose 1990s Morgan Stanley memoir “F.I.A.S.C.O.” described traders bragging about “ripping faces off,” rather than just the figurative eyeballs that Smith claims his Goldman colleagues gleefully gouged), says that beyond the visceral reactions, the Smith kiss-off points to a fundamental issue in financial reform: “What does it mean to be a client? … There are clients, and there are clients.” He means there are fiduciary relationships and non-fiduciary ones. The “clients” in the latter arrangement are really just counterparties, and a trader “is not obliged to act in a disadvantaged counterparty’s best interests, any more than a savvy poker player is obliged to show a poor player his good cards,” Partnoy writes. “The tough question for the future is whether less sophisticated institutions should be entitled to more protection. In other words, should they be treated as true clients?” The discussion is more than just theoretical, since Dodd-Frank requires regulators to write standards of conduct for derivatives dealers that trade with municipalities, pension funds, and other potential rubes. In the Journal, “Heard on the Street” considers the Smith critique of Goldman’s culture in an even broader context. “More Than Culture Shifted On Wall Street,” declares the headline for a column that’s really about the outsized role the financial sector has come to play in our economy. Indeed, we at the Morning Scan long thought that having an economy driven by finance was at least one step too far removed from the real world. Kind of like … well … watching a cartoon about the Muppets. In the Times, which got the whole meme started a few days ago when it ran Smith’s op-ed, a news article reports that the bad publicity for Wall Street is yet another impediment to financial firms’ recruitment efforts on college campuses, and columnist Floyd Norris is incredulous that, despite everything, Congress is seriously considering a rollback of regulations for IPOs and private placements. On American Banker’s BankThink blog, our own columnist Joel Sucher says that homeowners who tried to get loan modifications from Litton Loan Servicing, a former Goldman unit, were also treated like muppets. And finally, Southern California Public Radio points out that the Muppets actually were Goldman clients once — in 2003 the firm advised Jim Henson’s family on the acquisition of a merchandising company.
Rakoff Rebuked: An appeals court hinted it would overrule district court Judge Jed Rakoff’s rejection of the SEC’s settlement with Citigroup over charges the bank misled investors in a mortgage CDO deal. The higher court’s ruling was largely procedural — it delayed the start of a civil trial — but it suggested Rakoff overstepped his authority when he criticized the SEC’s standard operating procedure of extracting fines from defendants without requiring them to admit wrongdoing. “It is not … the proper function of federal courts to dictate policy to executive administrative agencies,” the appeals court said. Wall Street Journal, Financial Times, New York Times, Reuters
Wall Street Journal
The Journal interviews MetLife CEO Steven Kandarian, who’s “deeply disappointed” that the Fed won’t let his insurance company return capital to shareholders after the latest stress tests.
“A growing appetite for risk” has global banks and securities firms salivating over what’s left in Maiden Lane, the New York Fed’s portfolio of legacy assets from the AIG bailout.
Bankers who complain about intrusive regulations should just be glad Dodd-Frank doesn’t require them to have blood tests or heart rate monitors at work. Seriously. FT columnist Gillian Tett interviews a neuroscientist who used to work in finance (including at Goldman Sachs) and says that hormone levels can drive fluctuations in asset prices, and thus should be monitored by regulators. “Studies suggest that financial traders typically have relatively high levels of testosterone relative to the wider population, and these levels often rise once they join a trading floor.” Really, though, do you need a degree in biochemistry to know that?