the finance industry / wall street

oh, price isn't trustworthy. But it tells you what the market thinks! The relationship between perceived risk and returns is like the first thing they teach to any trader or investment manager. similarly, any trader of investment manager should know that the information provided to them by people who want to sell them things has a certain innate bias, and that ratings vary by the class of product they're rating. none of this is obscure.

You make a good case that no one knows what they are doing.

oh, _some_ people cleaned up :-)

last week’s details of the undisclosed settlement between the New York Fed and Bank of America are remarkable. Not only do the filings show the New York Fed helping to thwart another institution’s fraud case against the bank, they also reveal that the New York Fed agreed to give away what may be billions of dollars in potential legal claims.

http://www.nytimes.com/2013/02/17/business/dont-blink-or-youll-miss-another-bank-bailout.html?nl=todaysheadlines&emc=edit_th_20130217&_r=0

this much we can agree on, i think: a lot of stuff that went on pre-2007 that we see as face-palm obvious (such as "if bond A is as safe as bond B, then why is bond A more expensive than bond B? perhaps we need to do some more research before plunking our municipal pension money in bond A") went on as "normal course of business."

also, i don't underestimate sheer human laziness, even amongst professional investors and others w/ fiduciary obligations. how all of that will look to a court or administrative tribunal is another messy kettle of fish.

yeah, i totally agree on all this. its just hard to make an argument for a lawsuit based on the idea that you're incompetent. especially when with these sorts of products you typically have to sign off on some form claiming that you're a "sophisticated institutional investor capable of assessing risk" or etc.

This is a really interesting debate, and I think all of you guys are making really smart points.

My takeaway about the ratings agencies is that they're not really experts at all, more like a third party marketing agency -- AAA rating = the Better Homes and Gardens Seal of Approval for bonds. Or at least, once they got asked to rate more complicated securities than your standard corporate and government bonds, that's what they became.

One other thing I'd point out, although this doesn't resolve the price/risk/rating issue, is that a lot of these securities were too complex and individual to have an active enough market to price them properly. AAA may have been even more important for securities that didn't really trade.

Also, it's easy to say this with hindsight, but there are a wide variety of levels of financial "sophistication," and a quant guy at Goldman Sachs is on quite a different plane from someone managing a pension fund for the tallahassee fla police dept.

http://dealbook.nytimes.com/2013/02/26/wall-street-pay-rises-for-those-who-still-have-a-job

eventually there will just be one person on wall st and for his bonus he gets everything in america

but damn did he earn it, he worked late nights even

http://firstread.nbcnews.com/_news/2013/02/26/17102636-senate-panel-approves-lew-nomination?lite

Other Jack Lew news from earlier:

http://nymag.com/daily/intelligencer/2013/02/did-citi-pay-jack-lew-a-government-job-bounty.html

there is indeed something odd, to the untrained eye, about the revelation that likely next Treasury secretary Jack Lew had a contractual agreement with Citigroup, where he worked from 2006 to 2008, that guaranteed he would get to keep his bonus payment in the event that he left the bank to take "a full-time high level position with the United States government or regulatory body."

Various people have taken this odd contractual clause as evidence of a vast Citigroup conspiracy, whereby the bank rewards its employees for zooming through the revolving door to Washington, where presumably they will continue to do Citigroup's bidding in a shadowy, unofficial capacity.

Now, perhaps I'm being too charitable here, but I don't read much between the lines of Lew's Citigroup contract, other than that he's a fairly skilled negotiator who was able to get himself a beneficial clause in his contract.

First, it's useful to clarify: Jack Lew didn't get a "bonus" for leaving Citigroup to go to the public sector. There was no extra money involved. Instead, by taking a high-ranking government job, Lew simply got to keep the bonus money he had already been paid.

uhhh. weird.

Yeah it's not a vast Citigroup conspiracy, it is just THE WAY THINGS ARE in an entirely mundane way.

A mundane those in Wall Street kind of way...

Plus the fact that he got this huge bonus at the same time that Citi was being bailed out by us taxpayers, makes it look even worse

before mf global's fall, there were bonds that had higher payouts if corzine left his post to take a govt job or whatever.

A familiar story but told well:

http://blogs.scientificamerican.com/guest-blog/2013/02/27/why-its-smart-to-be-reckless-on-wall-street/

Jack Lew got approved, although Bernie Sanders voted against him because of his Citigroup dealings

A familiar story but told well:

http://blogs.scientificamerican.com/guest-blog/2013/02/27/why-its-smart-to-be-reckless-on-wall-street/

― o. nate, Thursday, February 28, 2013 10:44 AM Bookmark Flag Post Permalink

I came up with a probably simplistic but not ridiculously far-off scheme for how to get rich in hedge funds

1) Get a degree from some "prestigioius" institution like Harvard, MIT, Stanford, etc.
2) Come up with a sexy-sounding strategy -- if you're a math guy it could be a "quant" thing, but it could also be just one of those "common sense" strategies
3) Use contacts from your elite school to get some assets under management
4) HF managers get 2% of assets plus 20% of profits per year, so with 5 million in assets (not that much in hedge fund terms) and even low returns you're already breaking six figures
5) If you're at all successful by sheer luck, you'll get more assets under management and make a killing
6) If you fail, no loss. Come up with a new one and repeat the steps 2-5.

0) Be born to a wealthy family.

I think you are missing the step 'work at ibank for a while'

yeah, you're both correct. wealthy family is not essential if you are social enough at an ivy, but it sure would help.

oh and I forgot to mention that you're making six figures at lower tax rates

http://news.firedoglake.com/2013/03/01/occupy-the-sec-sues-fed-sec-cftc-fdic-treasury/

Occupy The SEC, one of Occupy Wall Street’s offshoots, has filed a lawsuit in hopes of forcing regulators to (finally) finalize the Volker Rule – a provision within the Dodd-Frank Act of 2010. Three years later many of the rules that Congress punted to regulators in the law have not even been made let alone enforced.

...

This is not the first action by Occupy The SEC which seems to fall into the more liberal technocratic wing of Occupy Wall Street. The group offered a 400 page comment letter during the comment period of the rule making process.

!!THANK YOU, Occupy the SEC!!

http://thehill.com/blogs/floor-action/senate/285611-brown-vitter-to-introduce-bill-addressing-too-big-to-fail-banks

Progressive Dem Brown and Rightwing Republican Vitter. Wow. And George Will wants to break up the big banks too. There must be a trick involved. What am I missing?

http://news.firedoglake.com/2013/03/01/occupy-the-sec-sues-fed-sec-cftc-fdic-treasury/

Occupy The SEC, one of Occupy Wall Street’s offshoots, has filed a lawsuit in hopes of forcing regulators to (finally) finalize the Volker Rule – a provision within the Dodd-Frank Act of 2010. Three years later many of the rules that Congress punted to regulators in the law have not even been made let alone enforced.

...

This is not the first action by Occupy The SEC which seems to fall into the more liberal technocratic wing of Occupy Wall Street. The group offered a 400 page comment letter during the comment period of the rule making process.

― curmudgeon, Friday, March 1, 2013 2:03 PM Bookmark Flag Post Permalink

This is nice but there's a lot wrong with the Complaint and I think it's unlikely to survive a motion to dismiss. That said, it may nonetheless be a good way of bringing attention to the problem.

No Republican appointed judge will find that they have standing.

It would be nice if coverage of their lawsuit happens in mainstream media and not just the lefty blog I linked to.

Neither would any democrat-appointed judge, at least based on my quick research. There's just no basis that I know of for a lawsuit by private citizens forcing a rulemaking body to adopt rules. The statutes that they cite don't really apply.

http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202573450046&Gibson_Dunn__Crutchers_Scalia_Strikes_Again_in_DoddFrank_Rule_Challenge&slreturn=20130205101108

So Scalia's lawyer son Eugene wages war against Dodd Frank and the Commodities Futures T C and other regulatory bodies, and then later we will get to see more Hurting 2 posts that based on both longstanding financial rules as well as recent changes, there is nothing that can be done about egregious Wall Street behavior!

http://www.washingtonmonthly.com/political-animal-a/2013_03/dodd_franks_death_by_a_thousan043346.php

curmudgeon your beef is not with my posts, but with Article III of the Constitution as interpreted by Supreme court for the last 90 years or so:
http://en.wikipedia.org/wiki/Case_or_Controversy_Clause
http://en.wikipedia.org/wiki/Standing_(law)#Standing_requirements

My main beef is not with longtime rules of standing that do allow corporations (with support from their lobbyists and lawyers) to prove harm and have standing, but with the regulatory agencies and the Justice Department and the Courts that give in to theories and ideas from the likes of Eugene Scalia as well as from neo-Dems like Robert Rubin

http://www.washingtonpost.com/opinions/katrina-vanden-heuvel-its-time-to-tax-financial-transactions/2013/03/04/d496d738-8516-11e2-98a3-b3db6b9ac586_story.html?hpid=z2

Dream dream dream

http://www.bloomberg.com/news/2013-02-24/remember-that-83-billion-bank-subsidy-we-weren-t-kidding.html

Smells like entitlement to me.

http://www.nytimes.com/2013/03/11/opinion/confirmation-questions-for-mary-jo-white.html?nl=todaysheadlines&emc=edit_th_20130311

Those who want a get-tough approach with the financial industry will focus on her years as a top federal prosecutor in Manhattan, from 1993 to 2002. Those who want a Wall Street ally at the S.E.C. will focus on her work in the past 10 years as a corporate attorney, representing big banks and other major corporations.The public deserves more from the hearing than a foregone conclusion. Senators should press Ms. White to give specifics on how she would handle potential conflicts as well as her approach to the job

If she recuses herself from any matter concerning her former clients, what is left? As a defense attorney for the big banks, she knows where the bodies are buried. Is she able and willing to use that information? Her husband has been lobbying against the Dodd Frank regulations. Is she willing to spurn his arguments? Or is her nomination a most perverse expression of the "regulatory capture" that has rendered the SEC and other financial regulatory agencies toothless?

This should be of particular concern now that Attorney General Holder has publicly admitted that the Department of Justice considers big banks too big to jail. White, no doubt, has helped to construct that pernicious argument as a defense attorney over the last years. Is she willing to repudiate that posture in her new role?

http://www.huffingtonpost.com/robert-l-borosage/mary-jo-white-wall-street_b_2852265.html

http://www.washingtonpost.com/business/economy/mary-jo-white-faces-no-opposition-at-sec-confirmation-hearing/2013/03/12/812608ac-8b39-11e2-b63f-f53fb9f2fcb4_story.html

The hearing was a letdown for anyone expecting fireworks. Not a single senator voiced even slight opposition to President Obama’s pick to head the Securities and Exchange Commission, despite previous concerns by some about her ability to effectively police Wall Street.

I'm wondering if Hurting 2 will weigh in that no matter who is in charge of the SEC, because of the way existing laws and regulations are established, no one can ever do anything about Wall Street (other than dream about a fantasy Congress breaking up the big banks,giving Dodd-Franks teeth, and taxing certain transactions on Wall Street)

The pool of people who adequately understand the finance industry and securities regulation who have never worked at a firm that defends those banks is unfortunately very small.

So instead we get a soon to be confirmed SEC head who was a defense attorney for the big banks, and whose husband has been lobbying against the Dodd Frank regulations

http://www.washingtonmonthly.com/political-animal-a/2013_03/keep_your_eye_on_doddfrank043695.php

the good and the bad re Dodd Frank implementation

The unexplained mystery is why Obama keeps going back to Wall Street for appointees to important regulatory positions when there are thousands of qualified people elsewhere who understand how Wall Street works and would be fearless in holding it accountable for its bad behavior.

(William D. Cohan, the author of "Money and Power: How Goldman Sachs Came to Rule the World," is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. Contact the writer at wdco✧✧✧@ya✧✧✧.c✧✧,)

http://articles.mcall.com/2013-03-19/opinion/mc-mary-jo-white-cohan-column-white-20130319_1_wall-street-debevoise-plimpton-llp-mary-schapiro/2

William Cohan is a former managing director at JPMorgan Chase.

Anyway, I'm genuinely curious to know who he means. Attorneys who understand wall street are usually attorneys who worked for the big firms that work for wall street. The exception might be plaintiffs' side securities lawyers, which could make for an interesting pool of candidates actually - they might have more of an aggressive attitude.

That could be what he means.

there are thousands of qualified people elsewhere who understand how Wall Street works and would be fearless in holding it accountable for its bad behavior.

No.

The inability of judges, plaintiff's attorneys and (lol) consumers to understand bank processes and procedures has become sort of darkly hilarious to me. Which brings forward the essential problem which is referred to elsewhere in this thread: the only people who sufficiently understand the industry to regulate it are insiders. The paradox of course is that more regulation intensifies this problem, as it creates both more consolidation within the industry (as only the largest players can afford the compliance measures demanded by institutions like the Consumer Financial Protection Bureau) and more internal complexity. Eventually a financial's institutions operations and risk management procedures become so byzantine that only a select group of specialists can possibly understand them.

a financial's institutions operations and risk management procedures become so byzantine that only a select group of specialists can possibly understand them.

I doubt this has happened to thrifts, so there is a viable alternative for putting one's money back into the financial stream without much exposure to credit default swaps or weird hedging strategies. It pays shit for interest, but punishing savers and forcing money into high risk positions has been Fed policy for decades now, so low risk, but modest, returns are no longer an option.

http://www.nytimes.com/2013/03/22/technology/testing-a-new-class-of-speedy-computer.html?hp&_r=0

surprise in 'quantum computing goez commercial' article about lockheed martin:

“What we’re doing is a parallel development to the kind of computing we’ve had for the past 70 years,” said Vern Brownell, D-Wave’s chief executive.

Mr. Brownell, who joined D-Wave in 2009, was until 2000 the chief technical officer at Goldman Sachs. “In those days, we had 50,000 servers just doing simulations” to figure out trading strategies, he said. “I’m sure there is a lot more than that now, but we’ll be able to do that with one machine, for far less money.”

gonna be some quantum hypertrading going on up in this business eventually

The Senate report on JPMorgan Chase's multibillion-dollar trading loss documents incompetence and stupidity by the bank and its regulators.

New York Times summary

"I doubt this has happened to thrifts, so there is a viable alternative for putting one's money back into the financial stream without much exposure to credit default swaps or weird hedging strategies."

the big bets the banks took weren't with small saver funds, which are insured anyway. and most of the banks doing it weren't consumer banks but investment banks anyway (which got consumer bank status _after_ the crisis as part of the bailout).

people don't have checking/savings accounts with goldman and jpmorgan typically (and e.g. didn't with lehman).

citi and bank of america and etc. act terribly in different ways (more tied in the recent period to crappy loan origination schemes etc.)

http://www.newrepublic.com/article/112720/president-obama-and-dodd-frank-why-wont-he-defend-it

If the Treasury Department or White House do not weigh in strongly and soon against House efforts to undermine Dodd-Frank derivative provisions, the limited gains in Dodd-Frank may begin to recede. If Wall Street proponents succeed in passing this wave of Dodd-Frank “fix it” bills, more will follow. Wall Street reform is a legacy issue for the president. Does he really want a derivative deregulation bill to reach his desk in the coming months?

regarding the quantum computing article,

“There’s no reason quantum computing shouldn’t be possible, but people talked about heavier-than-air flight for a long time before the Wright brothers solved the problem,” said Scott Aaronson, a professor of computer science at the Massachusetts Institute of Technology. D-Wave, he said, “has said things in the past that were just ridiculous, things that give you very little confidence.”

Aaronson writes an interesting blog with a lot on D-wave: http://www.scottaaronson.com/blog/?s=d-wave