Obama launches political counterattack
After being surprisingly outflanked in a style worthy of Stonewall Jackson in Massachusetts, President Obama launched a massive frontal assault today in an attempt to regain the higher ground. With talk of senators and congressmen weakening their resolve on the health care legislation for fear that voters will turn them out in November, Obama is going on the offensive with an array of proposed banking legislation that will put that same fear into those members of Congress --- "If I don't vote for Obama's tough talk proposals on financial regulation will my home district or state voters throw me out as a pawn of the 'fat cat' bankers." Republicans will by their historic nature be almost 100% against this bill after running around the country for the last six months talking like Wall Street hating populists to the tea parties. Irony served up for them.
Having listened to part of the speech in a midtown Fidelity office until some laughing geezer yelling "fat cats, fat cats" made hearing impossible, reading Bloomberg reports, and watching a BBC World news program(and avoiding all prime television chatter), I am less than fully informed but somewhat pure from the ranting sensibility of our days. Nevertheless, here are some preliminary observations:
---Some of the proposals are not well grounded and for political purposes only one would hope. The tone of his commentary was inflamatory rather than constructive.
---Why not propose that the government become an effective regulator instead of blaming just banks for everything. Obama proposes limits on bank activity in credit default swaps and other risky transactions. Why not set up a regulatory framework and transparency requirements on these instruments for all financial institutions such that pure invesment banks, hedge funds, private equity funds, insurance companies, foreign banks operating in the U.S. and others are brought into the net. That would be meaningful in dealing with the systemic risk. What Obama proposes is political punishment.
---Markets in many areas are still functioning with limited liquidity that is holding back a rebound in the economy. Securization markets are operating at 20% of 2007 levels, loan syndication markets are lame in many areas with only the highly rated and new issue high yield(explain that) having some realistic liquidity. Proposing to limit the trading capacity of all major U.S. banks has the potential to dampen what liquidity we have overall, and passing such legislation could doom the markets to where we are today unless UBS, CSFirstBoston, HSBC, Deutsche and others come in and make some money. That's an overstatement, but what Obama is saying, again, is for political consumption.
---He proposes cutting back on large banks in a way that suggests that JPM, BAC, Citi, and others would need to cut back on, separate or sell investment banking and some asset management activities. Is this a move to put more power back into the pure investment banks while those pure boys will now have FDIC insurance. It looks like it. Let see, weren't there five major pure investment banks in 2007. Three were the leaders in structuring and distributing mortgage backed securities. What were their names, oh yeah, Bear Stearns, Lehman, and Merrill Lynch. Then there was the market ax in the CDS market, an insurance company AIG. What about the market leaders in bundling mortages for securitization, I remember, Fannie and Freddie, those giant firms that report to and are run by Congress and who trade for around a dollar or two today. Then again maybe I have a bad memory.
---How do you define proprietary trading and with that answer we'll know if what the President said makes any sense at all. Working in financial services in New York for over 20 years one could say I'm biased or one could also say I know what I'm talking about(probably somewhere in between). Banks constantly hedge all of their activities in some way so that they can create huge liquid markets in fx, interest rate derivatives, loan books, and hedge their deposit bases. With these massive market flows they must trade with a point of view. Working in a capitalist society and for shareholders they try to do this in a profitable way. What's Obama talking about. One would be hopeful that he means huge, absurd actually, unhedged CDO books like Citi and Merrill had because CEO's Prince and O'Neal had no clue about capital markets, or the CDS book at AIG that had ballooned out of proportion under the clueless Sullivan, but who knows what Obama means or even what he knows about finance.
We definitely need to reform financial regulation. This kind of knee jerk, almost megalomanic, reaction to an election is not the right approach. There's more to say, but I'm tired.
Having listened to part of the speech in a midtown Fidelity office until some laughing geezer yelling "fat cats, fat cats" made hearing impossible, reading Bloomberg reports, and watching a BBC World news program(and avoiding all prime television chatter), I am less than fully informed but somewhat pure from the ranting sensibility of our days. Nevertheless, here are some preliminary observations:
---Some of the proposals are not well grounded and for political purposes only one would hope. The tone of his commentary was inflamatory rather than constructive.
---Why not propose that the government become an effective regulator instead of blaming just banks for everything. Obama proposes limits on bank activity in credit default swaps and other risky transactions. Why not set up a regulatory framework and transparency requirements on these instruments for all financial institutions such that pure invesment banks, hedge funds, private equity funds, insurance companies, foreign banks operating in the U.S. and others are brought into the net. That would be meaningful in dealing with the systemic risk. What Obama proposes is political punishment.
---Markets in many areas are still functioning with limited liquidity that is holding back a rebound in the economy. Securization markets are operating at 20% of 2007 levels, loan syndication markets are lame in many areas with only the highly rated and new issue high yield(explain that) having some realistic liquidity. Proposing to limit the trading capacity of all major U.S. banks has the potential to dampen what liquidity we have overall, and passing such legislation could doom the markets to where we are today unless UBS, CSFirstBoston, HSBC, Deutsche and others come in and make some money. That's an overstatement, but what Obama is saying, again, is for political consumption.
---He proposes cutting back on large banks in a way that suggests that JPM, BAC, Citi, and others would need to cut back on, separate or sell investment banking and some asset management activities. Is this a move to put more power back into the pure investment banks while those pure boys will now have FDIC insurance. It looks like it. Let see, weren't there five major pure investment banks in 2007. Three were the leaders in structuring and distributing mortgage backed securities. What were their names, oh yeah, Bear Stearns, Lehman, and Merrill Lynch. Then there was the market ax in the CDS market, an insurance company AIG. What about the market leaders in bundling mortages for securitization, I remember, Fannie and Freddie, those giant firms that report to and are run by Congress and who trade for around a dollar or two today. Then again maybe I have a bad memory.
---How do you define proprietary trading and with that answer we'll know if what the President said makes any sense at all. Working in financial services in New York for over 20 years one could say I'm biased or one could also say I know what I'm talking about(probably somewhere in between). Banks constantly hedge all of their activities in some way so that they can create huge liquid markets in fx, interest rate derivatives, loan books, and hedge their deposit bases. With these massive market flows they must trade with a point of view. Working in a capitalist society and for shareholders they try to do this in a profitable way. What's Obama talking about. One would be hopeful that he means huge, absurd actually, unhedged CDO books like Citi and Merrill had because CEO's Prince and O'Neal had no clue about capital markets, or the CDS book at AIG that had ballooned out of proportion under the clueless Sullivan, but who knows what Obama means or even what he knows about finance.
We definitely need to reform financial regulation. This kind of knee jerk, almost megalomanic, reaction to an election is not the right approach. There's more to say, but I'm tired.
posted by John Borden at 10:38 PM
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