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May. 8 2010 — 1:32 pm | 2,401 views | 6 recommendations | 30 comments

Balance in the Washington Post

Lawmakers from both parties have been eager to excoriate Wall Street. But industry lobbyists warn that populist proposals to shrink, break up or otherwise shackle some of the giants of the financial world could do more harm than good to the economy. These advocates say that stiff regulation could stifle the flow of credit, undermine American competitiveness in global markets and cost jobs.

Among the terms that lobbyists used to describe elements of the legislation: “Draconian.” “Crazy.” “Insanely unproductive.”

via Lobbyists fret over legislation to reshape financial system.

Not sure if anyone saw this piece, but the Washington Post’s Brady Dennis fired off one of the weirder pieces of journalism I’ve seen of late in a news daily on the financial crisis.

The essence of his piece was that Wall Street lobbyists had been banking on the Financial Regulatory Reform bill getting pared down behind closed doors as it got closer to a vote. Over the course of 900 words or so Dennis quoted one lobbyist after another talking about how politicians were getting too emotional about this whole ruined-economy thing, and were proceeding with “crazy” and “insanely unproductive” proposals.

Dennis does this, but he never explains what’s so “crazy” about any of these proposals, and in fact only vaguely even hints at what they are. We get that proposals to cap the size of banks and limit prop trading desks are among the things he’s talking about, but we’re apparently supposed to assume automatically that we understand why those things are “crazy” and “unproductive,” which is very odd given the events of the last two years.

The other thing he doesn’t do is ask anyone on the other side of the deal to comment on the rank silliness of these lobbyists’ claims. Maybe that’s because he couldn’t find anyone on the other side. There are about 1800 financial lobbyists wandering DC these days — I was physically bumping into these guys in DC this week in the halls of Hart and Dirksen — while the leading reform groups (like Americans for Financial Reform) have few if any. (AFR, as far as I understand, has no paid lobbyists and just a few dozen volunteers).

This kind of rhetoric is something you normally see a lot of in campaign journalism. You’ll see whole pieces about how X or Y candidate is “strong on immigration” or “has a good record on defense issues” or “frightens voters with his radical stance on the environment,” but the writer won’t elaborate on what those positions actually are/were. You’re supposed to move straight past the details and just swallow the reporter’s characterizations. It makes it easier to cartoonize stories, which is a big plus especially during campaign season and is also proving useful during a detail-laden behemoth of a story like this FinReg bill.

I suppose there’s a way to read this piece that’s just a bust on all these overpaid lobbyists whining about how much harder than usual it suddenly is to bribe the congress away from real action — that was my first reaction to it — but to a reader who doesn’t know the particulars of this story it still comes across like the Post is saying that the politicians proposing reforms might be out of control and getting carried away by emotion. Which is odd. In general, the amount of rhetoric against this bill that sidesteps its actual content is growing to the point of absurdity.

May. 7 2010 — 10:48 am | 3,680 views | 5 recommendations | 49 comments

Death of Brown/Kaufman a Huge Blow

So the Senate voted yesterday evening. It went down by 61-33. That is frankly a crushing defeat.

The roll call has its interesting moments, notably that Alabama Republican Richard Shelby voted for it. Shelby is the leading GOP negotiator on the bill. Two other GOPers also backed it.

The Democrats split 30 for, and 27 against. Looking at those groupings will give you a pretty good idea of the nature of the divide within the Senate Democratic caucus.

via Michael Tomasky: The limits of liberalism in the Senate | Comment is free | guardian.co.uk.

As recently as last night I still had some hopes that this Financial Regulatory Reform bill might turn into something real. I was in DC watching the debate on the Senate floor yesterday and aside from being amused by the utterly schizophrenic Republican strategy for attacking the bill (several Republican Senators yesterday veered into discussions of how the new Consumer Financial Protection Agency would harm, of all people, orthodontists) there was little to the naked eye that suggested the whole thing was a farce.

In general I got the sense that many of the members on both sides of the aisle were genuinely freaked out by the snowballing corruption on Wall Street and wanted to sink at least one real fang or two into the problem, though they differed on how to get there.

This is different than the health care debate, which throughout to me felt like a gigantic mountain of posturing and back-room money-dealing smothering the genuinely passionate advocacy of a tiny legislative minority that really wanted to fix the health care problem. In the FinReg business I talked to more members and aides who believed there was real room for something genuine to happen, if only because the political/financial situation in Europe (and the serendipitous timing of the Goldman case) is putting wind at the back of previously dead or dormant reform proposals.

Then last night came to pass, or not pass, as it were.

To me there are three really big parts of the bill. There’s resolution authority/Too-Big-To-Fail, addressing how to deal with systemically ginormous companies like AIG when they go belly up and threaten the survival of the planet.

There’s the derivatives portion, which covers a more or less completely unregulated $600 trillion market.

And there’s the Volcker Rule stuff, trying to bring back Glass-Steagall, preventing banks from turbo-gambling on their prop trading desks while simultaneously acting as ostensibly safe depository institutions. An amendment by Carl Levin and Jeff Merkley is the route for dealing with that last part.

A bill that included strong reform on one of those three counts would be at least passably significant. Two out of three would still be woefully inadequate, but a good start. And none out of three would officially reduce all this to a dog-and-pony show.

Well, the count is 0 and 1. Last night the Too-Big-To-Fail amendment, a strong proposal put forward by Delaware’s Ted Kaufman and Ohio’s Sherrod Brown, got pulverized in a late-night vote. An amazing 27 Democrats voted against the bill, which would have put hard caps on the size and risk profiles of financial companies.

In a wittily insulting footnote to this massacre, Alabaman Obfuscation King Richard Shelby, the guy who has been leading the transparently lobbyist-driven and shockingly (even by DC standards) cynical Republican filibusters of this bill,  actually voted for the Brown/Kaufman amendment. I have no idea if this was Shelby’s idea of a joke or what, but somehow seeing this bloated old hack cast a quixotic Yea for this urgently necessary measure while 27 Democrats slithered back into the lobbyist camp to cast Nay votes was the most obnoxious part of this whole sordid affair.

That Brown/Kaufman got beat even worse than Shelby’s own pathetic substitute amendment on the Consumer Financial Protection stuff — the Shelby amendment that got 38 Yeas to Brown/Kaufman’s 31 was a proposal to surgically excise the Consumer Protection aspect of the bill — pretty much tells you everything you need to know about how hard it is to get real reforms passed in this Senate.

Brown/Kaufman was an obvious and logical response to the great cancer of our financial system, the rapid consolidation of power and market share in the hands of a few banks. The measure would have mandated the breakup of companies that grew beyond strictly prescribed limits, and it seems to me that it failed precisely because was a real law with no loopholes.

The Shelby amendment, on the other hand, was an open proposal to do nothing. And again, it got beat, too, but it didn’t get beat as badly as Brown/Kaufman, especially when one considers that the Democrats could have carried Brown/Kaufman all by themselves.

There’s a lot of ugly legislative backstory to all these maneuvers and if Levin/Merkley and some of the other key measures suffer the same fate as Brown/Kaufman, the Democrats and the Republicans will both come out of this wearing a lot of shame. More on this later — I also have a piece on the bill coming out in Rolling Stone in a few weeks.

May. 5 2010 — 6:53 am | 2,184 views | 1 recommendations | 16 comments

Monkey Business on the Fabulous Fab

I wanted to post this clip from Joel Sucher’s documentary, “A Tale of Two Streets,” showing my friends Eric Salzman and Rich Bennett (of MonkeyBusinessBlog fame) talking about the “French School” on Wall Street. In light of the “Fabulous Fab” story, it’s pretty hilarious.

Note that the interview is from last year.

May. 4 2010 — 6:19 pm | 2,980 views | 4 recommendations | 34 comments

Goldman, Naked

Goldman Sachs Group Inc’s GS.N market-making unit has been censured and fined $450,000 after U.S. regulators found hundreds of violations over how it processed customer trades involving short sales of stocks.

via UPDATE 2-US fines Goldman unit over short-sale violations | Reuters.

Apologize for being absent from the blog of late, have been in transit and much consumed with this ballooning Goldman business.

In an interesting side note to the much more publicized businesses involving John Paulson, Greece, and whatever else Goldman is currently getting tarred and feathered for, the bank was quietly slapped on the wrist by the SEC for violations related to naked short-selling.

I wrote about this last year. The story was that Goldman (and others) had extremely lax standards for locating the securities it lent out to short-sellers. When you lend securities to someone without locating the stock first, that makes it possible for that person to sell the stock without actually possessing it or intending to possess it. That’s called naked short-selling and it’s a kind of counterfeiting that pretty much everyone admits is fairly common on Wall Street, although there is wide disagreement over how harmful it is to the market.

The current story reports that the SEC fined Goldman for failing to prevent crappy locates in late 2008. They’re describing the violations as a “bookkeeping error,” probably because a systematic effort at profiteering via the enabling of naked short-sellers is not a simple thing to prove. To quote Reuters:

Regulators said that because of a bookkeeping error, the Goldman unit between Dec. 9, 2008, and Jan. 22, 2009, accepted about 385 orders to short stocks where it had not first borrowed or arranged to borrow the securities as collateral.

They also said the Goldman unit failed about 68 times over that period to timely close out market-making positions in stocks or notify customers about such lapses.

In a piece I wrote about naked short-selling last year I published transcripts of Goldman officials discussing their shoddy locate systems at a conference of SIFMA, the Securities Industry and Financial Markets Association:

In a conference held at the JW Marriott Desert Ridge Resort in Phoenix in May 2008… a compliance officer for Goldman Sachs named Jonathan Breckenridge talks with his colleagues about how the firm’s customers use an automated program to report where they borrowed their stock from. The problem, he says, is the system allows short-sellers to enter anything they want in the text field, no matter how nonsensical – or even leave the field blank. “You can enter ABC, you can enter Go, you can enter Locate Goldman, you can enter whatever you want,” he says. “ Three dots – I’ve actually seen that.”

On the list of crimes perpetrated by the big banks during the crisis period, naked short-selling probably isn’t near the top. But it definitely exists and it was almost certainly a tool that contributed to the mammoth-killing of firms like Bear and Lehman Brothers. The big banks like Goldman enabled this game by closing their eyes to shoddy locates in order to make sure they kept their prime brokerage clients. They’ve been caught at it before and now they’re being caught at it again. But you can add this to the list of offenses that the banks will get off for with a mild fine ($450,000? Are you joking) and the usual facsimile of legal consequence. From Reuters again:

Half the penalty will go to NYSE Regulation, a unit of NYSE Euronext… and the rest to the federal government. Goldman agreed to settle without admitting wrongdoing.

When was the last time there was a settlement with one of the big banks without that phrase attached? Just once I’d like to see an SEC settlement that included a transcript (plus a photo) of a bank official on his hands and knees, weeping into his tie, shouting, “I did it! You got me! I did it!” I suppose that’s a little too much to ask, however…

May. 1 2010 — 8:32 am | 5,534 views | 4 recommendations | 74 comments

Bob Rubin Cuddles

So that’s what this is about. For a moment I was totally speechless and had to dig into my Harvard trained PhD brain to figure out what the hell he meant by “cuddling”! What can I say; once a teetotaling math geek, always a bit slow to pick up on signals from the menfolk. So the former Treasury Secretary had a “crush” on me! And not long afterward the former Treasury Secretary had his tongue down my throat and hands everywhere sort of like an octopus. But as soon as the thought entered my mind — the former Treasury Secretary has his tongue down my throat?! — I came to my senses a bit and awkwardly went back home before we both got too carried away. This is to say, I said to myself that there would be no other former Treasury Secretary appendages entering any other of my orifices.

via Iris Mack: Bob Rubin Just Wants to Be Cuddled.

No man’s behavior looks attractive when he’s cheating on his wife, but this little tell-all by a woman who had a sort-of fling with former Goldman chief and Treasury Secretary Bob Rubin is more than unusually embarrassing. It’s all coming out now — Goldman is officially the new Tiger Woods. The next revelation has to be something involving Gary Cohn and Ted Haggard.

The most disgusting (and revealing) part of the story is, to me, this part of Iris Mack’s narrative:

Things were much more relaxed by the time I walked him back to the Ritz – which was along the way to my South Beach condo. When we passed a homeless man along the way he made a bit of a show of opening up his fat leather billfold and producing a dollar — “There but for the grace of God…” he remarked melodramatically — and I gave him a lot of heat for that, because who exactly did he think he was kidding? I said give the man a job. Heck, you’re the head of a bank!

A multi-multi-millionaire giving a homeless guy a dollar on the way to the Ritz… if that isn’t the perfect metaphor for the modern “Third Way” Democratic Party, I don’t know what is. And Jesus, is there any area of human interaction where these guys aren’t complete and utter culturally tone-deaf buffoons? Even during the hearings, every last one of these Goldman guys, it was like they had no idea how awful they sounded, and how much the whole world wanted to reach through the TV and pull their tongues out every time they opened their mouths. It’s amazing.

An even creepier side note about that above passage: what if it’s true? What if a Bob Rubin really does, a hundred million dollars later, still retain some ingrained fear of being broke and forced to live on the street? That would really be telling, and go pretty far toward explaining the pathology, I think. Or maybe not. But it’s interesting.

Then there’s this part:

But none of this seemed to require Bob Rubin to actually do very much. On November 1 he called me four times as I was leaving for a conference in Raleigh; first while I was packing, then in the cab to the airport, then again before I went through security, then again when I was supposed to land. When I had to put the phone away he acted like a little kid who’d been told it was bedtime, and said he would call me again when I got to my destination.

“Don’t you have work to do, Mr. Chairman?” I joked during our third call.

“I’m the chairman of the executive committee,” he specified.

“What the hell does that mean?” By then I was confused.

“It means the word ‘chairman’ is in the title and I get paid very handsomely, but I don’t have any actual managerial responsibilities.” He seemed pleased.

“Well excuse moi,” I shot back. “Nice work if you can get it!”

A couple of things here. One, this seems to suggest to me that Bob Rubin’s main job at Citi was to hang around and be available for his political connections. His job, as I understand it, was a sort of permanent, ongoing bribe.

Two, this is another thing that is going to drive people absolutely up a wall when they hear more about it — the fact that contrary to what David Brooks and the rest of those types say, I’m not sure exactly how many hours some of these guys worked. In general there seem to be quite a number of upper-management types who make their money according to the crack-dealing model of corporate hierarchy, i.e. the many levels of worker bees underneath do the actual deals and shed the actual blood, while up top a thin layer of entitled, essentially tenured assholedom collects the huge money.

We may get to see some of that reality fleshed out in the Abacus case. It’ll be interesting to watch. In the meantime, it’s just delicious seeing all of this horrible stuff about Goldman pouring out now. It’s so rare to see someone who actually deserves it get the full-blown media turbo-fragging in this country.

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