Monday, December 14, 2009

Gossip from the Wall Street Journal’s Future of Finance Initiative

By Janet Tavakoli

Last week I was a participant in the Wall Street Journal's Future of Finance Initiative in England. WSJ has written a summary of the conference highlights, and missed some key points. Allow me to fill in the blanks.

Paul Volcker, former Fed Chairman and current Chair of the President's Economic Advisory Board, made the most worthwhile comments. Moral hazard was not discussed in the open forums, so Volcker reminded the assembly. Yet even Volcker did not broach the topic of fraud.
Alistair Darling, Chancellor of the Exchequer, spoke on the opening evening. I asked him why massive financial fraud remained unaddressed. Darling appeared momentarily confused and seemed to suggest this was exclusively a U.S. problem to be handled by the courts. I pushed back on this notion. By the time one needs a lawyer, it is too late. I noted that we, the middle aged financiers in the room, are responsible for taking action. If we don't face this issue head on, we will never restore trust in the financial system.

Ana Botin, Banesto's Executive Chairman, suggested that the risk manager should report to the board. Then she blew it with the assertion--made several times--that the CEO can also be Chairman. (Ken Lewis defended his dual role as CEO and Chairman of Bank of America at a Fed conference in 2003. How did that work out?)

I didn't challenge Botin's assertion, because I used my two minutes (literally) during the "Too Big to Fail" breakout session to (unsuccessfully) try to carry the point that when banks fail, we should allow shareholders to be wiped out, and debt holders should take losses. (Under that scenario, most of the current managers would be booted out.) Instead, the group posted the need for a "living will" to be designed by the managers that made life support during our recent crisis a debatable necessity.

Elizabeth Corley, CEO of Allianz Global Investors in Europe, presented conclusions from her panel's discussion of the "Regulatory Frontier." The panel's idea of upgrading regulatory resources was to deploy senior financial institution officers to regulators for two or three years and vice versa. Meanwhile, the financial institutions should chip in to maintain the regulators' former high pay. Howard Davies of the London School of Economics saved me from having to explain the concept of regulatory capture. After he spoke, I was the only one to clap. Apparently everyone else thought the panel was titled the "Predatory Frontier."

Read the rest at HuPo.

2 comments:

  1. Janet Tavakoli mentions fraud as a big part of the Wall Street meltdown. MBIA fired a shot at Credit Suisse, which had its own disturbing news today on Bloomberg.

    MBIA story:
    http://www.bloomberg.com/apps/news?pid=20601087&sid=arwCZKFmPL18&pos=6

    Credit Suisse penalty for dealing with Iran:
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aMY3PuxPu4KI&pos=5

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  2. More on the fraud theme. Abu Dhabi Investment Authority claims Citigroup fraudulently misrepresented their investment agreement. They want out or over $4 billion in damages.

    Will Uncle Sam write another check for a ward of the state?

    http://peureport.blogspot.com/2009/12/abu-dhabi-swf-sues-citigroup-for-fraud.html

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