Thursday, July 7, 2011

Why Money Managers Should Be Right Behind Doctors in Leaving the Country

I have written before that as the United States government becomes more authoritarian it will make sense for those in specific sectors of the economy to consider leaving the country, at the top of my list of those that should consider leaving the country are doctors. The medical profession is becoming more and more regulated and it will be difficult for medical doctors to earn a decent living in this country. I have written more about the medical profession here.

Right up there with the medical profession are money managers and various sorts of stock traders. For MM's and traders, the problem is not that your income will be restrained but that you might end up in jail or harassed in other ways. New regulations in the financial industry are broad-based, expanding and often hazy. This makes it very difficult to know when in the eyes of a regulator you will be stepping over the line.

Joe Nelson emails on the latest new regs, this time coming out of the CFTC:
Dealbook is reporting that the CFTC just posted a few new regulations for the derivatives market ( I thought you might find this interesting as the intention, at least according to Ben Protess of Dealbook, is to "greatly expand the government’s ability to police insider trading and other manipulation in the derivatives market" (emphasis mine). This little bit really caught my eye (emphasis mine, again):

"When traders run amuck in the derivatives market, one rule grants the agency broad new powers to prosecute fraud and manipulation.

For years, the agency had to prove that a trader intended to manipulate the market — and successfully created artificial prices. Now, the agency must show only that a trader intended to act “recklessly.” The plan was modeled on the Securities and Exchange Commission’s insider trading ban."

I'm no lawyer or expert on CFTC regulation but that "recklessly" language seems awfully vague to me. In addition, it appears the agency is mulling new onerous disclosure requirements for the swaps market. We can expect a ruling on these new disclosure requirements later this afternoon. To me, these new rules look like they're targeted at small start-up hedge funds with limited resources. You've written before that money managers should probably have their bags packed already. The CFTC is inching closer to making that choice even easier.
Under the current head of the CFTC, Gary Gensler, the agency appears to be getting much more aggressive and expansive in its role. I would not be surprised to see some high profile enforcement actions coming out of the agency. People who know Gensler tell me he is very smart, when these guys develop a fuhrer complex, they can be very dangerous.


  1. If Gensler were as smart as they say, he wouldn't be running the CFTC.