Saturday, September 17, 2011

Lehman: Banks have the last laugh

Lehman Bros. © fintag

News comments:
3 years ago the world came to an end.

The demise of Lehman signalled the death of under capitalized and over leverage investment banks. Citigroup, Bank of America and even Goldman Sachs were destined to be ripped apart by capitalism. Alas, socialist and liberal ideology kicked in and they were saved. Ungraciously, the banks then picked up the pieces and started over as if nothing had happened.

A few changes to regulation like Frank Dodds and Volker and AIFM and Vickers have hardly change anything. Banks are smart and can navigate around these obstacles and are already doing so. Take Volker with the term "hedging" not being defined properly - already we have prop desks renamed as hedging desks to overcome closing down prop trading. There are arms length offshore entities being set up so retail banks can pretend to deposit overnight capital to a safe haven where their ring fenced prop desks can use the capital for their activities. It has been done before and it will done again. And it goes on. Too much tweaking is like a red rag to a bull.

Banking bashing continues because the banks got away with it. Free capital injections from the tax payer and the continuation of employees come first, shareholders and government backers second has ensured millions are paid to people in an elite club who feel entitled to wealth without putting up any risk capital themselves personally.

If the regulators wanted to sort out the problem of having only a handful of mega huge banks holding capitalism to ranson they need to bring some competition in. The best way would be to make the people who run banks personally responsible for their actions. So make them partners. If it goes wrong, they go down. Goldman Sachs was a very successful partnership and then screwed up when it went public. There should be no limited liability. If they mess up, they lose all their assets and go to prison. Harsh but it works as it stops the firm treating governments as insurance policies.

The Real Greek
Isn't it funny how the Greeks are causing so many problems. From the Delta One at UBS to their own sovereign debt crisis, they too are having the last laugh. UBS know what Delta is. But what about all the other greeks - Gamma in particular...

Today's shorts:
UBS - 3 years of rogue trading (wsj)

Banker bashing (dailymail)

Banker bashing (ft)

Today's longs:
Silver ETF (etfs)

UBS to merge with Credit Suisse and to be called something dull.