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Financial Reform has More Holes than Swiss Cheese
Whew! That was close! After 18 months of threats, saber rattling, and posturing about the demise of the competitiveness of the American banking system, we finally have a financial reform bill, although it has more holes than a hunk of Swiss cheese. There is no return of Glass-Steagall, no breakup of the big banks. Crucial definitions, like one for “proprietary trading”, got lost in the Bermuda Triangle.
An industry that was sweating bullets poured tens of millions of dollars into lobbying efforts to render this bill toothless, $6.7 million from JP Morgan (JPM) and $5.5 million from Citicorp (C) alone, and they certainly got their money’s worth. Hedge funds nearly got off Scot free, merely getting stuck with a fraction of the $20 billion tab for regulation if they manage over $10 billion. As I write this, teams of lawyers are burning the midnight oil, creating subsidiaries and special purpose vehicles to sidestep the most onerous aspects of the 1900 page opus, which we are assured, no one has read in its entirety.
But there is no kidding yourself that the banking business hasn’t fundamentally changed. The days of taking insanely leveraged risks with a government financed safety net are clearly over. The adoption of the gist of the Volker Rule will limit proprietary trading, but it never was a good idea to let kids play with matches anyway. These guys were way out of their depth the day they started pretending to be hedge funds. The hugely profitable OTC derivative issuance business is migrating to listed exchanges where it belongs, like the CBOE (click here for my piece at http://www.madhedgefundtrader.com/june-22-2010.html ).
Unfortunately for the rest of us, the new restrictions on credit amount to a de facto quantitative tightening that will shave a few dozen basis points off of our long term GDP growth. Banks will see some of their most profitable businesses disappear, while getting loaded up with a boatload of costly, new regulation.
Now that the umbrella is no longer needed, you can expect Goldman Sachs (GS) and Morgan Stanley (MS) to bid adieu to their banking licenses and revert to investment banks, private equity firms, or even hedge funds.
The bottom line for those left is that they are allowed to stick around, but only with clipped wings as lower earning, higher cost operations deserving of shrunken multiples. Pass on the financial ETF (XLF). Toss all this in with the unknown amounts of toxic waste that still lurk on bank balance sheets, and I want to avoid the sector like a blind date who shows up with bleeding sores on her face.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two and a half years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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I agree with you, and you summed it all up well. Farcism continues.
The final "debate" of that bill in committee was televised on C-Span. Chris Dodd and Barney Frank were on camera babbling nonsense in the closing comments leading up to the vote. I felt Dodd was particularly nasty because he was literally standing behind and over her talking (off mike) constantly, I assume, to keep her from entering the debate. She appeared to be trying to respond to him but he didn't stop talking.
After the vote was taken, during closing comments by Dodd he was saying in effect that regulation had to be scrapped. Get the money flowing, create jobs, get everyone back to work. He repeated this meaningless exact wording sequence about three times making no sense at all in his comments.
IMO Frank is no friend of the common man but Dodd appears to be a somewhat dirty guy.
How do you beat them?
1. Do your homework in evaluating the potential of the stock.
2. Use common sense in evaluating the environment. What kind of procucts are going to continue to sell- US and Foreign. (One of my favorates is BA. China still has lots of dollars and fuel efficient aircraft is one thing they can use in their large land mass. Japan has an airline. IMO, it is likely China iwill want one also. GE is another of my TBTFs.
3. Try to buy and sell right with technical indicators and market trends. I find that technicals work better than news.
And so on.
Everyone reading this probly knows better than I do how to be a careful investor. Ignore the very short term stuff unless you are expert at it.
Viper squidders dialing for dollar daze!! Just another manic Wednesday rally as the straight jackets come out for loony fed goonies!!
GS is probably a buy sometime soon. The stock is down because of fear that this "reform" would have teeth. Politicians don't use teeth against their masters. The whole thing was an election farse, like everything else out of DC.
More examples of our amazing legislature getting it done!
A single party Corporate Oligarchy pushing our money around a table before it goes into their pockets and the pockets of their owners.
Filthy pigs. Every last one of them.
You are 100% right, but sadly America doesn't seem to realize or care. We here are in a tiny minority who chose to be informed, awake and appalled at the corruption of our system, but honestly I have no idea what we can do about it!
George, We are a minority for sure. I talk with people at my son's school events that are "day traders" that have absolutely no clue what is going on. They think I am insane (which of course I am)
What will probably happen is they will hit the internet kill switch and I and many others will be rounded up for re-conditioning. I plan to be killed during a "detainee transfer procedure". My family and friends will be told I was part of a terrorist plot and I was shot trying to escape.
Marty, I know this will sound small - but I believe it will happen anyway.
Walk away. Do not give the banksters anything. If the HFT are scalping in increasing numbers (and they are) - in effect, pulling all the profits out on either side of a trade - then how on earth can a single individual (or even a larger fund with some integrity) make anything like a working gain.
In effect, the only way you can profit is to join the mob: play by corrupt rules. However, they get the larger cut and your life is then ruled by them: check your credit score lately? 'cause you have to keep it up to play the borrowing game.
Finally, the Sheeple will have had enough and stop playing. As in game theory - when corrupt players only have each other to steal from the game ends. The entire basis of banksters profits is a white market.
They will kill it.
Then, they will die of their own hands.
Leave early - hasten their fall.
Well I sure hope the Squid can't walk away from Bank Holding Co. status just on their terms. maybe the idiot that allowed them in under the umbrella with about 5 minutes of waiting time, was smart enough to put handcuffs on them............
How about if they just spin off the BHC part?
Sort of like 90% of your market calls?
Burn!
Let ZH readers decide:
Does Leo the K or MHFT have more egg on their face?
http://www.zerohedge.com/search/node/Leo%20Kolivakis
http://www.zerohedge.com/search/node/madhedgefundtrader