Moral Hazard

Paul Volcker Blasts The Goldman Business Model, Moral Hazard, And Calls For A Return Of Glass-Steagall

Tomorrow at 9 am, former Fed Chairman Paul Volcker will testify before the House Committee on Financial Services, discussing topics on Systemic Risk and Resolution Issues. Since a former Fed Chairman will effectively be discussing the actions undertaken by the current one, this promises to be a most interesting testimony. We present some key points from Volcker's prepared remarks below: at first blush it would appear that the former Chairman is distancing himself substantially from the activities of the current one, and among other things, is proposing serious curbs on Moral Hazard, on the lack of Fed's accountability, highlights the need for a return to a Glass-Steagall system, and blasts the prop trading/hedge fund business model, whereby in discussing what he believes should be prohibited activities by systemically important firms, he highlights "ownership or sponsorship of hedge funds and private equity funds [as] should in my view a heavy volume of proprietary trading with its inherent risks." If that is not a direct stab at Goldman Sachs, nothing is.

Forever Blowing Bubbles: Moral Hazard And Melt-Up

"As the US market is now back at fair value, I’ve been pondering what could drive the market higher. Jeremy Grantham provides some answers in his latest missive to clients. He argues that “the greatest monetary and fiscal stimulus by far in US history” coupled with a “super colossal dose of moral hazard” could generate a stock market rally “far in excess of anything justified by…economic fundamentals”. This viewpoint receives support from the latest finding from experimental economics. The evidence from this field shows that even amongst the normally well behaved ‘experienced’ subjects, a very large liquidity shock can reignite a bubble!" - Soc Gen

The Republican Regulatory Reform Plan

The following is the Regulatory Reform Plan proposed by Alabama Congressman Spencer Bachus. The plan effectively touches upon all weaknesses of the current regulatory environment, if one can even claim one exists.

Zero Hedge Exclusive: One Whistleblower's Fight Against Goliath Over The Definition Of Risk

When Zero Hedge recently posted a letter from Deepak Moorjani, it was means to be shared as more of an opinion piece with some policy implications - it is, after all, rare to get the insight of whistleblowers who decry allegedly illicit practices. The fact that Moorjani's previously published piece had been removed from certain main stream media outlets, however, raised some red flags and I decided to probe further.

And Speaking Of Moral Hazard...

There is nothing quite like the acting Secretary of the Treasury promoting it on national TV. In his most recent Charlie Rose interview, TG openly tells the banks not to be concerned with things getting worse. Well, Mr. Geithner, if the banks by that definition always have the governmental backstop, then who are we kidding that the entire financial system has not be nationalized.

Frontrunning: March 6

  • Welcome president Obama: market down 20% since inauguration (Bloomberg)
  • European CDS blow out: iTraxx at 1,170 bps all time wide (FTAlphaville)
  • Bankrupt copper miner Asarco looks set to be acquired by Vedanta (WSJ)
  • Merrill discloses its own Jerome