SocGen's Todd Martin, who is the bank's Asia equity strategist (and, despite being regulated, failing to disclose he worked at Morgan Stanley previously), appeared on Bloomberg earlier today to discuss the Volcker Rule and prop trading, against which the anonymous blogosphere had some very "strong views" back in 2009 before anyone had even considered prop trading. Sure enough, prop trading ended a few months later with the adoption of the Volcker Rule. Somehow, the topic of the Volcker rule shifted to the topic of whether or not Morgan Stanley is exposed to France, and its insolvent banks (ahem), and who is to blame. Take a wild guess on Mr. Martin's opinion in the matter: "For example one blog just a week ago, had a very, very strong view against Morgan Stanley. They quoted Sanford Bernstein who actually was telling people to buy the stock. And then they were quoting Gross Exposures not Net, and then concluding that Morgan Stanley had to go down and be dismembered [sic]. Now I have a serious problem with this.... If I get regulated why isn't this place regulated. It's also very dangerous because they are using psudonames [sic] and we don't know who they are. They could be the guy on the street. They could be a hedge fund dangling out information. It could be the head of a prop desk. Thing is it is supposed to be regulated. And they get their revenues from trading platforms on US soil. And I don't think it's fair. And I think the US should go and take a look and regulate the blogosphere. I think it's really, really out of control." In other words: it is all the blogosphere's fault.
Where does one start with that one. First, we understand why you are angry Todd: after all, your employer recently blamed the blogosphere for blowing out the spreads of SocGen, which then used the stress test part two to defend itself... You know, the same stress test that saw insolvent Dexia pass with flying colors if not in first place. Second, we inquire Todd and his regulators, to advise on how it is that he concluded that a "blog" had "very, very strong views" on a company when the only information presented was a blurb from a 10-K with the following advice: "We'll leave it up to readers to find the relevant number." Furthermore, the AB report was naturally quoted as follows: "As for the coup de grace in the AB report, it is this piece of rhetorical brilliance: "Over the last six months, there have been 5,600+ articles published by the press on the subject of "French Banks" and "Credit Risk". We believe Morgan Stanley's risk management staff and its trading units are fully aware of the highly publicized risks emanating from Europe and warnings about the firm's potential exposure to a European Sovereign crisis."" Apparently they were, and their only defense is "bilateral netting" which failed with an epic bang when AIG was nationalized, and had to hope and pray for mainstream media rumors and a wholesale market squeeze to send their stock higher, thus avoiding a death spiral.
Lastly we won't go into the accuracy of Mr. Martin's China predictions (we are happy to) and leave the question of "fairness" to those who may have followed his regulated advice. But our advice is this: Mr. Martin's credibility and future employment status is predicated upon his accuracy, not to mention how much money SocGen will be able to take out of taxpayers when and if it is forced to recapitalize shortly (which uber-regulated Credit Suisse seems to have some very, very strong thoughts about and believes it is the most undercapitalized bank in Europe). He should probably worry about that. And let the anonymous blogosphere worry about its own credibility. After all, if there is none, nobody will listen to it, even if "it is out there." If, however, it provides critical information that is missing because gentlemen like Mr. Martin are conflicted from telling the truth when their own job is at stake, then we say: onward, upward, and always twirling, twirling, twirling. Because without the natural filter to the endless bullshit that the sellside spews forth (where was Mr. Martin warning that Dexia was about to fail and actually saving people money for a change?), losses at the retail level would be orders of magnitude higher.
As for revenues, Mr Martin, it is all ads we are afraid: feel free to click on one or two, because we doubt we will be bailed out when we need a few billion in bailout funding.
Full truly hilarious clip of a sellsider having a near-nervous breakdown due to a blog. Fast forward to 4 minutes in.