(un)Happy Anniversary!

Well, we have begun to be treated to the first of what are sure to be dozens of pieces marking Tuesday's One Year Anniversary of the death of Lehman Brothers. Everyone should remember just how dire the global financial situation seemed in the wake of Lehman's bankruptcy. We at Risk Talent Associates and GlobalRiskJobs certainly remember, as like many who make their living in and around Wall Street, it was a time like no other. "Bulge Bracket" firms disappearing seemingly overnight, stock markets plunging, and of course, the layoffs. Yet, even in those darkest of days, we advised that things would indeed get better at some point, and job seekers needed to get up off the canvas and be ready for that time. Certainly, the first order of business was to use all means necessary to stabilize the system, but when that financial triage was finished, players (particularly regulators) would turn their attention to figuring out how to never let us get in that position again. As I stated in the blog last week, much of that push to reform has been bogged down in political wrangling, shifting of the topic to healthcare, etc. But, just as we start to doubt the Administration's resolve, Here comes President Obama to Wall Street to stoke the fire of reform by reminding us of where we were a year ago. Obama’s speech apparently will focus on the need to take the next series of steps on financial regulatory reform, enacting safeguards to ensure such a crisis doesn’t happen again. Let's hope he can jump start the process and push us through this period of "regulatory limbo".

As we consider the Lehman collapse a year later, there will be many arguments either way that letting Lehman fail was either the right/wrong thing to do. Joe Nocera of the NY Times had a good piece on Saturday where he reconsiders the Lehman failure. My own thoughts about this haven't changed much over the year. I believe that when a Bear Stearns failure became inevitable, the Powers-that-Be (Paulson, Bernanke, et. al.) decided they would give the U.S. banks and investment banks a "Mulligan". Against the pure capitalist philosophy of non-intervention, they rushed in to arrange the orderly sale of Bear to JPM. In its wake, the warning was given: the next guy wouldn't be so lucky. Whether that "next guy" was going to be Lehman, Merrill, Morgan Stanley or someone else (not Goldman of course, being too well-connected), it seemed pretty clear there was going to be some BIG financial institution that would become a lab rat for too-big-to-fail. Unfortunately for its employees and investors, lehman won the race to the bottom and the experiment was in full force. Everyone would find out just what happens and how far-reaching the repercussions are when one of these institutions fails. Well, the rest is well-documented and we can probably say the result was the ability of Paulson to light a fire under Congress and get the resources to fight the crisis. Step 2, however, is far from complete. We still need to figure out how to structure or regulate the system in a way that allows risk taking without the collateral damage that was clearly part of the Lehman failure. Maybe Obama can get that process back on track this week.

Bernanke sketches out regulatory philosophy

"At the same time that we are addressing such immediate challenges, it is not too soon for policymakers to begin thinking about reforms to the financial architecture, broadly conceived, that could help prevent a similar crisis from developing in the future. We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves for achieving this aim."

--Ben Bernanke, 10 March 2009, Speech to the Council on Foreign Relations

It seems like it's all starting to crystallize on the regulatory front. Yesterday, Fed Chairman Bernanke took another step forward by urging a major overhaul of U.S. financial regulations aimed at containing the future volatility of financial markets and continued that theme this morning in his speech to the CFR. The Chairman went on to sketch out what he views as the 4 key elements of any strategy: 1) address the problem of "too big to fail", 2) strengthen the financial "infrastructure", 3) review regulatory policies and accounting rules to ensure they don't induce "excessive procyclicality", and 4) consider whether the creation of an authority specifically charged with monitoring and addressing systemic risks would protect the system from future crises similar to this one. It certainly appears as though Bernanke is sowing the seeds of increased Fed power in the future regulatory scheme. Congress is currently considering how to regulate systemic risk but has yet to agree on which agency should assume that power. Barney Frank has been "Fed-friendly" in his views, although Chris Dodd has taken the opposite stance, wondering if the Fed is up to the task. With no obvious model for success out there, the next few weeks will be crucial to shaping the new regulatory environment. Bernanke appears to be ready and willing to use his post to advocate for the central role. And as the nation embarks upon this path to reform, toay's WSJ has an interesting primer of sorts called "Ten Questions for Those Fixing the Financial Mess". It contains profiles of the six major regulators - CFTC, FDIC, Fed, OCC, OTS and SEC - and speculates as to how thing might unfold in the coming weeks. Stay tuned, as the battle for the future has begun.

The links:

• Meredith Whitney is feeling the power. Fresh off formation of her own firm, she's grabbed the spotlight in today's WSJ to warn against what she sees as the next credit crunch: credit cards. Bloomberg says Canadian losses may be a bellwether on the credit card front.
  
• Yesterday, GlobalRiskBlog reported on BofA's decision to rescind offers to foreign MBAs. Today's NYT has a follow-up story about the H1-B quandary.
  
• From the NYT Science Section of all places, a story on scientists who became Wall Street quants. A former Goldman MD compares options theory to physics.
• As the rating agency vigilance pendulum swings back toward extreme caution, Moody's is trying to get out in front of corporate bankruptcies.
• The FHLB of Seattle has fallen short in one of its capital requirements.
• Citigroup employees are reminded about the bank's "compliance culture" in an internal memo.
• The FSA has added David Kirk as Chief Criminal Counsel.