Feds locked in "Regulatory Limbo"?

Well, after a quiet end of summer at GlobalRiskJobs and the Blog, it's time to get back to business. I spent most of August in Europe, doing first hand due diligence on the effect of the weak dollar on American tourism. It really hit home in Switzerland, when I shelled out the equivalent of $11.00 for a Big Mac, fries and a Coke at rest area outside of Zurich. Ouch!

Back to the markets...

The summer was characterized by lots of talk but not enough action on the regulatory front. After nearly nine months of the Obama administration, we have been treated to lots of ideas about how the regulatory structure should/could/might look when the dust settles, but there has not been a ton of substantive change. It has been nearly a year since the collapse of Lehman Brothers, and the financial world is, admittedly, a different place. Real change on the regulatory front has not materialized, as efforts to remake the rules of finance have been stymied by infighting among regulators, pushback from banks, and opposition from lawmakers who are skeptical of increased government power and scope. Ironically, banks' appetite for risk has grown, with the Wall Street Journal reporting today that the daily VaR of the nation's top 5 banks was over $1B in the second Quarter of 2009, a record level. Geithner went to Capitol Hill with Obama's financial reform outline on March 26! There was a big sense of urgency at the time, but that was nearly six months ago. Geithner urged lawmakers to grant the authority for the government to take over failing financial institutions quickly, yet here we are. Is momentum for change fading? Or is the regulatory reform movement going to slowly and steadily work its way through the financial system...?

The links...

• Peter Wallison of the AEI says asking the Fed to monitor "systemic risk" is like asking a thief to police himself in this opinion piece from the WSJ.
• Goldman Chief Blankfein spoke in Frankfurt today and said anger over banker pay is justified, but overregulation would prove harmful to the markets.
• NY AG Cuomo is investigating the timing of Bank of America's firing of its former General Counsel, Timothy Mayopoulos.
• Dutch Banks (are there any left...?) agreed to bonus limitations.
  

Burning the Village in order to save it?

The WSJ has a strong Op-Ed piece this morning that takes a look at Federal tactics used to force BofA to complete the Merrill acquisition last December. They look at the BofA case and see Paulson and Bernanke forcing Ken Lewis to "blow up" Bank of America (maybe this is how Lewis earned his "mulligan" while Rick Wagoner caught one between the eyes...). Spreading systemic risk in the name of containing it....ordering the deception of shareholders, killing financial confidence in the name of restoring it...The Journal appears sympathetic to BofA and goes on to say that the Merrill-related bullying fundamentally increased systemic risk by "transplanting" risk from a Wall Street brokerage to one of the country's largest deposit-taking institutions. In addition, the WSJ states that Bernanke and Paulson undermined the transparency so vital to investor confidence in the capital markets. The collateral damage here seems to be the lukewarm response from most of the investor community and Wall Street to the latest federal initiatives like TALF and PPIP...For Caroline Baum's take on the same, check this out.

Here's word that Goldman Sachs is increasing risk taking at the fastest pace on the street. This should not be that surprising, although given Morgan Stanley's apparent pullback in risk taking, it is important. According to Bloomberg News, Goldman's VaR jumped 22% to $240 million in the 1st quarter - 2x that of Morgan Stanley. Consequently, GS reported 1st Quarter revenue of $9.4B to MS reporting $3.04B.

While the NYT reports Wall Street is unfazed by stress test details, many investors are simply waiting for the results to be released on May 4. Get the Fed white paper disclosing the stress test methodology at GlobalRiskJobs.