In defense of the maligned market

By Geert De Lombaerde Posted on November 6, 2009 at 9:18 am

NYU professor Viral Acharya says we need to be careful when we talk about the financial crisis being caused by ‘the market’ failing to function properly. Regulators are there to patch up holes and prevent problems, he says, “but regulation also reduces market discipline” by introducing distorted incentives.

For instance, insured depositors are unlikely to “run” but they also freely deposit at the highest-yielding bank, not worrying about its credit risk. Thus, when regulators deem a bank as well-capitalized, the onus is on regulators that this be right. Markets may not have the incentive to gather this information nor possess the details of regulatory supervision that led to such an assessment. Conversely, when regulation allows itself to be arbitraged, the financial sector becomes more opaque exposing markets to unexpected outcomes.

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Tags: banking, financial regulation, government regulation, New York University, Viral V. Acharya, Wall Street  

I’m betting there are some hedge funds that beg to differ

By Geert De Lombaerde Posted on October 23, 2009 at 7:46 am

Pay czar Kenneth Feinberg says he doesn’t think his plan to slash compensation at the country’s biggest banks will drive away key executives.

SEE ALSO: Turns out the mere threat pushes the big shots out the door.

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Tags: bailout, banking, executive compensation, government intervention, Kenneth Feinberg, Wall Street  

Lawyers as line workers

By Geert De Lombaerde Posted on June 7, 2009 at 9:44 am

From a Times story examining the angst created by layoffs at Wall Street firms:

“To the extent that lawyers are simply churning out the same problems one after the other and are treated as factors of production to be laid off or not because of market forces or marginal declines in profitability,” he said, “the emotional and professional commitment that goes along with being an adviser and a solver of problems begins to diminish.”

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Tags: law firms, layoffs, Wall Street  

Please target your venting

By Geert De Lombaerde Posted on March 16, 2009 at 3:55 pm

Tennessee Bankers Association President Brad Barrett says lay off your local lender.

Your local Tennessee banks have been working hard for the last year, and will continue to work hard in 2009 to make sure they protect the assets of their depositors and shareholders, provide capital for local projects, and provide jobs for the 30,000-plus Tennesseans who work in the financial industry. I hope my fellow Tennesseans will think twice before taking out their frustrations with Wall Street on a banker from Main Street.

HT: Josh Flory’s Bank Draft.

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Tags: banking, recession, TARP, Tennessee Bankers Association, Wall Street  

Does Wall Street understand Economics?

By Kleinheider Posted on December 17, 2008 at 11:51 am

Thomas DiLorenzo sees a Wall Street hiring model fraught with peril:

Wall Street banksters are known to hire bright, young Ivy League graduates and working them like dogs by holding out the prospect of great riches for the relative few who rise to the top of the heap. They don’t need to have studied business or economics; any Ivy League degree will do. After many years of observing this hiring model, I’m beginning to see a real bankruptcy of economic understanding on the part of even the more successful Wall Streeters. Speaking at a financial planners’ convention last week I met two hedge fund managers who seemed to believe that the best way to understand depressions in particular, and economics in general, was to read the socialist John Kenneth Galbraith. They thought that quoting him made them look really, really smart.

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Tags: Economics, hiring, Wall Street, young  

Is Wall Street’s problem a cultural one?

By Kleinheider Posted on December 15, 2008 at 12:50 pm

Chris Roach explores the issue:

The banker of old was a staid, somewhat humorless, but universally respected symbol of prudence and rectitude. He made a good living, but his living depended on the survival of the institution with which he was affiliated. The Wall Street impresario of today is a 30 year old castle collector who went to Ivy League schools and learned how to do regression analysis and also that “God is dead.” He’ll switch jobs 3-4 times in a decade, and his entire compensation structure is directly proportional to the risks he takes with the money of others. He represents an alien value system that has taken root on Wall Street. It is un-American, untied to the broader moral traditions of western civilization, and we are witnessing its self-destruction. The return of that earlier ethic of sturdy, sober, WASP Americana–an ethic that all social climbers, whether immigrant or “low born,” were expected to follow–is part of the solution to what’s wrong with Wall Street, which for too long has taken the Michael Douglas film as a “how to.”

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Tags: culture, investment banking, Wall Street