In the wake of the loss of a super-majority in the Senate, President Obama sent shockwaves through Wall Street with his proposals for bringing order to what he and his advisors believe is chaos. The President and his senior economic team, which includes everyone’s favorite former Federal Reserve Chairman, are planning to reshape the financial services industry as we know it. (Read Here)
The new regulation is still a long way away from becoming law, and no doubt before any drastic changes are made Congress will spend hours upon hours in hearings to determine what — if anything — is really going to happen to the banking sector.
I for one don’t believe separating the banks into separate companies is necessarily a bad thing. It doesn’t make sense that so many different businesses are housed under one roof and it’s clear that the current banking giants are not very good at what they do. Breaking them up into companies that focus on specific areas of the industry can only be good for the economy and the country’s financial stability.
The deal that President Clinton and Secretary of the Treasury Robert Rubin made to do away with the Glass-Steagall Act was a mistake. Sandy Weil was wrong in his assumption that strapping together a series of financial-service companies into one banking giant would be a good thing for shareholders, let alone the industry. The reality is these conglomerates rarely work the way that they are intended to, yet time and again people try to build these giants. Maybe the President’s plan will help put a stop to this ridiculous practice once and for all. (I doubt it – but maybe.)
That being said, working for Citi clearly paid off for Mr. Rubin after he left office.
The proposal by President Obama to separate money management functions, including hedge funds, private equity funds and other investment management areas, from their parents is a good thing for the industry. It will allow firms to shed their investment management businesses in an orderly fashion and create a conflict-free environment that will allow both sides of these businesses to thrive without the burden of the other.
Wall Street’s reaction to the President’s shot from the hip was a wrong. I believe separating out the investment management business from the deposit-taking and loan-making side could be a real opportunity for not only those who work at the institutions, but for investors and those who sell products and service to funds as well.
It’s clear that the President doesn’t understand how markets work. This lack of knowledge is going to keep him stuck in the weeds for the foreseeable future. His speech was timed incorrectly, his concepts are not well thought out and his ability to communicate succinctly is, well, just not succinct.
That being said, there are too many conflicts of interest on the Street right now, which limits fair play. Removing the asset management businesses from their parents is the first step in getting rid of these problems that plague the buy side and may just make the markets work better.
THINGS THAT DRIVE ME CRAZY
Please don’t take this the wrong way, but I am sick and tired of hearing actors and rock stars telling me whom I need to help and what I need to do to make this world a better place. Last week’s telethon put me over the edge. Of course I am saddened by the events in Haiti and want the Haitian people to be helped – they clearly need it. If there is a hell, well, they seem to be in it.
At the same time the Hope for Haiti Now telethon was being run on too many television stations to count, the weekly edition of NOW was running on my local PBS affiliate. This week’s show was titled “Who’s Helping Our Wounded Vets?”.
The story was about a number of families of soldiers who have returned from Iraq and Afghanistan with severe brain injuries. The program detailed how each of the families was dealing with their respective soldier. It was hard to watch. It was even harder to watch because one of the families profiled was the one I’d met at the optometrist a few weeks earlier. (Read About Here.)
While I was watching, I kept wondering where is the telethon for veterans? How come George Clooney and his Hollywood pals and Bruce Springsteen and his rock star pals haven’t rallied their troops to help our troops? Without the efforts of these warriors, they might not have had the opportunity to help anyone. That’s why we need to help them. If anyone is interested in setting up a veterans’ telethon, get in touch. I’ll do whatever I can.
These people are making an incredible sacrifice for all of us and giving them the best care possible is the least we can do them.