If I seem a little cranky this morning, please forgive me. It’s cold, the JETS had a tough loss, and Jack LaLanne has passed away at age 96. I am out of sorts.
Today we want to touch on the topic of regulation, and how large a hand corporations have in crafting it.
We often as an industry debate the merits of regulation. Sometimes the debate degenerates into generalized sound bytes (originating from Dems and Repubs alike), which does the topic no justice, does not improve our understanding of the issues, and most importantly does not help us learn from mistakes of the past. Currently those sound bytes would have us all believe that any regulation will cripple our industry, send all jobs and innovation offshore, bring on socialism, and that the regulation will be crafted by idiots who still don’t understand issues from 1998. Well, maybe some of that is true, but I digress.
The truth actually reveals that in the last 20 years we have seen regulation in the financial industry come down remarkably. The examples of this are many, but one can almost just start and end with the repeal of Glass Steagall, and then look at the rules around financial leverage that have evolved.
The truth actually shows that regardless of who is in power (executive or legislative branches), the result has been the same for the last 25 years: philosophical arguments are lobbed out to divert us from the fact that our process has been hijacked by lobbyists and big business. And what is good for big business in the short run does by no means make a clean road map for economic growth, prosperity, and fairness for the nation as a whole in the long run. As this topic can easily be a book, or certainly a PHD dissertation at the University of Pennsylvania, I know I can’t do it justice in a morning note. I instead hope I can remind everyone that each major systemic economic blow up in the last 30 years was brought upon by corporations’ and industry’s short term greed, use of leverage and complex financial products, and aided by government rule-making.
We bring this up because we will personally be debating rules that should come out of the Flash Crash aftermath later this week on a few panels, and we also bring this up because the Wall Street Journal article over the weekend, Emanuel Gets A Boost From Financial Sector (click here to read), demonstrates just how great and brazen a clutch big business has on our regulators.
Former Obama Chief of Staff Rahm Emanuel is seen as a rising star in political circles. He has long ties to the derivatives and financial services industry, as the article points out:
The CME appointed Mr. Emanuel to its board of directors in May 1998. The Chicago Board Options Exchange, now known as CBOE Holdings, was one of Mr. Emanuel’s first clients after he joined investment bank Wasserstein & Co. in 1999. There he helped the oldest U.S. stock-options exchange work through thorny ownership issues tied to its spin-off from the Chicago Board of Trade.
The financial industry knows that Emanuel’s star has a long way to rise, and they are fighting for his graces from the get-go: his campaign war chest for the Chicago mayoral race has swelled to $11.8 million, in big part from help from the city’s exchange and trading community. The supporters include:
- CME Group
- CBOE Holdings
- Getco LLC
- DRW Holdings
- Peak 6 Investments
The other mayoral candidates have raised $2.3 million, $125,000, and $110,000. Emanuel is leading in the polls.
Does anyone wonder why we still do not have flash order types banned? When regulators are outright hired away from their regulatory positions for lucrative positions in the same industries they regulate, and when congressional financial committee members write letters to the SEC urging them to slow down regulation and NOT BAN FLASH ORDERS, and when political leaders are “made” like Emanuel is, are any of you surprised that even Flash Crash regulation is being delayed and pushed back out of 2011?
Where we left off 4:00pm EST:
INDU 11,871.84 +49.04
SPX 1,283.35 +3.09
CCMP 2,689.54 -14.75
Futures now at 7:30am EST:
Key Data out today:
Since the prior close, some key stories:
- More Bank Pay Curbs are planned by US Regulators.
- Irish PM Resigns.
- Global Price Fears Mount (WSJ)
- More Hiring Expected In US as Gloom Starts To Lift (WSJ)
- Mortgage Giants leave legal bills to the Taxpayer (NYT)
- Davos focus is on growth and not crisis.
- China injecting liquidity through reverse repos to keep rates down.
- Europe lower a tad (Phillips misses).
- CFTC’s commitment of traders report revealed that swing between euro bears to bulls in a single week was one of the largest in at least 10 yrs.
- Tiger Global starting 6th private equity fund ($1.25 billion), part of which to increase stake in Facebook.
- Novartis to by GXDX for $25/share.
- Barron’s: positive reads on BRK/A, NVDA, WFC, DAL, EBAY, MSFT, NLY, PTY, AAPL, GOOG and cautious on CRM and MFW
Pre-market: BOH, HAL, MCD, NMM, PETS, RKT, SEE, SILC, SSCC, ST, STLD, WTFC
After the Close: ALB, AMGN, AXP, CATY, CBU, CR, CSX, ETJ, JEC, MSPD, PKG, PLXT, SANM, STM, TXN, VMW, WGOV, ZION
Significant Movers This Morning:
GXDX +25% (takeover), NVDA +4.7% (Barron’s), AXP +4%, WWE -16%, RSH -7%, RKT -5%, COF -5%, CRM -3%