Levine on Wall Street: Commit Fraud Now
Now's a good time to commit commodities fraud
The departing chief of enforcement at the Commodity Futures Trading Commission claims that the commission is so underfunded that it couldn't bring lawsuits against Javier Martin-Artajo and Julien Grout, the two London Whale traders who have been charged criminally by the Justice Department and sued by the SEC for cooking JPMorgan's books a bit. This is presented as a huge loss, but of course it's possible that regulators would get more bang for the buck if only one or two of them focused on each case, rather than having every regulator pursuing the same set of big glamorous cases in tandem. One doubts that Martin-Artajo and Grout are thinking "whew, we really dodged a bullet not being sued by the CFTC."
But it's not a great time to get coffee with an SEC lawyer
This is just a staggeringly weird article about the Securities and Exchange Commission, which apparently has a new security-card system that will "record the times people enter and exit the building in its offices across the country." (Monsters!) The SEC's union -- because the SEC has a union – is warning SEC lawyers and accountants not to take more than half an hour for lunch, or "take a walk to get coffee, even with your supervisor," because it might get you fired. SEC spokesman John Nester plays down the controversy:
Over the past year there have been a half dozen cases where the security information was used as evidence and none of them have been based on brief absences, such as coffee breaks, Nester said.
As for lunches, Nester said it is true that the current union bargaining contract calls for only a 30-minute daily break. Even though it is not in the agreement, all workers are permitted two 15-minute breaks as well, he said.
We talked yesterday about the creativity asymmetry between regulators who enforce rules and banks who evade them. At the time I didn't know about the two 15-minute breaks. I submit to you that any plausible theory of American securities regulation needs to take this article into account.
It's also not such a good time to be a rogue ETF trader at a Swiss bank
It seems like exchange-traded fund desks at Swiss banks are in a competition to see who can lose the most money on unauthorized trades. But, guys, stop it: Kweku Adoboli has won. He lost UBS $2.3 billion, and more importantly called management's attention to the fact that you can't effectively hedge a giant ETF position with a post-it note saying "see I have hedged the position, no problem." Credit Suisse's Rohit Jha was only able to rack up $6 million in losses before the company shut him down, fired him, suspended his boss, and reported the whole thing to authorities. After Adoboli, that sort of loss looks like a major victory for the bank.
RBS apparently has some bad bits
A lot of banks still have billions of dollars of problematic loans, which are bad not only for the obvious reason -- losing money -- but also because, if you're a bank, you're in the business of making money off loans, and so investors start to doubt your strategy if you're losing money on loans. One thing you can do is divide your loans into a "core" business, which has the loans that make money, and a "non-core run-down program," or whatever, which has the loans that don't. Then you're like, "our core business of making loans is great, and all our losses are in the non-core business which you shouldn't care about," which has important logical problems but here we are. When investors notice those problems, you rename the "non-core run-down program" the "internal bad bank," because then it's very clear that you're not losing money in your business of making loans, but rather from this internal bad bank, and how did that get here? Anyway, the Royal Bank of Scotland, which was bailed out and more-or-less nationalized by the UK government due to its bad loans, and which is trying to gussy itself up for eventual re-privatization, is doing this thing.
Reuters quotes a shareholder:
RBS already has an internal bad bank, so it's just a question of moving some assets into it, shuffling loans around the disclosures, nothing really changes.
I feel like there's going to be a whole micro-generation of bankers whose career consists entirely of winding down bad banks; one thing you can speculate on is how marketable a skill that will be when the current assignments are done. Pretty marketable, right?