Globalfinancialcrisis
Researchers have not been able to find a link between banker compensation and short-term performance metrics. In their words, their finding “refutes the suggestion that incentive structures in banks could be blamed for the crisis”. As we were reading the study’s description, we were alarmed that the professor equated “short-term performance” with the short-term movements in share prices, which is not usually how compensation is set in banks. Then we found a post by the Epicurean Dealmaker that destroys the study precisely on these arguments.
Two recent stories highlight the current moral double standards regarding defaults and indebtedness in general. The first article uses American Airlines’ Chapter 11 filing, lauded as a “smart move”, and contrasts this reaction to the stigma surrounding personal bankruptcies by home owners. The second article tries to tack the same “double standards” theme onto Germany, but it doesn’t work nearly as well.
In another building block in the “Banking: Global Mess” series, the World Bank says in a report released yesterday that the Latin American financial systems still seem sound, but there are a few yellow flags. The embedded 3-min video interview (inside) is a nice summary of findings.
The IMF has recently issued a report on China’s financial system’s stability that has grabbed plenty of headlines, and yet today it seemed that there were pessimistic articles about banking all over the world. European and US banks are also the subject of stories that highlight risk, interconnectedness, poor balance sheets etc.. While the financials’ situation isn’t necessarily news, it is the trend that’s interesting. Inside we collect quite a few articles about the world’s financial system, all of them very from yesterday or today. Collectively they plant a bleak picture, one that seems very different from what we (still) observe in Brazil’s banking system. It’s very hard to separate signal from noise, especially so in the middle of a crisis, but it’s great food for thought.
According to the news, this is the line MF Global insiders used when questioned why they went along with Jon Corzine’s trades: “He was from Goldman Sachs”. Thus Mr. Corzine guided MF Global to a very public, very messy bankruptcy – and hundreds of millions of dollars of client money are missing. We wrote just days ago, regarding the “key people” aspect of a company: “Ultimately, it’s all about the key people (…) – it’s vital to understand their real motivations, aspirations, personalities and incentive/moral systems. Not what they say it is, what it really is.” Finding out about a given company’s true culture is just as difficult and time consuming, and as we can see in this example, just as important.
Two very recent stories on CDSs (credit default swaps) highlight the issue of Risk. Risk has a lot of aspects to it and some get overlooked, such as counterpart risk, process risk, instrument risk (liquidity, clarity of regulations, how tested it was in real-life distressed situation etc.)… Not reading the fine print, for instance, has led more investors astray than they would like to confess. Much has been said about CDO-Squared and complex instruments in general, but the CDS was actually not supposed to be complex. Even so, investors in Greek debt CDSs are finding that “default” may not be what they thought it was… And another side of the debate is counterpart risk: what if the instrument is good, the writing is clear and so on – but the counterparts (whoever they are in this immensely interconnected financial world) just can’t honor their side of the deal?
The Occupy Wall Street movement is so anarchic as to be impossible to name one “mentor” or group behind it – although that’s not stopping some people from claiming influence over it. Ultimately, in investments or revolutions, it’s all about the key people – it’s vital to understand their real motivations, aspirations, personalities and incentive/moral systems. Not what they say it is, what it really is. And that’s why it’s so hard to define “OWS”. We highlight three articles about it that may shed some light in a few spots.
Interesting Wall Street Journal editorial pointing out some contradictions within the Occupy Wall Street movement. As with all movements that start small and seem innocuous or naive at first, politicians and Wall Streeters ignore them at their own peril. How long before someone with any kind of political relevance gets tempted into picking up this flag?
After depicting both sides of the Eurozone crisis – Greece on the one hand and Germany on the other – Michael Lewis now turns his attention to the USA and to where he might find trouble. That he does, and plenty of it, in California. Our usual cautionary notes – about great writers sometimes skimping over a bit too much evidence for the sake of an argument – apply.
Two very public comments by high-level Brazilian authorities regarding currency wars: one by the highest possible authority – our President herself, in an editorial piece in the Financial Times. Another by our finance minister, Guido Mantega. Regardless of what one thinks about the global financial crisis and the state of macroeconomic policies each country should follow amidst the turmoil, it’s hard to see what diplomatic, political or practical gains could be achieved through this kind of rhetoric via the global press vehicles.
