Edward Harrison

Hands Off Goldman Bonuses

You bring up a good point about the agency problem in large corporations. When Wall Street firms were partnerships, they were more risk averse in my opinion. The fact that large corporations are run by managers (who have some stake) instead of owners sets up a conflict of interest that leads to problems.

That is an issue that definitely needs discussion, especially in regards to shareholders' rights and compensation practices.


On Oct 21 04:31 AM Jasper M wrote:

> This situation reminds me of some WW2 graffiti, from the Netherlands,
> when it was occupied by the Nazis, that appeared when they first
> started rounding up the local Jewish population. The original is
> likely too politically incorrect to print here, but a current version
> might be translated as -
> "Keep your dirty hands off those dirty Goldman bonuses!"
>
> You don't have to approve of something to recognize that it has a
> right to exist, and that contravening that right is, ultimately,
> a threat to all sorts of other things we DO approve of.

Why Is Goldman a Bank Holding Company?

On Aug 14th, Goldman became a Financial Holding Company, the designation now used by all too big to fail banks and that was created as a holding company type specifically to retroactively allow the Travelers-Citcorp merger in Gramm-Leach-Biley in 1999.

The reason behind Goldman's actions was to allow it to continue operating largely as a broker-dealer but to remain under the fed's regulatory umbrella. This is the same reason other financial services companies operate under this designation.

See the definition here:
www.ffiec.gov/nicpubwe...

Is Meredith Whitney Now a Bull?

Roger, I think Cautious Investor has the right take here i.e. that the pro-GS stance is largely because of the tsunami of debt to be issued by governments and municipalities. She still thinks the underlying earnings power is dubious and that the broader economy is likely to be weak.

What is most notable for me is her tone. Much more bullish in tone than substance. I think this is what has people surprised.


On Jul 13 02:37 PM Roger Knights wrote:

> I suspect Whitney has heard the whisper numbers on earnings and wants
> to position herself pro-actively as positive on earnings for the
> next three-six months or so.

How Globalization Led to Universal Banking in America

I have no idea what you are talking about. Take out the word socialism and this is exactly what I said.

"However, the U.S. started to inflate from the word go, with this inflation taking on greater measure in the 1960s under the ”guns and butter” policy of Lyndon Johnson.

The French, under the charge of the sometimes anti-American leader Charles de Gaulle, were the first to balk at the inflation and they started to convert their U.S. dollar holdings to gold. Other nations followed. This led to the closing of the gold window in 1971, which was the formal recognition that the U.S. dollar was a depreciated currency due to money printing of the U.S. government."


On Jul 13 12:03 PM Socialism cannot compete! wrote:

> Apparently sovereignty and the good of their nation means nothing
> to some people! False premises lead to false conclusions. And so
> we have the misguided notions proposed by the author. Perhaps he
> should consider that closing the gold window was not a response to
> outdated regulation causing inflationary pressure due to higher profit
> potential for banks abroad, but that the inflationary pressure was
> due to government spending way beyond its means as the U.S. morphed
> into a socialist entitlement state. Surprise, surprise -- that sounds
> like a theme we continue to revisit!

How Investment Banking Has Changed - And Why It Must Be Addressed

The days of the partnership where investment bank executives had their fortunes on the line meant a better alignment of principal and agent. Those days are long gone now and I don't think they can ever be brought back. Is over-regulating the solution? No. I have no more faith in regulators than does Paul Zimbardo. After all, it was their failures which helped lead us to this point.

Nevertheless, I do think regulatory reform is necessary. The first thing that needs to be done is enforce the laws that are already on the books. We don't need a whole new set of regulations as Obama is suggesting. This just puts the blame on Wall Street, when the lack of enforcement by regulators was a large part of the problem during the bubbles.

And bringing back Glass-Steagall is not a 'fix' to all that ails us. Universal banking works just fine in Canada.

While I applaud efforts to regulate OTC derivatives and hedge funds, I see no reason to rush ahead and start imposing new regulations until we have an adequate understanding of where failures lay in the past.

Bloomberg Comes Down Hard on Goldman

Thanks. I have asked Seeking Alpha to make this correction.


On Jul 12 11:50 AM CautiousInvestor wrote:

> Edward, I believe Aleynikov was due to start work at Teza , a Chicago-based
> fund co-founded by Misha Malyshev, the HFT expert who left Citadel
> in February.

Goldman Connection at NY Fed: Major Conflict of Interest

Ricard,

You are right he did sell and put his funds into a blind trust. thank you for the correction.

Goldman Connection at NY Fed: Major Conflict of Interest

John,

You said it well. That was my point exactly. And, with Hank Paulson having so much money tied up in Goldman stock, it seems inconceivable to me that his actions wouldn't favor that firm, much as it was inconceivable that Dick Cheney wouldn't favor Halliburton.

How we solve this problem is a mystery. One answer might have to be less 'changing sides' and more civil servants in regulatory roles.

Thain Calls Lewis a Liar: BofA Saga Continues

David, while most people will probably take issue with your statements below (I myself have some problems with them), I would like to agree that Lewis may NOT have been entirely self-motivated.

See the articles here:
blogs.wsj.com/deals/20.../

and here:
blogs.wsj.com/deals/20.../

This helps give a balanced view here.

Nevertheless, Lewis does not look good in all of this. My main point still remains: he probably did not have shareholder value top of mind when he did either Countrywide or Merrill. And now BofA shareholders are paying the price. It is irrelevant whether he was self-serving in the MAC clause case - I think he was. What is more problematic is that Lewis' actions reflect an empire-building mentality that is now at odds with a world that is deleveraging. This has cost shareholders plenty.


On Apr 29 04:56 AM David White wrote:

Lewis seem like a genuine person. He was clearly pressured into the deal. It was not just out of fear for his job though. He is a good economist. He knew that Merrill Lynch could not be allowed to fail. He let Paulsen and Bernanke talk him into it with the assurance that they would bail him out, if Merrill Lynch lost too much money.

Obviously this is a loser deal in the short term. However, BAC's stock price would likely have fallen considerably in sympathy with the other banks and due to its Countrywide acquisition. To say the stock price fell due solely to the Merrill Lynch acquisition is ludicrous.

Don't overlook the reality that the Merrill Lynch acquisition will likely be a big money maker for BAC in the long run. M.L. has historically been a very solid company. It will likley return to high profitability soon, if it hasn't already.