Archive for July, 2012

Glass-Steagall is a Dream Worth Revisiting

25 | By Shah Gilani

There’s a dream keeps returning, like rain to the sea.
There’s a fire ever burning in the souls of the free.
There’s a lifetime of learning that it’s all been in jest.
And at the end of your journey, it’s like you never left.

~ Dave Mason

Those lyrics are great. They apply to a lot of things in life.

That includes me seeing the legendary Traffic singer/songwriter and guitarist Dave Mason recently, after last seeing him 10 years ago. He was once again at Stephen Talkhouse in Amagansett, New York, and I saw him with some old friends two weeks ago.

Besides being a legend, he’s a really good man.

He’s supporting Wounded Warriors and other projects, like Work Vessels for Veterans, which helps support veteran entrepreneurs trying to get their business dreams off the ground. I urge you all contribute to help the incredibly brave men and women in our armed forces who sacrifice so much and get so little in return.

We did our part that night by bidding up the price and winning a signed guitar that Dave Mason was auctioning, as he is doing at other shows.

Here’s a picture of Dave in the middle, me on the right, and one of my best friends, Dr. Mark Kot, the real Hamptons doctor (yeah, they made a TV show based on him) on the left.

But I digress. Although it’s for a good cause. We can never do enough for our troops!

There’s another dream that’s returning today. And it is one that many of you have been actively dreaming about.


Like rain to the sea, the fallout from the implosion of too-big-to-fail banks that poisoned our capital markets and economy may, God willing, help resurrect the Depression-era legislation that separated commercial banks from investment banks.

I’ve been calling for that for years now. And almost all of you are soldiering with me in that camp.

Well, it seems we may now have a new general to lead us.

Take a look….

Our Pension Fund Scheme is Unsustainable

20 | By Shah Gilani

You made me promises, promises,
Knowing I’d believe.
Promises, promises
You knew you’d never keep.

Those lyrics are ripped from the early ’80s band Naked Eyes’ hit song “Promises, Promises.”

I use the word ripped, not because it’s a term used in the music business, but because of its more common meaning, as in ripped-off.

Because that’s what we’ve been – ripped off.

This time, which has been going on for a long time, I’m talking about how grossly underfunded both private and public pension funds are, and how we’ll all suffer the consequences.

I’m going to strip out the mumbo jumbo so you see the truth with your own naked eyes.

Retirement is getting further and further away for most Americans. And if they get there, they may not be reasonably compensated by the pension plans they thought they were paying into along with their co-payers, their private and public employers.

That’s because a lot of those co-payers aren’t paying up.

And that’s only part of the problem…

Here’s the other, even more insidious, naked truth…

Let’s Give Regulations Force and Power

81 | By Shah Gilani

I’ve been jawboning a fair amount about regulation lately, and a lot of you are getting in on the conversation. I always, always read every comment that’s posted here and I thank all of you for participating.

As a quick sidebar, let me say, you all are not a small group. Close to 200,000 people get Wall Street Insights & Indictments in their mailboxes every Thursday and Sunday morning, and that’s just the ones we send it to. WSII is picked up elsewhere and forwarded many times over. So, when you comment, your participation is noted far and wide.

You are becoming stars in the great galaxy known as “freedom of speech,” and I thank you for all your efforts. You make our conversations two-sided and always more robust.

So, in light of many comments that relate to me wanting more regulation, this morning I want to make myself clear, as in clearer. I am not for more regulation. I am for more-better regulations – as in “mobetter.”

Why mobetter? Because the only real way to give regulations real force and power is to make them:

  • simpler (so the long and windy road of legal-speak can’t be manipulated or loopholed to death),
  • more concise (so people actually understand what they’re reading and don’t have to hire teams of lawyers to read it to them, or hire them to find loophole side streets to meander down),
  • and with cut-and-dried penalties.

If we can reconvene regulations down to be mobetter, we won’t always be singing the mobetter blues when bank crooks get away with their schemes by settling instead of being driven out of business and to jail.

Cases in point (make that just a few of the cases we know about)…

The Woes of Regulation

54 | By Shah Gilani

Like most people, I hate to admit it when I’m wrong. But today, I admit it.

I have been wrong about regulation. All wrong. I’ve been calling for more, better regulations to stem the fraud and wicked ways of errant Wall Streeters.

But it’s come to light, in a sad and almost tragic way, that this whole regulation thing is wrong from the get-go.

After all, it ruined one poor man’s near-perfect life. And that’s where I draw the line.

Thanks to a suicide note, penned before (obviously) his attempted mea culpa exit stage left, which thankfully failed, we know why poor Russell Wasendorf Sr. was so distraught.

Yeah, that Russell Wasendorf Sr., the guy who founded and was CEO of failed brokerage house Peregrine Financial, also known as PFGBest.

Well, it turns out poor old Russ actually is poor – “poor,” as in he has no more money (still has that jet and a few other little assets, however) – and his firm is being liquidated because of those stupid, useless regulations and those horribly pesky regulators.

According to Russ’ suicide note, for almost 20 years, he ripped off his clients by stealing their money to keep his firm afloat so he could continue to service them, his clients, that is… and the regulators.

Now, that’s what I call service!

Why I’m Pro Regulation

45 | By Shah Gilani

Here’s the thing: “You can’t fix stupid.”

That’s a great line by the very funny comedian Ron White. Really, he is hilarious.

He strings out some funny lines about what stupid people do, and as you’re laughing your head off, he tags you with his famous punch line to the punch line you’re already laughing at, by explaining a sad but funny reality: “You can’t fix stupid. Stupid is forever.”

Here’s another thing (it’s my takeoff on you can’t fix stupid): You can’t fix fraud.

People do stupid things because, well, they’re stupid. And people commit fraud, well, because they’re crooks. Maybe they don’t start out contemplating how to commit fraud. Maybe they do. But, in the end, they do it, it’s done, and it can’t be undone.

So, that’s why we need regulations, stupid.

I’m not calling you stupid. That is, unless you are stupid enough to think that by simply expecting people to always do the right thing, they will, in fact, always do the right thing.

You see, here’s the thing: That’s stupid.

The reason I’m pro regulation is because, without regulations, people will do stupid things. They will also commit fraud. Why? It’s about the money, stupid. Some people will do anything for money.

When I say we need more regulation, not less, I don’t mean we need more stupid regulations.

I mean we need fewer, more black-and-white regulations that make it easy for stupid people to understand what is right and wrong. And we need hard and fast enforcement of prudent, simple regulations. And, of course, we need more jails, stupid.

I read all your comments, always, and there were a lot on my last post about regulation. That’s why I’m clarifying my position on regulations and addressing the fanciful, if not exactly stupid, notion that people should just have a north-facing moral compass and we wouldn’t need all the burdensome regulations we have.

I wish it was that simple. I also wish there was a Tooth Fairy and a Santa Claus.

Here’s my case in point…

Republicans and Democrats Have it Wrong

139 | By Shah Gilani

Today I have a question for you; make that two questions:

  1. Do you think that financial services should be more regulated or less regulated?
  2. Do you think that the Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act), signed into law two years ago on July 21, has hurt:
    1. You personally?
    2. Businesspeople or businesses you know of?
    3. The economy in general?

Here’s my opinion; not that it matters that I’m an expert on the subject, or that I have 30 years in the financial services business, or that I own a couple of businesses, or that I’m getting back into the financial services game in a big way (more on that sometime in the future). It’s just my stupid opinion. It really doesn’t matter that I’m right, either, because it’s just my opinion; did I say that?

The correct answer (according to me) to question No. 1 is itself an economic postulate: “More is always better sooner.” As in, we need more and better regulation, sooner rather than later. That’s my final answer.

The correct answer, in other words, my answer, to question No. 2 is: no, no, and no.

I’m going to make this short and simple, because I want to hear from you on this subject. (Just click below and leave your answers in the comments section.)

The Republicans are facing a quandary in the 2012 election…

Central Banks are the Problem

5 | By Shah Gilani

The Libor scandal is about to get a whole lot worse.

And that’s the good news…

Not only are at least 20 more big banks under investigation as part of a massive fraud to manipulate interbank lending rates that affect some $800 trillion in loans and derivatives, but the Bank of England is about to take center stage in the scandal.

And that’s bad news for central banks around the world.

Well, actually, it could be good news, as in really good news, if it’s the beginning of the end of what central banks do to manipulate free markets to the benefit of their only real constituents, the world’s big banks.

First the good news.

It’s already come out that traders at Barclays with huge derivatives positions leaned on co-workers who sit on “panels” that submit internal bank borrowing cost data to Thompson Reuters. And Reuters averages the middle lot of submissions to determine Libor (London Interbank Offered Rate) “fixings” (not my word, but actually the established nomenclature for what it apparently is that they do… as in “fix” rates). And it’s all under the auspices of the British Banking Association.

What’s good is that we now know for a fact that the traders (crooks?) were aided and abetted by their co-workers, the submitters (crooks?), who were overseen by managers and top executives who design most of these schemes (crooks?), and were all blessed by the British Banking Association, an illustrious association of 200 some-odd banks, whose many members (crooks?) are panel members submitting crooked (no question mark necessary) data.

Still don’t get why that’s good news?

Because it’s proof there are crooks out there.

Q&A: July 2012

22 | By Shah Gilani

I hope everyone had a nice Fourth of July.

It’s time for our monthly Q&A session, so let’s kick it off with your questions and comments about my June 14 article, “Why the Financial Industry is the Ultimate Liar’s Club.”

Q: Please talk more about the value of a Glass-Steagall-type “separation of powers,” between banking, securities, mortgages (and insurance). Yesterday Jamie [Dimon] talked about how compartmentalized the functions are at JPMorgan, regardless of its gargantuan appetite for generating shareholder value. Not buying it… never did! But what is your view of the most efficient, and least corruptible, way to structure those activities? ~ P.

A: It’s really, really, really simple. Only allow commercial banks to take in deposits and make loans and limit their size.

Where does it say that private enterprises have the God-given right to become so big (to make more and more money) that they threaten systems, the economy, and the nation? Nowhere. Let investment banks do what they do for the capital markets (keep ripping their clients off) but limit their size too and require high capital standards.

Where does it say that private enterprises have the God-given right to become so leveraged that they risk blowing themselves up, contaminating counterparties and holding economies and nations hostage to their unmitigated greed? Nowhere. We need to keep it simple. Bankruptcy is the perfect antidote to stupidity and greed, but it only makes sense if enterprises aren’t TOO BIG TO FAIL. This is not rocket science, this is A-B-C, easy as 1-2-3, do-re-me.

Q: I am about to move all my banking activities from Chase to a small regional bank. Are the smaller banks as bad? ~ Dennis B.

A: No, smaller banks these days are generally cleaner (they don’t trade) and better in terms of transparency into their balance sheets and looking at their capital.

Do some homework. Ask for audited financials. If they balk at giving you any, then don’t go there. Also make sure you’re not putting more in any one bank than you’re covered for under the FDIC. Plenty of smaller banks have commercial loans that may be problematic, but, the crazy thing is that the regulators are far more “all over” those smaller banks than they are the big regionals and the universal banks.

Q: A very senior banker said to me recently [that] the JP Morgan thing was a storm in a teacup and that Jamie Dimon was a “good guy.” I found that a depressing thought. Perhaps the loss is not large compared to the scale of their operations, but it does have a bad smell of market manipulation, which this time did not pay off as expected. I’d be interested in your thoughts on that … ~ Alex C.

A: Jamie Dimon has to go. Bob Diamond (Barclays) stepped down; why should Jamie be allowed to sit on top of his bully pulpit pontificating about what’s wrong with everyone except himself and his bank? He was a good manager, but he got greedy; he forgot what Sandy Weill taught him. He wanted to get so big that he was the bank. No bank is the market, and no bank or banker should be allowed to lie to the public, apologize like he’s not really sorry, only that his team blew his cover, and still be allowed to pull the strings in Washington.

Did you see some of our sycophant Senators and Representatives question Dimon? Looked like a high school dance to me.

Q: What nags me is that the level of corruption is so deep, or high, whichever way you look at it, that there appears to be no one of any clout that can amputate. Would Ron Paul be such a candidate? ~ Roger C.

A: I think Ron Paul would be fantastic. He’s different. I trust him because he’s different, as in, not a lying, pandering, and pimping you-know-what.

Next up, your reactions to “Our Capital Markets are Broken.”

To continue reading, please click here…

Posted in Q&A

Why I’m Seeking a New Independence Day

53 | By Shah Gilani

Independence Day is coming!

This year July 4th falls on a Wednesday, and, of course, America will be celebrating good old Independence Day.

That’s right, we’ll celebrate old Independence Day – that day in 1776 when we declared our freedom from oppression and went on to fight, win, and build the greatest country on earth. And we built it on the foundation of two of the most magnificent cornerstones ever to be laid in the history of nation-building: the Constitution of the United States and the Bill of Rights.

So while we are looking forward to celebrating our old Independence Day, let’s not forget to keep looking for our New Independence Day.

Yeah, you know, the New Independence Day that’s coming, eventually, but just keeps getting further and further away in the meantime.

You don’t know what I’m talking about? Yeah you do.

If you’re anything like me, you don’t want to admit it, but you see it and you’re starting to get scared and probably a little angry. In my case, I’ll tell you, it’s a lot angry.

We believers in the Constitution and the Bill of Rights are seeing their protections being eroded in the name of “freedom.”

We are seeing Congress after Congress and president after president aid and abet the dilution of our guaranteed freedoms. And they’re doing it by instilling fear in us, and telling us that they’re making us safer in an increasingly unsafe world and that they know what’s best for us and how to protect us.

They’re doing a lot of bad stuff we can’t even see. Like watching us.

Oh yeah, Big Brother is all grown up. He lives in our computers, on the Internet, across satellites and landlines, and through the pipes that deliver and send our voices and the personal data that makes up our lives. He’s there in the cameras that catch us in our cars, when we’re transacting private business with our banks, when we travel through every airport and mass transit hub. He’ll be following us with drones in our own neighborhoods soon (already).

But that’s all for our own good, you know.

That is, until you’re declared a “terrorist” or “terrorist sympathizer” by somebody who has the power to label you like can of soup gets labeled. Then you may get “renditioned” to some off-shore safe haven where it’s safe to torture you in the name of freedom.

But, of course, we can always speak up and change these things that we’re scared about, that we’re angry about. We can always protest because we have freedom of speech, right?

Oh, sorry, no, you didn’t get the memo, did you?