In the wake of the Great Recession, the matrix of governments, central banks, regulators, judicial systems and politicians across the globe has been busy reasserting itself in the financial services industry throughout 2011, sometimes with stunning results as we’ve seen this week.
- First, I am happy to report that sometimes the world’s central banks get it right. Such is the case with the combined efforts this week of major central banks to offer emergency US dollar loans intended to provide relief to global financial markets, boost credit for households and businesses, and, it’s been widely rumored, to avert the collapse of a major European bank. The more affordable “U.S. dollar swap lines” will make more of the Fed’s dollar flow available to other central banks that will then lend more to the banks they govern. Of course, this means that the central banks involved—the U.S. Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank—will be under extra scrutiny as they attempt to avert the strangulation of credit that hit the US as the Great Recession was underway; we’ll see if they have learned anything from the suffering that occurred here. The markets appreciated the action this past Wednesday when the Dow rose by 490 points—the largest one-day gain since March 23, 2009, according to the Wall Street Journal.
- Despite howls to the contrary, transparency was at the heart of US District Judge Jed S. Rakoff’s ruling throwing out the settlement between Citigroup and the Securities and Exchange Commission (SEC). Much has been made of the precedent it will set for future cases and the precedents ignored by Judge Rakoff’s rejection of the SEC’s cryptic “neither admit nor deny” clause used for countless settlements. What gets lost amid the battles over legalese is the fact that investors, counterparties and the public are still left in the dark in such settlements, adding insult to injury. In addition, the regulators themselves should be subject to greater transparency especially as they are forcing the issue with major industry segments such as the US OTC markets. Although a trial may not happen next July, it would be a godsend to clear the air about what really happened at Citi after it sold $1 billion in mortgage-bond deals. Judge Rakoff has proven that he’s more in touch with real reform than the SEC.
- Individual politicians have also left their imprint upon the industry as evidenced by a milestone in the career of Massachusetts congressman Barney Frank, the chairman of the House Financial Services Committee. Frank is leaving the scene after next year by choosing to not seek re-election. Known for many policy initiatives, he will be forever remembered for his role in the Dodd-Frank Act (DFA) and his behind-the-scenes efforts during the worst days of the Great Recession. Even his critics acknowledge that he has an admirable knowledge and understanding of the financial services industry—a stark contrast to the shocking ignorance of some of his colleagues on both sides of the aisle. At his press conference earlier this week, the congressman, originally from New Jersey, lived up to his surname by acknowledging that he was caught short by the Great Recession. He also defended his efforts pre-crisis to fight for serious reforms in the loaning processes of Freddie Mac and Fannie Mae, and affirmed that he will continue to fight for DFA during the time he has left as chairman. He also said that the past two years, which were mainly focused on the crisis and then DFA, have been the hardest of his three decades in Washington, DC. When asked about what has changed since he first came to Congress, Frank said extremists on the left and right have made Washington a hard place to get things done. A sure sign that he’s not a lame duck, he also chided the Republicans for holding down funding for the US Commodity Futures Trading Commission (CFTC). Something tells me that Rep. Frank will not be playing it close to the vest during his last year in power.
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