Sometimes it Pays to Read the Comments

Ritholtz posted a clever but instructive skewering of gold mania. He got some of the predictable blowback.  In response to the blowback, Ritholtz said "Paper money is backed...  a collective belief system — so is gold — but the fiat currency also is backed by the ability to tax and have a standing army."  Responding to Barry, comes now a certain "Carchamp1," otherwise unknown to me:

Consider that, despite conventional wisdom, fiat currency, or paper money, is backed by far more than general collective belief. When you think about how a fractional reserve system works, a currency is backed by productive enterprise and work. In a fractional reserve system, money is, yes, created “out of thin air”, but it is loaned out with some confidence that it will be paid back.

Now, as we saw with the housing bubble, capital is sometimes employed very poorly. When that happens we ultimately get a contraction, sometimes a very powerful one. This is inherent in fractional reserve systems. That is, it is supposed to happen. It is part of the plan.

While I think the idea of having a few bankers at the Federal Reserve pull the switches on monetary policy should be looked at (could this be done in a market-based approach?), I tend to think the fractional reserve system is pure genius. Probably never heard that before.

 Okay, I grant this may not be Nobel quality, but how often do you here anybody mount any defense at all of "fractional reserve banking?"  [Still as a general rule--I'd venture that any comment thread including both "fiat money" and "fractional reserve banking" is probably not worth the eyeballs.]

Oh. Give. Me. A. Break

Buncha crybabies:

The dramatic boardroom coup at the bank’s Park Avenue headquarters has rankled some people at Citi, especially senior executives who feel that the action was needlessly ruthless and who spoke only on the condition that they not be identified. ....

This week, senior executives at the investment bank convened a group of employees to try to stem any exodus, according to several people briefed on the meeting. Among the employees’ questions: why remain at a bank that treated its top executive so harshly?

Link. In the words of Dorothy Parker, tonstant weader fwowed up.

Lucca and the Swiss Bankers

Another post about bankers, this time the Swiss variety.  Years ago I heard that Swiss banking got its start when Protestant bankers, crosswise with the Counter-reformation, fled to Protestant Switzerland.  

This has always sounded plausible to me.  After all we know there was a lot of people-moving in those days and in particular, that French Hugenots took their Protestantism almost everywhere (and enriched virtually every society with which they came in contact).  

Yet oddly enough, this is one "fact" --perhaps the only one--that the intertubes appear unwilling to confirm.  Miscellaneous searches invoking "Lucca" together with (in some form or other) Swiss banking.

Can anyone help here?  Am I totally spinning threads out of my own gizzard?  Or is there some hitherto overlooked confirmation of this (alleged) phenomenon?

Oh, and while you are doing my research for me--I wouldn't mind laying my hands on  good history of the Antwerp diamond trade as well.

Taxmom Nails It!

She said he'd write a book. Now this

This Just In (Francisco Franco Still Dead Dept.)

Saturday New York Times, p B1, UR (dead tree):

London Banking Is Losing

Its Gentlemen's Club Ways

Book title, Penguin 2000 (by Philip Augar)

The Death of Gentlemanly Capitalism

The controversial bestseller 

on the City's big sellout

NYT London correspondent sends copy in by boat?

Known Unknowns, and our Enduring Malaise

Had an interesting, if inconclusive, discussion this morning with my friend about Ignota about what we (know) (do not know) about the enduring malaise, and how that affects our impulse to deal with it.  I think Ignota's analysis (crudely oversimplified) goes something like this: we live in a world increasingly dominated by financial elites who have no incentive to tell us "the truth."   And this pervasive lack of motivation is aggravated by an overriding irony: in fact, they don't have any idea themselves what went wrong, or how to set it right.

This is interesting, and I don't want to reject it out of hand, though it seems to me more complicated than my primitive summary.  I'd certainly agree, at least in broad outline, that we live in a world more and more dominated by financial elites who really don't give a rat's patootie about the ordinary functioning of good government (saying nothing of more contentious issues like succoring the dispossessed and whatnot).

But as to "know":  I think a difficulty here is that this matter of known/unknown breaks out into a number of  independendent (albeit overlapping and interrelated) issues.

One: algorithmic trading.  Ignota has just lately focused her attention on the remarkable fact that so much market activity is being carried on by robots acting on galactic volume at galactic velocity..  She's certainly right about the novelty of the trading.  I'd concede that there is so much difference of degree here we must have a difference of kind.  Yet I guess I'd rank this one rather low on the ladder of issues that rattle me.  The whole point of markets has always been that we never know exactly what is going on out there and that, indeed, our ignorance of the inner workings more feature than bug.

Two: "macro," by which I mean the stuff conventionally taught in Econ1B and  its ilk: Keyesianism, monetarism, money supply, pump priming,booms and busts and suchlike.  Now here, I think she really is onto something.  Face it, the failure of the good and great in macro is simply appalling--so much so that I can't understand why the entire sodality didn't just resign its tenured positions, put on false mustaches and retire to a monastery (assuming one would take them).  Remarkably, I think a good many macro types did understand the flaw in their enterprise: it is the utter impossibility, systematic and in principle, to forecast future behavior.  I've been there, done that, in a small way.  In the law school, I've sketched out those "models" (fables) where we identify possible future states (windy/rainy/cloudy/sunny), attached probability weights to them and sum to a value.  Like most, I've usually forgotten to say--you know this is all hokum. The truth is, we haven't the foggiest notion what will impel people to act one way or another, and how they will act when so impelled.  We know that  but we continue to build models that assume people behave like robots (for a tantalizing possible exception, go here).  I don't know if "the elites" understand how vacuous this modeling has proven to be; at any rate, if they did have the impulse to tell "the truth," on this issue, it is hard to imagine just what they would say.

Three, the nature and structure of banking.  Now here, I think we do know quite a bit.  We understand that the structure of banking has undergone a sea change over the past generation, almost entirely to the profit of bankers and the expense of everyone else.  There are some disagreements over remedy (do we, or do we not, need to go back to Glass-Steagall?).  But there is fairly general agreement (even among the elites) that a smaller, tamer, banking sector would be better for society as a whole, even if worse for bankers.

But again, there is a separate issue with regard to execution.  If you wanted to explain the banking system to the multitudes, how would you go about it?  The history of (say) 100 years of public policy in banking does not offer a hopeful augury.  Indeed, it is hard to think  of any area of public life more liable to misunderstanding and confusion--not to say outright hokum--than the workings of the banking system.  The are very few grounds for optimism on the prospect that we might ever have a useful broad-based discussion of this issue.

In short (thanks Bill Greider) who will tell the people?   Not "the elites," whom I suspect I should really be calling "the oligarchs."  And even if (counter factual) they did undertake to tell, how could they possibly explain it, particularly considering little they actually know?

What Is it with Greg Smith?

This will be easy to misunderstand so bear with me while I try to explain--but I really don't get the whole Greg Smith thing.  I mean--well, for sure he is s remarkable human story, this young man from a first-class education and top-of-the-line occupational experience who will put his career in the line in order to (as he sees it) speak truth to power   What exactly did he think when he started at Goldman, and when and how did the scales fall form his eyes?  I suppose we will get a chance to find out (Bill Moyers?  Charlie Rose?  Dear God, not Piers Morgan).   I expect I'll  turn a sympathetic ear.


But it can't be just the messenger who catches out fancy.    It must be something about the message--but what?  What in his account actually comes as a surprise to, say, anyone who has done business with Goldman in the last generation, or who watched what Hank Paulson did to Dick Fuld, or who stood hypnotized at the real-time implosion of John Corzine, or who read William Cohan's formidable account of Goldman's long nonlinear history?  Which is to say, all those (of us) who are helping to boot Smith into the viral premier league.  Aside from the fact that one suicidally brave young man was willing to unburden himself, what do we know now that we did not know before?

Banking the Old Fashioned Way

Ha!  Wouldn't that be the best joke of a fairly unfunny financial crisis?  Dealbook points out that the Volcker rule, with its limit on prop trading, may drive some full-service banks back to old-fashioned utility banking.

You remember banking: some guy who looked like Jimmy Stewart presided over a Greek revival projection of stability at the corner of Elm and Main.  He took deposits, he made loans, he played a lot of golf.    He didn't make a ton of money and we made fun of him behind his back but we needed him.  These past few years, a few of us oldies have been wondering whatever happened to him, and wondering whether we might lure him back.

Of course he won't come back--as Heraclitus famously observed, you never step into the same sewer twice. But if Dealbook is right, then maybe something like utility banking is in our future, as full-service banks try to make the best out of a (for them) bad thing.

But here's the joke part: apparently two who will not profit from this turnaround are Goldman Sachs and Morgan Stanley.  Why?  Because they weren't really utility banks in the first place.   They were traders and investment bankers who jumped into mama's arms when the bears howled.  Okay, they will say they had no second choice.  But I'm remembering the axiom that you should be careful what you wish for, because you might get it.  

Did I Just Hear The Economist Come out for a Return to Glass-Steagall?

From a diatribe against briefing paper on Dodd-Frank:

. The muddle [of Dodd-Frank] stands in sharp contrast to the aftermath of earlier legislation. The banking-reform act of 1864 consolidated America’s fragmented currency system and enabled Abraham Lincoln to finance the civil war. The period of reregulation between 1933 and 1940 reserved a safe harbour for commercial banks, which were backed by federal deposit insurance but didn’t attract speculative capital because of caps on the rate of interest that could be paid. Risk was left to investment banks and asset-management firms, tempered by abundant requirements for disclosure and a shift in where the burden of proof lay in litigation, from plaintiffs to defendants. Even Dodd-Frank’s creators can bring no similar clarity to its intentions.

 Sounds like nostalgia to me.  

Banking Grandpa's Way

I'm still trying to digest Gabriel Sherman's New York Magazine piece on "The End of Wall Street as They Knew  It," suggesting that the great barbecue is over in money-center banking, and not coming back.  You'd kind of hope that part of this is true though it reads so much like a PR man's dream you can't help but wonder whether Sherman wrote it as a job application.  There is one thread I want to pull at the moment, though. Specifically Sherman, observing that JP Morgan Chase seems to be sailing relatively unscathed through the  troubled waters "unlike that of his rivals at Goldman, has a real, physical business to fall back on"--i.e., old-fashioned deposits and loans, or as we used to call it "banking."  I stack that one up against the cover story in Forbes about Wells Fargo "The Bank that Works," as the headline writer announces.

I'm struggling to avoid swallowing the hype here, and I'm writing almost totally unencumbered by actual knowledge.  And god knows old fashioned banking has its own history of crimes and follies (the watch list of troubled banks still stands somewhere in the 900s, I think."  But recall that old-fashioned banking tended to be (a) boring (b) not very profitable and (c) often pretty steady.  Could it be the boring and not very profitable parts are what is holding the ship above water now?  [Ed.--Buce, this is incoherent. B of A and Citi are both huge in old-fashioned banking (as you call it) and they are both a mess. Buce--wal,yes I suppose so, but maybe without old fashioned they would be an even bigger mess? Ed.--Buce, now you are floundering.]

Madrick's Uneven Greed

Still can't make up my mind just what to think of Jeffrey Madrick's Age of Greed.  There were times when I found myself thinking that it was one of those books that should be on the pre-inauguration reading list of any new president.  At other times, I thought it old stuff, recycled--and patchy and incomplete at that, with not much (not even greed, really) by way of common theme.

I suppose the main difficulty is that it is patchy, in the sense that it is a collection of pretty much self-contained vignettes--each chapter bears the name of one or more persons, as if you were thumbing throw a collection of Time Magazine "Man of the Year" profiles.  Some are better than others.  Still, if you're looking for takeaways, I can offer at least two.  One--maybe this is the reason I want it on the pre-inauguration list--is the appalling incompetence of the 70s regimes in Washington--Nixon, Ford, Carter--all of whom seemed to flounder or lurch through turbulent economic waters that they never came close to understanding.  No one of the three seems to have had even the beginnings of a feel for economic policy on their own.  The advice they got was of varying quality, some pretty good.  But they all seemed to grasp impulsively at whatever seemed closest at hand no matter how it might relate to the advice of yesterday (or tomorrow).

Perhaps one exception: Carter the peanut farmer sincerely disliked "regulation" and through the instrumentality of Alfred Kahn, he conducted the first great wave of deregulation since the beginning of the New Deal--trucking, airlines, natural gas.  Since I'm generally a fan of that sort of thing, I'll give him points for that (but cf. banking, infra).  But on the macro issues--inflation--he seems to have had no more notion of what was going on than the guy with the newspaper kiosk out by the White House gate.  The much-lauded Paul Volcker plays a role at this point in the story, of course.  Madrick treats Volcker with due respect for competence, and for being almost unique among major economic policy heavyweights in truly not giving a rat's patootie about accumulating personal wealth.  But he makes it clear that Carter's choice of Volcker to head the Fed was something close to accidental, and that Volcker's implementation of anti-inflation policy was probably far more brutal than it needed to be.

The other takeaway involves the steady and inexorable dismantling of anything like government regulation of banking.  One of Madrick's best chapters is his account of Walter Wriston at Nat City, the arch-deregulator who solved most of his government constraint problems with the beautifully simple strategy of shootinig-from-the-hip first, asking questions later, as in "an ounce of apology is worth a pound of explanation" (except that Wriston's "apologies" rarely amounted to more than "oh--sorry.")    The large question is, how did they get away with it, the systematic abandonment of anything like government oversight of a quintessentially public business?   Sure, you can talk about pressure from the bankers (Wriston in particular); you can talk about the corruption of politicians (okay, let's talk about the corruption of politicians).    But the deeper trouble is that nobody had a good counter-story.    The collapse of the Soviet Union removed all but the most vestigial support for "socialism" in any guise.  And ironically, bank regulation had worked so well since the 30s that it had become more or less invisible to friend and foe alike.    Then came the Latin American collapse, and the savings and loan debacle, and the Asian meltdown and he dotcom bust and the housing bubble and o lord, what have I missed?

Oddly enough, after stuff like this, Madrick ends by kicking a hole in what he bills as his own central premise.   Sure, there was greed aplenty but isn't there always?   Sure, rich bankers played heads-I-win, tails-you-lose. So the fault was all in lousy incentives, government guarantees.  "But this argument," Madrick argues, "is exaggerated, implying that speculative bubbles are more rational than they are.  ...  The nature of herd behavior  is to cast common sense aside (emphasis added-ed;)... Moral hazard is among the causes of overspeculation but not likely the determining part.  Herd behavior is hardly rational."

So to the question, "what, were we all nuts?"  the answer may be, "in a sense, yes."  This may not be a very helpful answer, and no matter how persuasive, it isn't complete.  Still, Madrick's presentation, however partial, is a vivid and one hopes therapeutic reminder  of just how nuts we really were.

Has it Been 37 Years, Really?

Oh, looky folks, here's a paperback ($2.25) copy of The Bankers, by Martin Mayer, copyright 1974 (mine is a 1977 reprint, with a 1977 introduction).  This is a book that I without irony as thee gold standard of its time for a popular-audience discussion of banking issues (he did a reprise in 1997 which I'm a bit embarrassed to say I've never read).

I can't say I've reread every word of the earlier version earlier, but a skim of the index is enough to give you a hint of how much banking has changed.  There is, of course, no entry for Alan Greenspan, Jamie Dimond, Robert Rubin.  There's no entry for "proprietary trading (did the phrase even exist them?)--more surprising,  none for "investment banking."

I don't mean any disrespect to Mayer here, but these insights do just begin to suggest how much banking has changed over the past generation.   Mayer opens the book with a chapter called "The revolution," but its main purpose appears to be to suggest just how dull banking was, and perhaps was supposed to be: Mayer retells the anecdote of the old banker asked to name the most important change he had seen in half a century of bankruptcy--he answered "air conditioning") (shades of Paul Volcker's crack that the greatest financial innovation of the modern age was the ATM machine).  Perhaps the only hint in this intro of what is to come is Mayer's description of the Walter Wriston (then head of National City Bank) as "a man who radiates nervous energy."

There are a few harbingers of what is to come.  There are excellent discussions of the Penn Central debacle, including a mention of the highly ahem equivocal role played by Goldman Sachs.   It's one of only two mentions of Goldman in the book (the other has to do with securities trading in the 20s; in both, Goldman comes off with egg on its face, as amply documented more recently in William Cohan's admirable history of the firm).  There's an intelligent discussion of Franklin National, the largest bank failure in the 20th Century up to its time (1974).

Perhaps more familiar to the modern ear will be the discussion of Saloman Brothers (remember): how they borrow(ed) every last clacker of government money they could lay their hands on, and repurpose it unconstrained by such niceties of reserve requirements.  This was. of course, before Lew Ranieri at Salomon more or less invented securitization--and long before Paul Mozer nearly brought the whole temple down on his head.  Tantalizing for its promise, but not fully developed, is his discussion of "bought money"--what Mayer himself later popularized as the shift from  "asset management" to "liabilities management."  Here perhaps we have a glimmer of the dynamic vortex that it appears we must all live in today.

Mayer isn't perfect.  He tends to wander and to ride his own hobbyhorses at the expense of a more measured presentation.  And perhaps needless to say, if anyone were to assign this to you next semester as a textbook on modern banking, you'd want to find yourself another instructor.  But as perspective, as context on where we are today, it is an unbeatable recofrd of where we have come from.

Per Wiki, I surmise that Mayer is 83, and still active: he's up at the website of the Brookings Institution; here is his most recent Brookings post..  Here's a fairly recent interview.

Airplane Reading: Dziedzic on the Banker's Life

In Lehman Brothers' Dance With Delusion, Stanley J. Dziedzic, Jr., did not write the book he thought he wrote--nor the book I thought I was buying--but it's actually a pretty good book none the less.  It is, in the first place, not really a book about Lehman Brothers.   Grant that Lehman does figure in the last couple of chapters where we are told, more by assertion than demonstration, what an all round clusterstuck they made of their enterprise.  Or more precisely, what a mess was made by Richard Fuld, whom Dziedzic manifestly detests.  By D's account Fuld was an arrogant tyrant who seems not to have understood the very business he grew up in, and who allowed favorites to develop fiefdoms where they put the larger enterprise at risk.

Dziedzic may very well be right in his analysis of Fuld and Lehman--I rather suspect he is right--but we'll have to wait for a different book from this one to document the point.  What Dziedic does do, however--more or less by accident, I think--is to give us one of the best windows into the mind of the workaday banker that we are likely to be so lucky as to enjoy for a while.

Seen in this light, it would have been a worse book had it been a better book.  An careful editor would have smoothed off most of the rough edges--cut down the repetition, the clunky explanations of technical issues, the why-did-I-tell-you personal anecdotes.  But it is precisely these rough edges that make it carry conviction as a real human story.

Superficially, it might seem odd that Dziedzic may emerge as the face of banking.  In an earlier avatar, he was a wrestler and an Olympic coach, and one suspects that his heart is with wrestling even now (his Wiki doesn't even mention Lehman).  But on closer scrutiny, it's not a problem.  In fact Wall Street is boiling with these high-energy mesomorphs who don't think they are having a good time unless they can hear the crack of bodies (Stephen Friedman, former Goldman Sachs CEO, was a champ wrestler in college).  Dziedzic seems to have thrown himself into his banking career with the same kind of competitive zeal. And that's precisely what makes the book so engaging: his compulsion to explain, to justify, to help you understand, is enough to bring the reader along even in spite of himself. That zeal was no doubt precisely what Lehman wanted in an up-and-coming banker, but the reader does want to stand back from time to time and say of banking (as one might of wrestling)--hey, guys, it's only a game.

The Brandeis Curse

Reading William Cohan's new chronicle of Goldman Sachs makes me think of nothing so much as Louis D. Brandeis, late Supreme Court justice and onetime power lawyer in the commercial and economic life of New England.

On Cohan's account, Goldman's greatest evil is not its size or its aggressiveness nor its unmatchable brilliance but its utter incapacity to see a conflict of interest, ever--or at least, ever in any situation that might might make Goldman a dime. It was Goldman, of course, who garnered an unwelcome dose of notoriety (and coughed up a painfully large chunk of cash) for flogging  "Abacus," a mortgage security package that had been designed to fail.  At the time, one could anticipate "the department store defense"--gee, we welcome all customers, we sell suntan lotion and umbrellas, we don't offer an opinion on whether it will rain.  It's a beguiling story, although Cohan's final chapters provide a powerful case for the proposition that it is laughable in the particular context.

But much more: Cohan's version persuades that for Goldman Abacus was not an aberration but a way of life, as much a part of the Goldman DNA as the storied "Fourteen Principles" that are supposed to set it aside from the ordinary herd.  Rather, it would appear that Goldman for as long as anyone can remember has felt entitled to take all sides of every issue, not because they are more sleazy but precisely because they are more pure and thereby exempt from rules that might apply to ordinary mortals.  "Just tell me whether you are my agent or my competitor," Cohan quotes the legendary Sam Zell as saying, in defending his hesitancy to do business with the great money machine.  I grew up taught that your banker is supposed to be your friend, part of your team.  With Goldman, it seems we add the codicil: but not if it costs Goldman a dime.

It's precisely the serene self-approval that makes the attitude so scary and here in particular, the comparison to Brandeis appears apt.  Brandeis treated his habit of  dual representation as a feature, not a bug--"lawyer for the situation" is a phrase that he put into the language.  If he represented adverse interests, betrayed confidences, blurred loyalties, it was all for the greater good and anyway, he was Louis D. Brandeis so he could handle it.

The scary part is, of course, that Brandeis is onto something here: oftentimes it is good to have one even-tempered wise man who can step in and crack heads and make everybody behave.  That sort of thing is less possible once everybody lawyers up (do they say "bankers up?").   But lawyers at least go through the pretense of declaring that they're bound  by principles of client loyalty.   With bankers, it seems much more a matter of lip service.

In the case of Goldman, at least, I can see one ineluctable force that drives the enterprise in this direction--trading, particularly prop trading.  Cohan does a splendid job of accounting for how Gus Levy by his own energy and will transformed Goldman-as-counselor into Goldman as slam-bam-thak-you-ma'am market activist.  Once trading comes to dominate the income statement, I suspect it is impossible not for it to dominate the enterprise.   But by that point, you aren't really an investment bank any more--you are a trading engine with an investment bank in the caboose.  I just wish that Goldman, like Brandeis, wasn't so smug about it. 

[Time allocation note: no, I am not wasting, Paris.   This was on the plane.]

Felix on the Madoff/Chase connection.

Count on Felix Salmon to aggregate, interpret and expand upon all the good stuff on the Madodff/Chase connection.  The best of it is the part where Chase leaves its customers exposed to Madoff malefactions while Chase itself tiptoes quietly to the door.  Which recalls a venerable UB lament: there used to be when your banker was your friend--your business counselor, a man with fiduciary responsibilities which he (sometimes) took seriously. At some point (I'd set the date at 1994) the business model morphed into something about screwing your client (here's another great recent example [but see note infra] from Boston Review, via Zero Hedge).  And the hell of it is, like Goldman Sachs offloading John Paulson's shorts, it may all be perfectly legal.

The other hell of it is that Chase is the bank run by a guy who is actually supposed to know what he is doing--not like Stan O'Neal sulking alone on the golf course, or Jimmy Cayne at  the bridge table, or Dick Fuld hunkered down in his bunker after the manner of Howard Hughes or Mistah Kurtz.  Jamie Dimon and his gaggle of cheerleaders would have you believe that their guy is Mr. Hands-on Competence.  Maybe he can explain it all to us someday from his retirement perch as a visiting professor of ethics at the Harvard Business School.

Fn.  A couple of years back, I would have thought that Irving Picard was taking on the most thankless job in modern finance.  Now I'm looking forward to his first appearance to do a top ten on the Letterman show.

Note:  Epicurean Dealmaker thinks it's baloney; that the bank was just selling a product.  He does acknowledge that the bank blurs the distinction by describing its pigeons "customers" as "clients." He might be right: why I said it might all be perfectly legal-these cases are highly cotextualized and I wouldn't be at all surprised to see the bank take a walk. The fact would remain, though, that the bank profits from this ambiguity; that it makes its money at best by walking both sides of the street.

How Big Is It?

I'm getting acquainted with my corporate finance class this week. They seem to be a bunch of engaging young people, bright and inquisitive, yet obviously inexperienced at this kind of thing or they wouldn't be wasting time with me. Anyway, I was riffing on how the financial sector has grown by "a lot" these last few years--how big, I asked on impulse, do you think it is, as a percentage of gross domestic product? Nobody professed to have anything like an informed opinion; the guesses ranged from 34 to 51 percent. The correct answer is closer to eight percent (see an excellent Wiki discussion here).

Proves nothing, I know, and I doubt I would have got it anywhere near right had a not been a careful student of Paul Krugman. But maybe it does suggest that--forget about the details, they know banking is pretty dam big.

You Can Take This One to the Bank

  "Think Yiddish," they used to say, "dress British."  These days, you should dress Swiss.  We learn that USB, the Swiss banking behemoth, is circulating a 43-page appearance/dress code to employees in its retail branches.  As in:

[D]esigner stubble is out of the question for men, as is excessive facial hair.UBS's advice for men even extends to underwear, which should be of good quality and easily washable, but still remain undetectable

Link.  I told my friend Lee once that I think I missed my calling, and  that I should have been a banker,.  "You can't," she said, "you're not tall enough."  She neglected to mention the excessive facial hair.

Lowenstein Loses It

    "Over the past few months," fawns reports Roger Lowenstein, "[J.P. Morgan Chase CEO Jamie] Dimon allowed me into his inner sanctum, giving me an insider’s view of how he thinks about banking and how he runs the bank." And guess what: the soft lights, the incense and the Johnny Mathis CD just fuddled Lowenstein's judgment:

Instead of reviewing brief summaries of the bank’s operations, as his predecessor had, Dimon demanded to see the raw data — hundreds of pages detailing J. P. Morgan’s businesses every month. Instead of simply trusting his traders, Dimon put himself through a tutorial, so that he would understand the complex trades the bank was exposed to. And rather than run its mortgage machine at full throttle for as long as possible, Dimon reined in lending earlier than did others and warned his shareholders of looming trouble.

You got that, Roger, raw data? It must have been toxic raw data because it apparently blinded Dimon from the oncoming train wreck of $51 billion in losses over the last couple of years--saying nothing of the "cutting corners" (aka "grand theft notary fraud") "in processing home foreclosures."   And forget how it was "embarrassed by" its piratical overdraft fees--"embarrassed by," as if the fees plopped out of the sky onto Dimon's well-coiffed pate.  For all those of you assembling a thesaurus entry on "gush," we offer the following compendium:

The popular animus has come as a shock to Dimon. ... Dimon sees himself as a patriotic citizen. ... At home, Jamie absorbed a first-generation reverence for America ... Like the mechanic who grew up in a body shop, Dimon today is intimately familiar with the details of his trade.... DIMON’S LIFE IS WORK and family (he has three 20-something daughters). On weekends, he consumes a mountain of printed material; he arrives on Monday with a penned list of questions for subordinates (he carries the list in his breast pocket, crossing off items as he grabs people in the hallways). ...

Oh, you get the drift. Yes, yes I know. Lowenstein does slip in a bit of useful background here and there among the spasms. But here is a  guy who made his bones in a biography of Warren Buffett, iconic as our most successful investor, in which Lowenstein positioned himself as informed, inquisitive, dogged and sympathetic, yet ultimately undazzled. Somewhere between Buffett and Dimon, some Friday night in a bar in Soho, he seems to have dropped his crap detector. Read the piece if you want: it is not a 100 percent waste of time.  But keep reminding yourself: this is a guy who lost $51 in two years. I hate to think what Lowenstein would have written had he lost just $50 billion.

The Decline of Gentlemanly Banking: An Aide-Memoire

Ignoto invites me to assemble a catalog of reasons why banking has degenerated from croquet to rollerball:

• Old-fashioned "character lenders" found that their business was boring and unprofitable, and harder work than "originate and distribute."

• The new logic of diversification/securitization made O&D look respectable.

• Without intending or planning for it, proprietary traders to their stunned surprise found themselves driving the banking bus.

• Michael Milken showed us that you don't have to restrict your corporate loans to Episcopalians.

• Old-fashioned investment bankers, with too much money on their hands, figured out how to go shopping for deals, rather than waiting for deals to shop them.
  

Have I left out anything important?

[Update: You bet. I forgot about incorporation, i.e., limited liability, i.e., heads I win, tails you lose.]

Abacus Doesn't Add Up

I'll endorse the conventional wisdom that Goldman Sachs' Abacus deal does not pass the smell test, but it is a bit more tricky to isolate just why not. Back in the winter when the New York Times breathlessly disclosed that Goldman was selling long positions in stuff it was also shorting, the response was something on the order of a collective yawn. Hey, Goldman is a department store; is it a scandal that they sell both dum-dums and bulletproof vests?

The story comes back to life now, of course, mainly in the baggage of an SEC civil fraud complaint. The substantive wrinkle is supposed to be not just that Goldman was workng both ends of the deal, but that the securities in Goldman CDOs were being chosen by the short of shorts, John Paulson, so as to assure that the CDOs would fail. It's a touch, although in fairness to the Times, the original December story did say

One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

It doesn't name Paulson, but ioot looks to me like the main point was on the table way back when. Still, I can think of three questions that seem to me to invite more thought.

One, exactly what can we say about the buyers who went long the CDOs? Or more precisely, what if Goldman had said: "we think this stuff is all rock solid and gold plated; of course there are other guys who are betting against them--and we are making money on some of their deals--but that's just business; we still like what we see". Wouldn't Goldman have covered itself if its pitch went something like that? Or to turn the point around, should Goldman have warned people who were buying short positions that other people were going long?

Two, just exactly who was covering the shorts--I gather, by writing default swaps--? Is this just one of those bad breaks you get in the insurance business or isn't it (rather more likely) a colossal failure of risk management, a grotesque underpricing?

The final question is--even assuming everybody gets to walk away from sovereign sanction here, is there anything--Anything? Anything?--about this long-short stuff that does anybody any good? Except, of course, the traders who pocketed the commissions? So we're back again to a too-familiar mantra: grant that the world needs a functioning finance system, haven't we lost all touch with function here, in favor of letting the casino gamble with the unwitting house's money?

Update: Much more exhaustive lists of questions here and here.