Does anybody remember the scene from the utterly charming comedy “Twins” when Danny De Vito exclaims “Five million dollars!” several times with a variety of expressions while trying to get his head around the number? I wonder how many shareholders of Deutsche Bank were doing the same yesterday while practising saying “Fourteen billion dollars!”? If they weren’t they should have been, not least of all their Teflon-coated chairman Paul Achleitner.
What the US Department of Justice was exactly thinking when it announced that this would be the settlement it would be aiming for as a result of Deutsche’s alleged mis-selling of mortgage-backed securities ahead of the global financial crisis escapes me but it appears to me that, on the eighth anniversary of the ignominious collapse of Lehman Brothers the authorities’ greed is beginning to match that which it accuses bankers of once having had. Deutsche’s entire market cap is only a tad above €18bn (US$20bn) and the DoJ is looking to fine US$14bn. And where is the fine against the State of California for all the gold that was “stolen” from the native population post 1849…. with interest?
I know the DoJ isn’t exactly a financial regulator but there is a great similarity in the power hunger which stalks our civil servants – I say “our” because it affects all countries and all markets – as they seemingly attempt to create a risk-free world or at least a world free of risk for those who should not be there. Post-1929 regulation, if you care to take a look at it, did as much to keep dilettantes away from inappropriate investments as it did to regulate those who were peddling the snake oil. Such constraints as the seasoning rules of the introduction of 144A schedule securities acknowledged that the onus in protecting Joe Six-Pack lies as much in the function of the regulator as it does with the purveyors of investment time-bombs. Jumping on the banks with fines after the bombs have gone off is not the way forward.
Some of you might have seen the highly thought-provoking Helen Mirren film “Eye in the Sky” which spends an hour and a half working around the question of whether it is better to let a suicide bomber blow up a market and accept the blame or to cause the death of an innocent little girl while trying to prevent the massacre. This should be mandatory watching for regulators as it digs into the thorny question of acceptable risks.
The gradual erosion and eventual dissolution of the Glass-Steagall Act of 1933 underlies many of the acts of mis-selling but the current response has been and obviously remains to turn up with a chequebook and to expect the banks in question to sign with their eyes closed and their noses held. In other words, shouldn’t Deutsche counter-sue for catastrophic or maybe even cataclysmic failures in regulatory oversight? What were the regulators doing in 2006 and 2007 other than watching a wave of tax dollars pouring from Wall Street to Washington – or the City to Westminster or Frankfurt to Berlin – while merrily believing what they were being told and without seriously questioning what was being done and why.
A couple of years ago there was great uproar when the British authorities effectively banned the sale to retail investors of Additional Tier 1 notes – AT1s or CoCos - although in my book they deserve a gold star for their decision to do so. I certainly can’t work out how to quantify the risks inherent in contingent capital securities and if I can’t do it, what chance is there for some well-meaning but out-gunned independent financial advisor? AT1s, incidentally, were not created by investor demand but were invented and imposed on the banking system by the very authorities who will be first to wash their hands of them if, as and when they all go horribly wrong.
Deutsche has already declared that the figure of US$14bn is illusory and that it will likely settle at a much lower level – US$2bn seems to be the figure which is seen as realistic – but if that is the case, what are those idiots at the Department of Justice doing throwing US$14bn into the mix? I suppose that brings us back to that old chestnut as to why dogs lick their privates…
European banks and European corporations have done more than their fair share to subsidise the US federal budget deficit and as the authorities have got away with it again and again – the SEC is the real Wolf of Wall Street – they have become bolder and bolder. HSBC is about to fight back and Deutsche, I hope, will too. Enough is enough. I suppose the Jamestown colony, founded in 1607, was a severe case of mis-selling too so how about looking for someone British to fine for that one.
Power hungry
Yesterday the British government surprised the world by signing off on the Hinkley Point nuclear power project but I don’t see a problem. We need power and we need it now. There’s no sense sitting in the dark in 15 years’ time moaning that sometimes the economics are less important, not least of all because most of us are supposed to be, by then, powering our cars from a plug and not a pump. Sure, the energy price predictions are picked out of the sky but if anybody can show me a better way of forecasting them I’ll write to Stockholm and propose him or her for a Nobel Prize in either Economics or Fiction.
Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. The great late summer weather is set to break and autumn is almost upon us. May I humbly suggest that rather than spending the weekend in a gym breathing other peoples’ body odours you get out into the garden and do a few hours cutting back? You don’t have a garden? Not a problem. I’d be more than happy, strictly in pursuit of the cause, to lend you part of mine…