On Goldman's culture, StanChart and France's structural milieu
“Sauce for the goose is sauce for the gander”. That is an arcane English bon-mot calling for equal treatment of all. No doubt it will be questioned more than once in the offices of StanChart this morning as executives open their FTs to find the US Department of Justice has decided that Goldman Sachs has no case to answer following an exhaustive enquiry into the bank’s behaviour with respect to the Abacus CDO affair.
You may recall that the powerful Democrat senator Carl Levin, scourge of bankers on Capitol Hill, had requested the inquiry into allegations that the Abacus CDO had been structured to fail and that the asset pool had been recommended by John Paulson, the hedge fund manager who creamed a mint by being short the sub-prime mortgage market when it blew its top.
My understanding is that the DoJ has concluded that although the practices within Goldies might (in the words of the Senate) have been anything but moral and in cases even abusive, there was no explicit law which had been broken and that there was therefore, at this point in time and on the evidence available, no case to be made.
However, Senator Levin and his cohorts certainly question the trustworthiness of some of Goldman’s operatives and, in holding with the new popular catch-phrase, its “culture”.
This contrasts sharply with a report I found this morning which states that Benjamin Lawsky, Superintendent at the New York DFS which is on the tail of Standard Chartered, does not need to prove that the bank busted financial sanctions against Iran in order to withdraw its licence to operate in the state. His powers are in fact discretionary and he is empowered to close down any institution he deems to be “untrustworthy”. The DFS was only chartered last year and this loose definition of the Superintendent’s powers seem pretty old fashioned to me in a country as litigious as the USA and at a time when the Americans are still poking at London for its principle based regulation versus its own rules based system – neither of which worked, incidentally, when push came to shove.
So, the DoJ concludes “After a careful study of the information provided in the [Senate] report and more than a year of thorough investigation [DoJ] officials have determined that, based on the law and evidence as they exist at the time, there is no viable to bring criminal prosecution with respect to Goldman Sachs or its employees in regard to the allegations set forth in the report.”
However, Senator Levin and his cohorts certainly question the trustworthiness of some of Goldman’s operatives and, in holding with the new popular catch-phrase, its “culture”. Please don’t get me wrong. Every one of us must be guilty at some point in our careers of having helped to make the facts fit the objective and the Goldman guys no more and no less than the rest of us but if Lawsky’s mission is to close down institutions which he deems not to be trustworthy, then Wall Street might as well pack up and move to Boston. Now there’s a cheerful thought!
China’s cyclical vs France’s structural
Meanwhile, the game of swings and roundabouts continues with China reporting its July trade balance which rose “only” 1% YoY as opposed to the forecast of an increase of 8%. Imports also fell sharply and the net result was a trade surplus of $25.15bn against the forecast of $35.05bn. This is a big miss in anybody’s book and maintains China’s unsurpassed record of irreconcilable economic releases. On one hand all this is half as worrying as it could be as the leadership and the PBoC between them have more than enough firepower to stimulate but on the other hand the fall in demand from foreign customers is largely outside of their control and, increasingly, out of the control of other monetary authorities too.
Whenever I switch on the TV and see an economist, I know what to expect. Growth is stalling, the central banks need to find new measures, austerity is causing the economy to contract, something new must be done in order to stimulate. Yep, let’s take a new credit card which we can immediately max out in order to make the minimum payments on the one’s we already have.
The economies are contracting because they have been taken off the credit steroids. France is a case in point with June industrial production (-2.3% YoY vs forecast -1.8%) and manufacturing production (-2.6% vs -2.1%) both sharply undershooting again. These are structural adjustments which are taking place in France which must be met with revised fiscal structures and not with cyclical tonics. Governments must deal with the structural issues, central banks can only influence the cyclical ones. China might be able to treat its disappointing figures as cyclical, France can’t.
Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful week-end. As the Olympics have been aimed to inspire our youth, may Usain Bolt’s stunning speed and effort encourage your beloved offspring to greater efforts in helping Mum in the kitchen and the garden and greater speed in providing Dad with ample beer while watching what’s left of the Games.