Don't Just Bash the Bankers

A Commentary by Thomas Tuma, Der SPIEGEL

Enraged crowds have been gathering in New York and other cities around the world to protest against presumed bank misconduct. Many in politics have sought to profit from their anger. But blaming the financial industry misses the point. It is the politicians themselves who are to blame.

For all of our knee-jerk sympathy for the protesters that have recently been gathering on Wall Street as well as in cities like Frankfurt and Barcelona, it would be interesting to know whether they're actually in favor of rescuing Greece or of booting it out of the euro zone. Likewise, are they fighting speculation and the power of the markets -- or simply capitalism as such?

So far, the signals have been ambivalent. The cluelessness of the elites has become the cluelessness of the street, and now average people are creating what might be called their own befuddlement. Given this situation, congratulations are in order for our completely overwhelmed politicians, who have managed to divert attention away from their own impotence by joining forces with the protesters against the easiest common enemy to target: the evil bankers!

Bashing banks has always been popular, though it has often, since the 19th century, come with anti-Semitic overtones. Even today, some crackpots are convinced that Goldman Sachs is part of some global Jewish conspiracy.

Banks are, of course, responsible for things like excessive bonuses, the bankruptcy of Lehman Brothers and financial instruments ranging from the murky to the devastating. But others have failed as well, including economists, journalists and, most of all, those politicians who, feigning understanding, are currently aligning themselves with the young protesters.

Economists have failed because they predicted neither the 2007 nor the 2011 crisis -- and because now they are talking each other to death in ideological trench warfare. We in the media must also admit to having failed because we've hardly been able to explain the crisis and because, now that a whiff of resistance is developing against "those at the top," we are looking forward to an anti-capitalist global revolution with greedy enthusiasm.

The Total Failure of the Political Class

But all of this is nothing when compared with the total failure of a political class that, for decades, has been spending more money than it takes in. Washington is merely the most egregious example to date. Since 1971, when the United States stopped pegging the dollar to gold, it has flooded its own country and the rest of world with its cash while its own public debt has only continued to pile up.

Of course, other governments haven't been much better. Germany's current debt troubles really began to take shape under Helmut Schmidt, the Social Democratic chancellor of Germany from 1974 to 1982 who is now in great demand as someone who can supposedly interpret crises well. Greece simply deceived the rest of the euro zone with falsified financial data. And even before Lehman Brothers collapsed in the fall of 2008, 11 of the 15 countries that belonged to the euro zone then were not fulfilling the stability criteria of the Maastricht Treaty limiting gross government debt as a percentage of GDP.

Just Going Through the Motions

Today, the nations of the world have accumulated the almost unfathomable sum of more than $50 trillion (€36 trillion) in debt. And that figure even ignores other foreseeable burdens, such as old-age benefits and pension payments.

Almost all parliamentary democracies tend to greatly overdo it when handing out gifts to voters. The shouting only starts when, in the great circus of subsidies, a particularly frivolous clown routine is to be eliminated for cost-cutting reasons.

It's a political world chronically addicted to debt. And it's one that pats itself on the back whenever it merely succeeds in reducing the net amount of fresh borrowing -- in other words, diving just a bit less into the red. It's a political world that didn't have the courage to address the urgently pressing issue of regulating global financial markets even in the years when everything was still booming.

Likewise, it's also a political world that has been stumbling from one crisis summit to the next over the last four years, one that turns a blind eye, underestimates, appeases and delays. After European leaders met in Brussels, the European Financial Stability Facility (EFSF) was born. In addition to being virtually unpronounceable, it also stands for the elites' inability to at least drum up support among their own citizenry.

Confusing Our Enemies

For the last four years, the members of this political world have portrayed themselves as being driven -- but by what? The evil markets, which simply want to know whether they will get their money back?

In the end, these markets -- and this is where we come full circle -- also represent those enraged citizens, the small investors now camped out in front of the European Central Bank (ECB) in Frankfurt, who don't even understand that this bank is the last fire brigade standing rather than the arsonist.

Perhaps those holding up banners saying "Down with interest and compound interest" are hoping -- like some politicians -- that the debts will somehow just disappear if they just keep their eyes closed long enough.

In 1992, when Bill Clinton was campaigning to become president of the United States, one of his best-known campaign slogans against George H.W. Bush read: "It's the economy, stupid!" Today, the slogan ought to read: "It's politics, stupid!"

Translated from the German by Christopher Sultan

So Much for the Volcker Rule

Editorial do WSJ

Even in 298 pages, regulators can't decide what to regulate

If you tried to write a parody of the uncertainty and confusion triggered by federal rule-making, it would be hard to top the latest proposal from Washington's financial regulators. So here's an ironic hat tip to the bureaucrats who wrote the draft Volcker Rule, which will allegedly limit risk-taking at financial firms backed by taxpayers.

In 298 pages, rather than sketching out simple, clear rules for banks to follow, regulators essentially wonder out loud how they can possibly write this rule. Officially there are 383 questions posed in the document, but many of these questions have multiple parts. Our colleagues at the Deal Journal blog counted 1,347 queries, covering everything from how "trading accounts" should be defined to what a "loan" is.

The regulators admit that "the delineation of what constitutes a prohibited or permitted activity . . . involves subtle distinctions that are difficult both to describe comprehensively within regulation and to evaluate in practice." Think of this as a cry for help from bureaucrats seeking an understanding of the markets they are nonetheless going to restructure come what may.

***
Bank lobbyists are certainly eager to provide some hand-holding. We wouldn't be surprised to see thousands of pages of suggestions roll in between now and January 13, when the public comment period ends. Many of these comments will no doubt offer compelling reasons why a particular type of transaction should be exempt from the principle that nobody should be gambling with a taxpayer backstop. The regulators will then have about six months to consider all of these suggestions, ponder the thousands of answers to their 1,347 questions, and then write a final rule. At least that's what the 2010 fiasco known as Dodd-Frank demands.

Dodd-Frank demands all this from regulators because for the life of them former Senator Chris Dodd and Representative Barney Frank couldn't figure out how to write a Volcker Rule themselves. Like nearly every other tough call in financial regulation, Messrs. Dodd and Frank punted this one to the executive branch, invested federal agencies with new authority, and expected the same regulators who failed to prevent the last crisis to somehow avert the next one.

We supported former Federal Reserve Chairman Paul Volcker's concept of a ban on proprietary trading as a good-faith effort to protect taxpayers from having to rescue too-big-to-fail banks again. Democrats in Congress weren't going to prevent future bailouts, so whenever an institution is playing with taxpayer money (via insured deposits or access to the Fed's discount window) it should be allowed to serve clients but should not be permitted to make trades for its own proprietary account. But drafting such a law isn't easy and the details are crucial.

When America's esteemed legislators couldn't figure out how to write a Volcker Rule, they forwarded it to the bureaucracy as a kind of Volcker Suggestion. But before the lawmakers enacted this remarkable delegation of authority, they gutted even the Volcker Suggestion by exempting certain instruments from consideration.

Lawmakers made clear that whatever the shape of the final rule, it would not interfere with the liquidity of the U.S. Treasury market or debt issued by Fannie Mae and Freddie Mac. So even if bureaucrats spend most of the next year crafting the perfect rule, it will still allow Wall Street giants to make enormous bets on the direction of U.S. government bonds and debt issued by government-sponsored enterprises. There are also built-in exemptions in the commodities market. There will likely be limits on trading derivatives of commodities, but if traders are buying actual physical assets they can still swing for the fences.

Even outside of these exempted zones of politically favored speculation, the recent proposal suggests that we're not going to get anything close to perfection. And some of the regulators may already have figured this out. Readers will recall that Dodd-Frank created the Financial Stability Oversight Council so that the chiefs of the various regulatory agencies could coordinate their actions to identify and attack risks to the financial system. But one of the knights of this regulatory round table was missing when they decided to saddle up on this quest to tilt at Goldman's risk book.

The draft rule carries the names of various Beltway departments but not the Commodity Futures Trading Commission. Since the CFTC now oversees much of the derivatives market, which in Beltway lore is the principal cause of systemic risk, it's an odd omission. A cynic might even wonder if CFTC Chairman Gary Gensler is checking the political winds before endorsing this turkey. A source at the commission says that the agency is backed up fulfilling other Dodd-Frank mandates but will get to Volcker eventually.

***
They shouldn't bother. Reasonable people have seen enough to say that Washington is incapable of drawing bright lines and applying clear rules fairly across all securities markets. The result is all but certain to be a final rule that different people will interpret different ways, leading to loopholes for traders and arbitrary enforcement. Under this Beltway rendering of Volcker, trading will continue but with a much higher bureaucratic cost and with the illusion of safety that only regulation can create.

Until the government is willing to create a durable financial system that allows failure, the best policy response is to make the rules so simple that even Washington can enforce them. That means higher, even very high, bank capital standards and margin requirements on risky trades between banks. Those aren't panaceas, but they offer more hope for taxpayers than the bureaucratic and bank-lobbyist jump ball that is now the Volcker Rule.

The Trouble With French Banks

By NICOLAS LECAUSSIN, WSJ

'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."

He's not the only one worried. France's three biggest banks have been the subject of whisper campaigns about their solvency since the beginning of the summer, and Société Générale has lost 22.5% of its value.

BNP, Société Générale and Crédit Agricole together hold nearly $57 billion in Greek sovereign and private debt, versus $34 billion held by the largest German banks and $14 billion at British banks. French banks also held more than €140 billion in total Spanish debt and almost €400 billion in Italian debt as of December, according to the latest figures from the Bank for International Settlements. If either of these latter two governments were to default, their banking systems could collapse and take the French system with them.

BNP, Société Générale and Credit Agricole all say that their finances are in order and the market worries are unfounded. But it's difficult for the BNP executive to hide his concern.

"Look at the French banks' debt holdings versus those of U.S. banks," he continues. "The total debt of the three big U.S. banks (Bank of America, JP Morgan and Citigroup) is $5.86 trillion, or 39% of GDP, while the debts of BNP, Crédit Agricole and Société Générale come to €4.7 trillion, or 250% of French GDP."

Analysts are suggesting that the government is set to start nationalizing France's banks. The banks have remained silent on the matter, and the government denies this talk. But the last time the French state intervened in the banking system in a big way, the results were disastrous. As recently as the 1980s, most French banks were owned by the state, and by the 1990s the sector was bordering on bankruptcy. The French banking sector shrank by nearly 50% during the decade, while the those in other countries such as Britain and the U.S. grew by 39% and 50%, respectively.

The most famous case of that time was Crédit Lyonnais, which was plagued by mismanagement throughout the 1980s and 1990s until it shifted its debts and liabilities into a new state-owned company, the Consortium de Réalisation. In 2003 Crédit Lyonnais was taken over by Crédit Agricole, but in July 2008 its bills came due anyway.

An arbitration court ordered the Consortium de Réalisation to pay €240 million to the liquidators of the Bernard Tapie group, along with €105 million in interest and €45 million in moral damages—a total of €395 million for one erstwhile borrower. Meanwhile, the SdBO (Western Bank Corporation), a subsidiary of Crédit Lyonnais, lent sums to the Tapie family that added up to more than two-and-a-half times the bank's total capital. French taxpayers paid out more than €15 billion for the mismanagement of Crédit Lyonnais over the years.

The taxpayer-backed losses of mortgage lender Crédit Foncier came to €2 billion. And the Hervet bank (now part of the HSBC group) announced the first losses in its history after its 1982 nationalization.

These and other disasters were brought on by the bank nationalizations of the early 1980s. But despite the subsequent privatizations, French bank boards are still dominated by the alumni of France's famous ENA, the Ecole Nationale d'Administration, and by officials who have worked at the Ministry of Finance. A study by the Management Institute at the Université de La Rochelle finds that between 1995 and 2004 banks administered by government-linked technocrats were in greater total debt than those that were not.

Whether the market's worst fears are realized or not, French banks certainly maintain an all-too-close relationship to the state. This opaque system doesn't offer outsiders much visibility, save for the knowledge that indebted banks and an indebted French state intend to continue to cover each other, no matter the cost and on taxpayers' backs if they must. If U.S. money-market managers no longer trust the French system, this is a glaring reason why. The fastest way to regain their trust would be to end this system.

Mr. Lecaussin is director of development at France's Institute for Economic and Fiscal Research.

O grande assalto dos bancos

Por Nassim Nicholas Taleb e Mark Spitznagel, Valor Econômico

Para a economia americana - e para muitas outras economias desenvolvidas - o elefante na sala é a quantidade de dinheiro paga aos banqueiros nos últimos cinco anos. Nos EUA, a soma chega a impressionantes US$ 2,2 trilhões aos bancos homologados junto à Comissão de Valores Mobiliários (SEC) dos EUA. Extrapolando para a próxima década, o número se aproximaria de US$ 5 trilhões, montante vastamente superior ao que tanto o governo do presidente Barack Obama como seus adversários republicanos parecem dispostos a cortar, adicionalmente, dos déficits orçamentários.

Esses US$ 5 trilhões não são dinheiro investido na construção de estradas, escolas e outros projetos de longo prazo, mas diretamente transferido da economia americana para as contas pessoais de executivos e funcionários de bancos. A sensação é de grande injustiça: tendo os banqueiros contribuído para causar os atuais problemas financeiros e econômicos, constituem a única classe que não está sofrendo em consequência deles - e, em muitos casos, na realidade, estão se beneficiando.

Os mais importantes megabancos são, em muitos aspectos, estranhos. Não há mais nenhum segredo em torno do fato de que eles operaram grandes e sofisticados esquemas de remuneração, mascarando as probabilidades de eventos do tipo "cisne negro" - eventos de baixo risco e impacto elevado - beneficiando-se do apoio gratuito implícito de garantias governamentais. Excessiva alavancagem, em vez de competências, pode ser vista como a fonte de seus lucros - que então fluem em montantes desproporcionalmente maiores para seus funcionários -, e de seus, por vezes, enormes prejuízos - que recaem sobre acionistas e contribuintes.

Em outras palavras, os bancos assumem riscos, embolsam os lucros, e depois transferem os prejuízos para acionistas, contribuintes e até mesmo aposentados. Para socorrer o sistema bancário, o Fed (Federal Reserve, banco central dos EUA), por exemplo, fixou as taxas de juros em níveis artificialmente baixos; conforme divulgado recentemente, o Fed também concedeu empréstimos secretos de US$ 1,2 trilhão a bancos. O principal efeito, até agora, foi ajudar os banqueiros a gerar gratificações (em vez de atrair tomadores de empréstimos) ao ocultar suas exposições.

Os contribuintes acabam pagando por essas exposições, assim como os aposentados e outros que dependem do rendimento de suas poupanças. Além disso, as políticas de juros baixos transferem os riscos de inflação para todos os poupadores - e para as gerações futuras. Sim, talvez o maior insulto aos contribuintes esteja no fato de que a remuneração aos banqueiros havia, no ano passado, retornado a seu nível pré-crise.

Assim, os fatos são claros. Mas, como contribuintes individuais, estamos desamparados, porque não controlamos as consequências - devido aos esforços concentrados dos lobistas, ou, pior, das autoridades econômicas. O fato de subsidiarmos os gestores e executivos dos bancos é inteiramente involuntário.

Mas a charada representa um elefante ainda maior. Por que é que um gerente de investimento qualquer compra ações de bancos que pagam porções muito grandes de seus lucros a seus funcionários?

A promessa de replicar retornos passados não pode ser a razão, dada a inadequação desses retornos. Na verdade, a exclusão de ações segundo seus lucros e dividendos resultaria num estreitamento bastante superior a 50% no rebaixamento do valor dos investimentos no setor financeiro (em relação a seu pico histórico) nos últimos 20 anos, sem perda dos retornos.

Por que é que os gestores de carteiras e de fundos de pensões esperam, de seus investidores, o benefício da impunidade? Não é óbvio, para os investidores, que eles estão voluntariamente transferindo recursos de seus clientes para os bolsos dos banqueiros? Não estão os gestores de fundos desrespeitando tanto suas responsabilidades fiduciárias como regras morais? Estarão eles perdendo a oportunidade que temos para disciplinar os bancos e obrigá-los a competir em tomada responsável de riscos?

É o caso de nos perguntarmos: Se os gerentes de investimento e seus clientes não recebem retornos elevados sobre as ações de bancos, como aconteceria se estivessem lucrando com a externalização, pelos banqueiros, dos riscos sobre os contribuintes, por que, então mantêm-se expostos a tais ações? A resposta é o chamado "beta" (NT-relação entre o retorno de uma ação e o do mercado como um todo): os bancos representam grande parte do S&P 500, e os gestores precisam estar investidos neles.

Nós não acreditamos que a regulamentação seja uma panaceia para esse estado de coisas. Os bancos de maior porte e mais sofisticados tornaram-se especialistas em posicionar-se um passo adiante das entidades fiscalizadoras - criando, incessantemente, complexos produtos financeiros e derivativos que driblam as regras. Nessas circunstâncias, uma regulamentação mais complicada simplesmente significa mais horas remuneradas para os advogados, mais renda para funcionários de agências reguladoras que trocam de lado e mais lucros para os que operam com negócios envolvendo derivativos.

Os gestores de investimentos têm a responsabilidade moral e profissional de desempenhar seu papel de maneira a impor alguma disciplina ao sistema bancário. Seu primeiro passo deveria ser separar os bancos segundo seus critérios de remuneração.

No passado, investidores apoiaram-se em razões éticas - boicotando, por exemplo, empresas fabricantes de cigarros ou companhias cúmplices com o apartheid na África do Sul - e foram bem sucedidos em pressionar as ações dessas firmas. Investir em bancos constitui uma dupla falta: ética e profissional. Investidores - e também o restante da sociedade, seriam, todos, muito mais beneficiados se esses fundos afluíssem para empresas mais produtivas, redirecionando para instituições sem fins lucrativos bem administradas o montante equivalente ao que seria transferido para as gratificações aos banqueiros.

Nassim Nicholas Taleb é professor de Engenharia de Riscos da New York University e autor de "The Black Swan" (O cisne negro)

Mark Spitznagel é um gestor de fundos de hedge. Os autores detêm posições que produzem lucro quando ações de bancos perdem valor.