Ed. note: This is a new weekly column by Elie Mystal, Managing Editor of Above the Law Redline, wrapping up the week that was in law and finance. Elie is not a practicing attorney, and anything he says that you listen to can and will be used against you.
Issue #1: The $4.3 billion chat room.
The big news this week is that six firms will pay $4.3 billion to a suite of international regulators in the first set of punishments from rigging the foreign exchange market. Of course, it’s not at all clear that what Forex fixers did was that big of a deal. The Financial Conduct Authority in the U.K. says that “[t]he traders put their own interest ahead of their customers, they manipulated the market — or attempted to manipulate the market — and abused the trust of the public.” That’s lawyer-speak for “that’s not fair.” The fines amount to a $4.3 billion “unsportsmanlike conduct” penalty.
The world’s biggest banks are overhauling how they trade currencies to regain the trust of customers and preempt regulators’ efforts to force changes on an industry tarnished by allegations of manipulation. Barclays Plc, Deutsche Bank AG, Goldman Sachs Group Inc., Royal Bank of Scotland Group Plc and UBS AG, which together account for 43 percent of foreign-exchange trading by banks, are introducing measures to make it harder for dealers to profit from confidential customer information and take advantage of clients in the largely unregulated $5.3 trillion-a-day currency market, according to people with knowledge of the changes. Banks have capped what employees can charge for exchanging currencies, limited dealers’ access to information about customer orders, banned the use of online chat rooms and pushed trades onto electronic platforms, according to the people, who asked not to be identified because they weren’t authorized to discuss their firms’ practices. [Bloomberg]
The Senate compromise looks dead at the moment. CNN is reporting that bipartisan talks have collapsed and the Senate bill looks dead.
The pressure actually falls back to Pelosi now, who played a bit of legislative brinkmanship with the Senate and has now lost (baring some miracle tomorrow).
GM will likely be the first victim, and the news will likely step up counterparty pressure on GM tomorrow.
GM is running out of options quite quickly. UPDATE: Fox News is reporting that the sticking point was with the UAW, who were to take wage cuts to put them in line with Japanese rivals.
Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the United Auto Workers was willing to make the cuts, but not until 2011.
UPDATE 2: This has to be the best bit of nonsense I’ve heard on the topic courtesy of Senator Jim DeMint wherein he speculates that a bailout would equate to riots. UPDATE 3: CSPAN: By a vote of 52 to 35 the Senate voted not to proceed to a bill to aid the U.S. automobile industry. Related?: The Dollar has hit a 13 year low v. the Yen.
Hopes that GM will last until the birth of the Obama administration are dimming, despite some pretty desperate cost cutting:
Factory supervisors who are seldom at their desks have had their landline phones and voice mail yanked. Elevators and escalators are shut down at night at GM’s headquarters towers in Detroit.
The slimmed-down choice of pens in office supply cabinets: one each of black, red and blue.
Wall Street Is No More (Bloomberg)
“”There’s no more Wall Street,” Greenberg, 81, said last night in an interview on Bloomberg’s “Money & Politics” television program. “That model just doesn’t work because it’s at the mercy of rumors.””
This is how cultures of fear are run: rumors are news because the worst is thought to be the only thing that can happen. Fear permeates everything from our love lives to corporate transactions these days – you can’t move but for being straddled with it. So, not only is trust completely out the window – but so is the idea that anything good could be borne of taking an outside chance, which is in effect us believing in each other as human beings. So we’ve lost that.
And while one common enemy is responsible at both fronts it’s fought differently depending on where you stand. In money if you want to fight fear you pull a Triple O: you saddle the fuck up, buy the best values in town, and smile gently while everyone calls you insane. Saying Good-bye To Our Friends In Boston (TVSeriesFinale)
Allen married Denny, and it was beautiful. Thanks for the bat-shit crazy ideas, outstanding quotes, and shootings – you’ll be missed. Copper River To Liquidate (WSJ)
It looks like “Copper River was unable to cash out derivative contracts in which Lehman was the counterparty before the Wall Street company filed for bankruptcy protection” and as PBs started to raise margins, Copper was screwed. AIG Puts Japanese Life Insurance Co.’s On Block (Reuters)
In an effort to raise capital, AIG has put two Life Insurance companies in Japan on the block. I’m impressed but they’re selling off all their shit, but this ends in one of two ways: either the government forgives the loans, or AIG goes out of business. Russia’s Credit Rating Downgraded By S&P (FT)
Russia’s Ruble faltered, so S&P kicked it in the sack – with the flight from the currency being more pronounced than less, it appears as though the ratings company didn’t feel safe with Russia’s long term ability to pay debt.
S&Ps model obviously doesn’t account for exports such as hookers, illegal caviar, and weapons to Iran, which is really just sad S&P. I think you need to spend some more time thinking about this.
The days of lecturing China may be over for the moment. But, really, how perfectly did you want them to embrace capitalism just now?
The head of China’s sovereign wealth fund says he’s lost the confidence to invest in U.S. banks, while China’s central bank governor Zhou Xiaochuan didn’t even stay in town. Instead, he flew to an international meeting chaired by Mr. Paulson’s intended successor, Timothy Geithner.
Preceding Mr. Paulson’s arrival was a sudden depreciation of the yuan against the dollar — provoking concern in some quarters that China is prepared to backtrack on one of Paulson’s achievements.