It was about time that someone took the banks honestly to task but more importantly took a firm step to fixing the system. I'm going to be one of the few commentators on a financial website to praise President Obama, but here it comes.
How long were we going to give these banks a free ride on our backs? We've protected and guaranteed their efforts since the repeal of Glass/Steagall and they have run rampant, making money and paying out bonuses to their minions like 10,000 Imelda Marcoses who never, ever seem to have enough shoes. When is enough enough?
Big Banks Still Not Stable
The buck should stop here. Ten percent unemployment coupled with the worst recession since the Great Depression, all arguably caused by the same men who are bathing themselves in some of the best earnings they've ever posted:
concluded a year with a $13.3 billion dollar profit, and let's be very clear -- more than 80% of that money was
made through doing "God's work" of moving capital and creating financing for American business. The gross majority of those profits were made through their "sales and trading" operations -- their proprietary accounts.
And take it from a career trader, who's witnessed the investment banks overwhelm and control every capital market and continue to wrest control of every derivative market out there. They eat insatiably everything that comes through their desks and continue to create products that provide new and more interesting meals.
Every new bond issue -- a fee and a nod to the bond desk. "What do you think?"
Every new capitalization in the equity markets -- a fee and a nice big slug of stock at a nice price for their own accounts and the prime brokerage clients. "Wink, wink, here you go, boys."
Every oil trade filters through the desk before landing in a regulated market . "Let me have a look at that one, I think that might help our positions. Yes, I think it might."
Risk? I'm overwhelmed by the conversation on risk. Because the truth of it is, for most of these accounts, the bank's traders TAKE NO RISK -- or in fact decide on the amount they wish to take. Most of these trades come ready made, with a profit already attached. They are traders only in how far they choose to stretch their luck to maximize an already healthy profit.
And yes, in real estate securities, they stretched it too far and got caught. But that was a fluke. It amazed me to watch the "I'm sorry" parade of the four big bank CEOs in front of the "financial crisis inquiry commission" -- lots of semi-apologies and explanations, a quick goodbye and then back to business. It was a total farce from which absolutely nothing would be accomplished.
And whether punitive and whether the timing was political on the heels of the Scott Brown victory in Massachusetts, the truth is that only the president was able to advance real reforms. The Barney Frank bill was a watered-down effort with some good points, but still was unable to really reimpose Glass/Steagall boundaries back on the investment banks.
And that is what we need. In the end, it is the mechanism that failed us, not the banks. They merely took advantage of the advantages that were given them, maximizing their profits for their shareholders and themselves.
To expect them to understand the excesses and impropriety of that system and control their appetites by themselves is impossible and ridiculous. The mechanism needs to be changed, back to the one where bankers did banking and traders stuck to trading.
I've been waiting for the day when those two worlds are once again separated. I think the system will work better and more fairly for everyone once that happens. And I think President Obama took a good first step in making that happen today.
Traders, rejoice. You may just get your careers back.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.
Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.