Like everyone, I’m amazed by how much pure madness there is in the markets right now. Not the madness of crowds, the madness of bankers or the madness of investors. No, it’s the madness of politicians and regulators.
First we had Alastair Darling’s tax on bonuses. Then Sarkozy followed suit. Finally Barack Obama announces not only a tax on bank liabilities, but measures to reign in the banking system by restricting trading on one’s own account – prop trading – using language and rhetoric rather different to the language we expect from him.
Obviously, Obama did this as a pre-emptive strike before Davos, where a whole raft of other regulatory reforms are being discussed and proposed via the G20 and individual world leaders.
After two years, you would imagine that these guys could get their act together wouldn’t you? Instead, we appear to have a muddle of confusion. Robert Peston, who is enjoying his Davos experience obviously, writes his blog over on the BBC today with the title that bankers are ‘dazed and confused’, saying that bankers are commenting that Barack Obama’s scheme is:
1) “vague, confused and we don't know what he's on about;
2) “it won't achieve its stated aim of reducing the risks of another meltdown in the banking system (although quite how they know that if they don't understand what he's saying is beyond me);
3) “if President Obama's aim is to savagely reduce banks' direct holdings of tradeable securities, it will lead to a second devastating wave of banks dumping assets – and will risk a return of the credit crunch;
4) “the confidence of bankers – which the bankers themselves say is so important to any serious revival of lending (so aim off) – has been knocked by the perception that the US and Europe are divided on the future structure of their industry;
5) “bankers' confidence has been knocked further by confusion over who in the US administration has the ear of the president on financial policy-making (the scheme to shrink the banks was the brainchild of Paul Volcker rather than the supposedly banker-friendly Treasury Secretary, Tim Geithner).”
George Soros says that “this development came too soon because the banks are not out of the woods”, although he continues by stating that he is “very supportive of it, but I don't think it goes far enough.”
Hmmm … accusing bankers of being “tone deaf”, Mr. Soros obviously hasn’t been listening to them, as Bob Diamond, the golf-mad President of Barclays, who says that “there is no evidence that shrinking banks is the answer” and that this will have a devastating effect. The impact “on jobs and the economy will be very negative.”
What is obvious is that the Paul Volcker inspired Obama plan is a core focus of discussion and attention. Probably because most of the politico’s, bankers and corporate leaders are rather worried about their investment portfolios as the stock markets take a further battering for the seventh day in a row.