The Front Office

[Vulcanl]

(Below is carried over from the 'USD/SGD discussion')

“…So just by registering you have more credibilty than someone who doesn't register?...”

Yes

“…Grow up kid…”

I am fast closing in on two decades of experience in this industry.  I take umbrage at your reference to me as a ‘kid’

“…most people here have objective minds and make their minds up on the credibility of the content of what is written…”

Precisely why I cut/paste.  Saves a lot of time in terms of determining validity of statements made

“…not on whether you are registered or not….”

I beg to differ.  A registered poster remaining consistent, sticking to FACTS has enormously credibility as opposed to an unregistered hit and run artist

“…Likewise two posters above state that you are "holier than thou" and the other "righteous"…”

That is their opinion to which they are entitled and I respect

“…Whether they are registered or not is imaterial to me. What is important to me is the content of their message, and after reading it I would have to agree with them 100%...”

That is your opinion to which you are entitled and I respect

“…I think I might have just a little more experience than you in what you are talking about...”

There is no way for you or me to be able to know this as a fact

“…I also suspect that I may be considerably more sought after for my skills and knowledge than you...”

This would be your suspicion only - there is no way for you or me to be able to know this as a fact

“…What I do know is that you are out of your depth on much of what you talk about and being kind, I would have to call you an enthusiastic light wieght who reads a lot and gets his kicks going to sleep at night thinking he is some sort of a hot shot new age economist…”

‘Enthusiastic Lightweight’ sounds good to me. 

I have never represented myself as any kind of expert re: economics, and as a matter of fact I have stated that I am an amateur, this is my hobby, I enjoy it because there is much to learn, always.  So this is a distortion on your part

“…Kid an economist you are not…”

See above on both points

“…Please don't bother to respond with one of your insane requests for justification...”

Yours is the inaugural entry of my ‘The Front Office’ thread.  Congrats!!!!

“.. I haven't got the time or the inclination to respond as I have a real job that is demanding pays millions (yes, I got my own landed property too) and have plenty of investments…”

Yet you made time to respond to my post.  This is OK, it is an interesting topic.  To the extent it gets one thinking then the time spent is worthwhile

“…I am not saying this to be arrogant….”

Your statement sure comes off that way

“…rather to illustrate that we live in a capatilist world and I have made my money and money for others by being damned good at what I do...”

God Bless You.  There is nothing wrong with making money.  It is HOW you make and how you wield it that could result in evil unleashed

“… Incidentally I do not work in a "front office" lol…”

Good for you.  I do respect that

“… I also have the confidence to know that I don't have to continually defend my position….”

Me too

“… My concern is that if some less experienced readers were to follow your advice they could lose a lot of money...”

I don’t know how you can state this with a ‘straight face’ given my ‘record’ here so far

“…Sadly, this regularly happens, the less knowledable follow some idiot who professes to be an expert and end up losing money…”

I have never professed to be an expert.  And you have resorted to insult.  You lose

“…This forum used to be quite interesting until we got your copying and pasting of various media articles posted as fact…”

I disagree.  What I have succeeded in doing is focusing debate to facts and not mindless, petty, empty discourse

“…I am sure everyone is waiting with baited breath to hear of your new "front office" theory...”

Thanks!!

“... guess that you just learned that word, it rings well for you, you are vigorously reading articles and will entertain us with some boring, righteous diatrabe…”

Even you have to admit.  This is anything BUT boring!

“…I don't think you are a geek, please don't flatter yourself…”

Thanks again.  I hope you do a follow up.  I have enjoyed this

[Vulcanl]

Mark Mobius is a legendary fund manager.  He is one of the few who correctly called EM equities performance earlier this year.

As you can see he is worried that the FO is still up to their old tricks of ensuring that not too many people know about exactly what it is that they are doing.

These banks continue to funnel vast sums in the USA to our elected representatives so as to ensure that any rule changes do not apply to them.

These vast sums, of course are the ill gotten loot from their activities in fleecing grandmothers, young people starting out, poor municipalities, etc:

"...Mobius Says Derivatives, Stimulus to Spark New Crisis (Update1)
2009-07-15 08:19:41.655 GMT


     (Adds 2008 market value decline in third paragraph.)

By Bloomberg News
     July 15 (Bloomberg) -- A new financial crisis will develop from the failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said.
     “Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,” he said in a phone interview from Istanbul on July 13.
     Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. Global share markets lost almost half their value last year, shedding $28.7 trillion as investors became risk averse amid a global recession.
     The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13.
     Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product.

                          Looming Crisis

     “Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency,” he said.
     A “very bad” crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said.
Governments have pledged about $2 trillion in stimulus spending.
     The Justice Department’s antitrust division sent civil investigative notices this month to banks that own London-based Markit to determine if they have unfair access to price information, according to three people familiar with the matter.
     Treasury Secretary Timothy Geithner last week urged Congress to rein in the derivatives market with new U.S. laws that are “difficult to evade.” He said strong capital requirements were the key.
     Geithner repeated President Barack Obama’s call to force “standardized” contracts onto exchanges or regulated trading platforms, and regulate all dealers.

                          Credit Freeze

     The plan to regulate the derivatives market is part of a wider overhaul of financial industry rules meant to prevent any possibility of a repeat of last year, when the collapse of Lehman Brothers Holdings Inc. and American International Group Inc. froze credit markets and worsened the global recession.
     In the Senate, Agriculture Committee Chairman Tom Harkin, an Iowa Democrat, is pushing for legislation that would require all over-the-counter derivatives trades be traded on regulated exchanges, not just standardized ones as the Obama administration is seeking.
     U.K. banks will be forced to curb trading activity that helped cause the global financial crisis, Britain’s top financial regulator said last month, while stopping short of seeking to separate their lending and securities units.
    Mobius also predicted a number of short, “dramatic”
corrections in stock markets in the short term, saying that “a
15 to 20 percent correction is nothing when people are nervous.”
     Emerging-market stocks “aren’t expensive” and will continue to climb, Mobius said. He said he favors commodities and companies such as London-based Anglo American Plc, which has interests in platinum, gold, diamonds, coal and base metals.
     In China and India, Mobius sees value in consumer-oriented stocks and banks, he said..."

[Vulcanl]

The below is the grand-daddy of all the houses.  No one in the business likes them.  The underlined and italicized sentence is a truly good question that I would like a representative of ANY front office to answer:

"
http://www.guardian.co.uk/business/andrew-clark-on-america
14 July 2009

...Is Goldman Sachs a blood-sucking vampire squid?

Proof, as if we needed it, that Wall Street inhabits a parallel universe. While the rate of US unemployment creeps towards double digits and businesses across the heartland struggle to stay afloat, Goldman Sachs tots up quarterly profits of $3.44bn.

The Goldman money-making machine is running at $38m per day - or $1.58m per hour. For each second it takes to read this, Goldman will make another $439 of profit.

How do they do it? They're not really telling us. Almost all of the bank's earnings come from trading. But Goldman explains away $10.78bn of revenue from its trading and principal investments operation in just four vaguely worded paragraphs of a press release.

On a conference call, chief financial officer David Viniar waffled on about a "terrific client franchise" and a "very strong culture of risk management". What this amounts to is that Goldman is fast, ruthless, opportunistic and canny in its multi-billion dollar bets on the direction of financial markets.

Awash with dollar bills just weeks after repaying $10bn in government aid, Goldman is taking heat as never before. In a lengthy oeuvre for Rolling Stone magazine, journalist Matt Taibbi characterised the firm as "the great American bubble machine", offering a roll-call of Goldman alumni in powerful government positions and blaming the bank for every financial bubble since the Great Depression.

"The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," writes Taibbi.

The New York Times has joined in, in typically more restrained fashion. It reported that Goldman's traders were known in the Big Apple as the Bandits of Broad Street and quoted an unnamed executive at a rival bank who compared Goldman staff to bellicose "orcs" in the Lord of the Rings.

Gazillions of dollars in profits don't look good when employment is evaporating from the US economy at a rate of more than 400,000 jobs a month. But in the eyes of many critics, the most objectionable aspect of Goldman's success is that the bank's earnings are shared by such a small number of already ultra-wealthy people. Goldman distributes 49% of its revenue to employees who may get an average pay packet of as much as $900,000 this year.

The former New York governor Eliot Spitzer hit the nail on the head during a Bloomberg television interview this morning. While observing that Goldman made a "bloody fortune", he said the immediate issue was not the rights or wrongs of making a profit - but the question of where the proceeds go.

"It's obviously better that banks be making money than losing it," said Spitzer. "The question is does that generate jobs - which is the word we haven't heard anything about - out in the real economy."

After an infusion of billions of taxpayer dollars to keep Wall Street banks afloat, Spitzer asks whether any significant portion of Goldman's capital will go into sustainable employment - say, in biotech or new energy: "Their job, from a macroeconomic perspective should be to raise capital and put it into those sectors that will create jobs. If they're not getting that done, then why are we supporting them in the way we have?"

While you may be loathe to listen to lessons in propriety from a man with as colourful a recent past as Spitzer, he has a point. Goldman's earnings are a warning flare. After the cataclysmic events of the past 18 months, are we simply going to allow bankers to go back to enriching themselves through an elaborate, opaque form of casino trading which is semi-detached from the rest of society?..."

[traders pockets]

Why shouldn't the traders etc get rich?  They make the bank a ton of money.

Almost all direct revenue generation jobs are part commission, essentiall that is what their bonus is.

What they should have though is multi-year clawbacks and deferrals so just piling on risk doesn't seem such a great plan.

[Vulcanl]

"...Why shouldn't the traders etc get rich?  They make the bank a ton of money..."

If they collectively made the banks so much money, then why was the majority of the Western banking system taking government money to survive?

"...Almost all direct revenue generation jobs are part commission, essentiall that is what their bonus is..."

Fair point.  But how many industries have the power to exert such control over other people's money?

"...What they should have though is multi-year clawbacks and deferrals so just piling on risk doesn't seem such a great plan..."

I couldn't agree more.  Here's the problem with this plan, however.  In order for the bank to be in position to evaluate and take back any unearned bonus the employee needs to somehow be tied to the company for an extended length of time (measured in years).  This amounts to an indentured servitude (not unlike maids) and even for the front office I find this morally reprehensible

[Pripps]

chill out

[Vulcanl]

 

[traders pockets]

"...Why shouldn't the traders etc get rich?  They make the bank a ton of money..."

If they collectively made the banks so much money, then why was the majority of the Western banking system taking government money to survive?

This was limited to a few desks, by no means all of them.  In any cases most of the money was due to credit issues and no-one lending hence liquidity problems as opposed to having lost too much.  (Before you jump on this, some like UBS pretty much lost lifetime profits but that wasn't the issue with most banks, lack of cash was).

"...Almost all direct revenue generation jobs are part commission, essentiall that is what their bonus is..."

Fair point.  But how many industries have the power to exert such control over other people's money?

Fair enough.  That is a structural industry problem rather than the fault of individuals though.  There are others, mostly financial services related though.  Also a lot of the fault here is on the buy side.

"...What they should have though is multi-year clawbacks and deferrals so just piling on risk doesn't seem such a great plan..."

I couldn't agree more.  Here's the problem with this plan, however.  In order for the bank to be in position to evaluate and take back any unearned bonus the employee needs to somehow be tied to the company for an extended length of time (measured in years).  This amounts to an indentured servitude (not unlike maids) and even for the front office I find this morally reprehensible

Maybe, but they would know this when they take the job.  They can always resign.  Potentially could still have a structure where profit related deferred bonus continues to vest after leaving (unless the p&l all goes away) rather than the current structure where deferrals are just a lock in and don't work anyway as new employer just buys them out.  This is certainly possible as it happens already if you retire rather than change jobs.

Additionally, for the more dodgy type transactions they may have locked the bank in for many years, a lot of this stuff is essentially a one way market so the bank can't easily liquidate and has to manage the risk for god knows how long.  Why not match the remuneration to actually realising (esp areas where the models are bit iffy as they then can't really claim they have made the money yet).  That is different to a well known transaction type where hedging is both liquid and easy.  Not simple to do but just a thought.

Sure, someone trading spot fx or govvies can exit but not someone with a few billion JPY PRDC trades.

[traders pockets]

Vulcan,

Out of interest, you are posing questions but don't see a lot in the way of proposed solutions.

This isn't an attack as it is a long way from an easy position to change, my observations aren't particularly practical but at least I'm offering.

What do you suggest?

Cheers.

[Vulcanl]

traders pockets,

FO are a rare breed, it takes a very specific type of person to even want to be there.  They are a greedy bunch whose sole raison d'etre is to make lots of money very fast and then get out even faster.  In short they cannot control themselves, cannot stop being who they are.

I think that clearly the front office had too much power and bullied and intimidated other areas of the banks whose job was supposed to keep them in check.

This is not unlike a CEO at any MNC who also takes the role of Chairman and/or CFO/COO, etc.  These roles are created in organizations to fulfill the express purpose of balance of power.

This concept of balance of power has actually worked well (for the most part) throughout US history (for example).

It is my hope that during this current age of nationalization of the industry governments wrest away this untrammeled ability of the front office to have its way. 

Below cuts right to the heart of the issue:

CEOs Must Lose ‘Life and Death’ Power, Former HBOS Manager Says
2009-07-16 23:01:00.4 GMT

By Simon Clark and Jon Menon
     July 17 (Bloomberg) -- Paul Moore compares his dismissal as head of risk at failed U.K. bank HBOS Plc to King Henry VIII’s decapitation of his sainted Chancellor Thomas More 474 years ago.
     Moore lost his job in 2004 after he warned that the bank’s growth strategy posed “a serious risk to financial stability.”
More lost his head in 1535 after he refused to recognize Henry VIII’s self-appointment as head of the Church of England.
     “There is a natural conflict of interest where people whose job it is to challenge have to report to those who have the power of life and death over them,” Moore, 50, said in an interview in London. “What caused this financial crisis was the inadequate balance and separation of powers.”
     Risk and compliance managers should report to a non- executive director for “quality assurance,” rather than to the executives they monitor, Moore said. His idea was rejected yesterday in a preliminary government review of banks by former Bank of England director David Walker. Risk managers should report to both executives and non-executives, Walker said.
     “Joint reporting lines will never work,” Moore said. “It will create an accountability crevasse in which responsibility and honesty will be lost.”
     Four years after Moore sued HBOS, then Britain’s biggest mortgage lender, for unfair dismissal, the cost of the bank’s failed loans and investments is still mounting. A month after Lloyds TSB Group Plc bought the lender in a government-brokered takeover in January, HBOS posted a 7.5 billion-pound ($12.3
billion) loss for 2008. The value of the government’s 14.5 billion-pound investment in the combined bank has dropped by 43 percent this year.

                            Bad Loans

     London-based Lloyds reports first-half earnings on Aug. 5.
The bank said in May it will lose more money in 2009 as HBOS’s bad loans increase.
     At present, Lloyds Chief Risk Officer Carol Sergeant reports to CEO Eric Daniels. She also has direct access to the board’s risk committee, Lloyds spokesman Leigh Calder said.
Moore’s proposed quality assurance director would report to the company chairman and meet officials of the Financial Services Authority, Britain’s markets regulator, four times a year.
     Prime Minister Gordon Brown, whose government commissioned Walker’s report in February, told lawmakers yesterday he will support Walker’s proposals.
     “Removing the risk officer from working with the CEO is not the answer,” Walker said in a telephone interview. “You need someone who is tough-minded.”
     Moore, named by Walker as a contributor to his report, said tough-mindedness won’t be enough to protect risk officers who report to CEOs when companies are in crisis.

                         ‘Opposite View’

     “Just at the moment when you’re at your most blind, Mr.
Chief Executive, is when you need somebody who can give you the opposite view,” Moore said.
     Moore said he has presented his proposals to opposition Liberal Democrat Treasury spokesman Vince Cable, former Conservative Chancellor of the Exchequer Kenneth Clarke, Labour lawmaker John McFall, who led the House of Commons Treasury Committee’s investigation into the banking crisis, as well as FSA officials he declined to identify.
     “Risk management functions of banks should report directly to the board of directors, rather than to the management,”
McFall said in an e-mail. “The FSA must now pursue this option vigorously.”
     Moore said former HBOS Chief Executive Officer James Crosby dismissed him in 2004. Crosby resigned as FSA vice chairman in February after Moore gave evidence to the Treasury Committee.
Lloyds’s Calder declined to comment on Moore.

                        ‘Monstrous Baby’

     Since then, Moore said about 15 risk managers had contacted him to say they’d been too scared to speak up about financial problems in their banks.
     Thomas More was a Roman Catholic statesman and author of “Utopia.” Moore, also a Catholic, cited Robert Bolt’s description of Henry VIII in the preface to his play on More, “A Man for All Seasons,” as a “monstrous baby who you cannot gainsay because he didn’t want to hear the opposite view.”
Moore said the same is true of some CEOs.
     HBOS’s auditor KPMG investigated and dismissed Moore’s claims in 2005. “When I first read the KPMG report, I cried. It crushed my spirit,” said Moore, who owns Lloyds shares worth about 8,800 pounds. His stock, formerly in HBOS, was once worth as much as 237,000 pounds.
     Moore signed an agreement in 2005 that prevented him from speaking out after he settled with HBOS for an undisclosed sum.
Moore said he broke his silence to testify to Parliament because it was in the public interest.

                     Challenging Assumptions

     The separation of executives from the responsibility for monitoring risk and compliance will make banks more profitable and better places to work, Moore said.
     “Organizations that have a culture of openness and excellence beat the competition because they’re constantly challenging their assumptions,” Moore said in an interview at the Vauxhall Cafe in London’s Pimlico district.
     The former HBOS risk manager held up his mobile telephone to explain why governance is important in banks, where problem loans and investments can emerge years after they’re arranged.
     “If this is broken you’ll find out very quickly,” Moore said of his Nokia handset. “In the financial sector, you can lose failure for a very long time until it really bites you.”

[traders pockets]

Sorry, on blackberry right now and not reading the quote on ths thing.  Will when I get back.

I think you are wrong on the general mentality but given previous posts I can't see you agreeing.  Nevertheless a rather large number of traders started banking in control functions, especially pc.  I have seen very few who want the fast buck andleave.  Fast buck maybe but leave, nope, they seem to enjoy it.

Riding roughshod over others is the failure of others.  Sorry, that's human nature.  Shouldn't have meek muppets controlling stuff.

Anyway, haven't seen your proposal for a solutiomn yet, am interested.

[Vulcanl]

"...Riding roughshod over others is the failure of others.  Sorry, that's human nature.  Shouldn't have meek muppets controlling stuff..."

I do not agree that this is human nature.

And even if I did, we should strive to improve humanity and not simply fall back on " that's just the way it is "

[than]

why don't you leave your back office job which serves the evil needs of front office..work for a charity..teach..your a hypocrite..sorry to say..

[Let the good times roll]

Goldman & JP Morgan knocking the ball out of the park this week! As with anything Wall St only the strong survive. Pre-peak salaries are back and the market is turning, let the good times roll!!

[Vulcanl]

"...why don't you leave your back office job which serves the evil needs of front office..."

Because I enjoy my job, and it serves a control function (not the 'evil' needs of the front office)

"...your a hypocrite..sorry to say..."

I do not agree at all.  I can, do and will continue to serve the valuable 'balance of power' function in my current organization and any future one as well.

Every employee's duty is to serve the needs of their clients and shareholders first and foremost. 

This crap about serving the 'front office' because they supposedly bring in the dough is just that - crap.  Just more hot air from them that over time was taken as gospel.

No more.