A little before 3:33 on CNBC today, floor traders erupted into loud screams and yells that anyone watching could hear in the background. (Watch the video below.)
All the noise really confused the guy who was on the show talking about how high frequency trading screws him over, Dennis Dick. As soon as the yelling starts, he begins tripping over his words (circa 00:25).
Then the yelling starts getting louder and the other guest tries to talk, louder, over the yelling like it's no big deal. The CNBC host just laughs it off.
We emailed a floor trader to find out what all the fuss was about. He told us:
Haha...it's a little tradition...
At 3:33:33 on a Friday before a 3 day weekend we scream, yell, and go nuts.
Japan and Switzerland are facing the same threat to their economic health. And so far, every step they’ve taken to make things better has only made them worse.
But there is one way they could conceivably get out of this mess. And even though no one is talking about it yet, a mere hint of the possibility could send China-sized shockwaves throughout the global currency markets.
Their joint problem is a strengthening currency. As a country’s currency strengthens, domestically manufactured products become more expensive when shipped abroad – making them uncompetitive in foreign markets. That’s bad for Switzerland and Japan, which depend of export income for growth.
Right now the situation for Japan is so bad that Bank of Japan Governor Masaaki Shirakawa left the economic symposium in Jackson Hole, Wyo., to meet with the prime minister and fellow central bankers.
The Japanese yen (JPY) has strengthened by more than 10% since May against the US dollar. But up till now, Japan has been loath to intervene. Instead it has employed verbal intervention – promising action without actually taking action, a practice that has been used quite often in the last couple of weeks. Clearly it isn’t working, making actual intervention a possibility...even though that might be doomed to fail, too.
The last time the bank stepped in was at the end of the first quarter in 2004. Hoping to stop a 15-month bull run in the yen, central bankers applied a $400 billion brake.
At first, it worked. The Japanese yen weakened for a couple months following the intervention. But it might not work again. Investors already anticipate such a move, so the effectiveness of such a strategy would fall to the wayside – likely to only delay another inevitable advance of yen strength.
On Aug. 30, the Bank hashed out a new monetary plan. It extended a loan facility to institutions in need. The existing facility was expanded to 30 trillion yen (approximately $350 billion) from 20 trillion. The duration was also extended, with a percentage of the 30 trillion yen pie being available for as long as six months.
Although good in theory, the loan facility expansion will do little to deter current speculation in the yen. Setting aside market expectations, the loan facility is far too small to deter yen speculators at this stage in the rally. The 10 trillion yen boost is only one-third the amount used to in the 2004 intervention.
Back towards Europe, Switzerland finds itself in a similar situation. Like the yen, the Swiss franc (CHF) has also strengthened against the greenback. Since June 1, the franc has appreciated by 13% against the US dollar, falling to within 2 cents of a one-for-one exchange with the US currency.
Things are even worse compared to the European Union’s euro (EUR). The Swiss franc has risen to a record-high exchange rate – trading as high as 1.2891 francs per euro. The situation places enormous pressure on the Swiss export market, creating a monetary headache for Swiss National Bank President Philipp Hildebrand.
And just like Japan, direct market intervention may not be enough to solve the problem. Since the beginning of the year, Swiss National Bank policymakers have spent almost 200 billion euros markets to stem franc’s rise – with about 37% being applied in May 2010 alone. Reserves grew 50%, pushing it from the world’s 13th-largest reserve holder to the 7th-largest.
Yet the franc continued to strengthen. In fact, speculation has remained so strong that the Swiss bankers abandoned their intervention efforts at the end of June.
So, more currency intervention doesn’t look like it will help either Japan or Switzerland – at least not separately. But what if they joined forces?
A coordinated effort by both central banks may be just enough to cool down FX speculation – helping the US dollar gain ground against the Swiss franc and Japanese yen. Traders and investors bullish the yen and franc would have to contend with a massive combination of foreign currency reserves. Together, both Japanese and Swiss reserves would rank second only to China – the world’s largest holder of foreign exchange reserves.
But more importantly, the combined size of both countries’ reserves would overshadow the size of UK reserves when the sterling came under attack in 1992. As speculators hit sterling markets en masse that year, UK monetary authorities were only able to access approximately 27 billion pounds (or roughly $50 billion) in foreign currency reserves to ward off traders. In the end, it proved to be too little as policymakers were unable to support the underlying cable.
Although circumstances were different – traders bet for a collapse in the sterling (GBP) rather than a surge as in the yen and franc – the underlying basis of speculation remains the same. With a total of over $1.2 trillion to work with, Swiss and Japanese central bankers may be able to deter speculative appetite in the short term.
A united front would also raise the specter of further collusion with other countries. Let’s face it – anything of this magnitude is far from becoming a reality. But the possibility of it actually happening would be enough to make FX traders reconsider their positions. This would be especially true if the United States and Europe were added to the mix. The likelihood of four international central banks forming an alliance to combat FX speculation would take on a different meaning in the market. Central bank rhetoric would be taken more seriously – keeping every investor and trader on his or her toes.
Unfortunately, until the Swiss National Bank and the Bank of Japan act as a coalition – or enact bolder moves other than just plain vanilla FX intervention – yen and franc strength will linger on for the rest of the year. Speculators require more than just jawboning and weaker monetary promises in turning their opinions. Modern central banks aren’t able to completely control their respective currencies.
But a surprise and gutsy move by both bodies may be just enough to slowdown any FX appreciation – and support a turnaround in the market.
The market surged on better-than-expected jobs data, capping a 5% rally from Tuesday lows.
But first, the scoreboard:
Dow: +128 S&P 500: +14.4 NASDAQ: +33.7
And now, the top stories:
Asian stocks rose on the back of yesterday's US rally. Then European markets surged when US jobs data hit.
The jobs report pushed futures up around 100 points at the open. Although 54K jobs were lost and unemployment increased to 9.6%, this was seen as a good report. Disappointing data from the ISM non-manufacturing index ate away half of early gains, but the rally trickled back by the close.
Linda McMahon, who made the WWE a huge financial success, has her foot on her rival’s neck. Lloyd Grove talks to the GOP upstart about her chances, dead wrestlers, and Mickey Rourke.
Wrestling impresario Linda McMahon, the GOP Senate nominee in Connecticut, has been frequently misjudged by her adversaries. A few weeks ago, when one of her Republican primary opponents in which she was shown repeatedly kicking a ref in the crotch, he must have been surprised that she reveled in the image.
“Somebody said to me the other day, ‘We’re going to get you some steel-toed shoes when you get to Washington,’ ” McMahon tells me with a smirk, flashing her baby blues. Sipping iced coffee at the Starbucks on Greenwich Avenue, the main drag of the super-rich suburb of Greenwich, Connecticut, where she lives on an $11 million estate, McMahon punctuates her little joke with a merry chuckle.
I think I'm ready for this she tells me. "I think I'm ready for whatever they’ll bring out.”
A trim, stylish grandmother of six—who, with her notorious husband, Vince McMahon, has built what many view as an unsavory, brutish, dirty pastime into a billion-dollar business empire—the 61-year-old McMahon is surprisingly calm and polished for a political novice running her first statewide campaign. She laughs a lot and her eyes sparkle—like a woman who’s having fun in the throes of combat.
As the purveyor of a form of entertainment that occasionally results in injuries and even deaths, she surely has administered a throbbing pain to the Democratic frontrunner.
Not long ago McMahon was trailing the once-invincible attorney general, Richard Blumenthal, a two-decade veteran of Connecticut politics and the state’s most popular public official, by 40 points in the race to succeed retiring Democratic Sen. Chris Dodd. Now, after spending $22 million of the $50 million of her own money that she has budgeted for the campaign, she is polling within 10 points of the badly bruised Blumenthal.
Her relentless attacks on his character—for fudging the facts of his military record (and later apologizing for stating erroneously that he served in Vietnam) and fuzzing up his acceptance of special-interest donations (he vows he won’t; she claims he does)—has left him a victim of battered-candidate’s syndrome. (I look forward to giving Blumenthal equal time.)
“I don’t think he’s a bad guy at all,” McMahon tells me with a smile. “I would hope that the campaign would focus on the issues. I think it was necessary to draw some contrasts with Dick Blumenthal. He has been the attorney general for 20-some years and I think there was a certain reputation, if you will. I think he’s spent a great deal of time building that goodwill. You probably heard the saying that the most dangerous place to be in Connecticut is between Dick Blumenthal and a camera.”
Unless, of course, the most dangerous place is between Linda McMahon and a Senate seat. “It would be my goal to win, absolutely,” she tells me, acknowledging that as a former high-school athlete, she is, by nature, extremely competitive.
Having grown up in rural North Carolina—a fact that accounts for her vestigial Southern accent—Linda and Vince were teenagers when they met and fell for each other. She was married at 17 and soon pregnant, and the young family struggled financially. She was a stay-at-home mom with two little kids and Vince was working for his father, a small-time wrestling promoter, and having a hard time making a living. At one point, when they were living in Gaithersburg, Maryland, in the 1970s, they went bankrupt and briefly depended on food stamps.
“I think it was one or two weeks when we were on food stamps, when Vince was working at a rock quarry, making little ones out of big ones, working about 90 hours a week,” McMahon tells me. “I’d get up early in the morning and pack an almost hockey bag-sized athletic bag for sandwiches, a couple of thermoses and hot meals.”
Being down and out and needing government assistance was “not fun,” she says. “I didn’t like it at all, and I just said, ‘You know, I can’t do that,’ ” she recalls. “I’d rather find another job and supplement our income. That’s actually when Vince took on more hours at the rock quarry…After our son Shane was born we saved S&H Green Stamps, and actually bought a high chair and Shane’s formula with them.”
As wealthy and successful as she is today, McMahon says her previous experiences have made it easy for her to relate to Connecticut citizens who are suffering in the sour economy.
“I’m out on the campaign trail and I’m talking with people, I say, ‘Look, I understand where you’ve been,’” she tells me. “I connect with them right away. I’ve had them tell me, ‘One of the things we like about you is you get it, you feel what we do.’ It’s humiliating and then you get desperate. Some of the people I talk to are desperate at this particular moment.”
The race is expected to get increasingly down and dirty as the November election draws nigh. According to political pundits, it is likely to become a negative contest between Blumenthal’s bloopers and McMahon’s role in an unappetizing business in which performers are smacked in the head with chairs for the enjoyment of the mob.
Despite her attempts to portray wrestling as “soap opera” and good clean fun, critics call it an enterprise in which illegal steroid use, painkiller abuse, and serious brain injuries are still factors. They also note that five former WWE wrestlers have died from causes ranging from heart attack to suicide just since the Senate campaign started. But McMahon claims to have helped reform the business, making it more family-friendly than in its grubby, raunchy past, and she likes to tout the free medical care provided to contract employees who suffer on-the-job injuries, as well as free financial advice to help performers manage their money.
I ask her what she thought of the movie The Wrestler.
“I think it portrayed a business of years gone by, and I think Mickey Rourke did an excellent job,” she says. “But it was an industry of many men, and some women, who didn’t look to their future, because they believed the life they were living today would continue forever.”
All that’s changed now, she argues.
“It’s not a sport, it’s an entertainment industry,” she says. “I don’t think regulation is necessary. You’d be crazy not to protect the men and women [in the wrestling business]”—but the industry can take care of that, without the government intervening. “WWE is the first company to build barricades to separate audience from performers—and to pad the barricades and to pad the floor around them, in case somebody went over the top rope, There was some push-back from old-timers, who said, ‘No, you’re supposed to be rugged.’”
For the moment, Blumenthal has yet to match McMahon’s rugged blows with equal force. And she declines, metaphorically anyway, to remove her heel from his throat.
“The fact was that he misspoke several times and in several different instances [about Vietnam], and it was a pattern and practice over several years,” McMahon says. “I felt that after the New York Times broke the story”—with a big assist, as McMahon has acknowledged, from her opposition research team—“it was absolutely fair that the people of Connecticut needed to understand that.”
I ask her if she really sent her own stealth camera crew to Vancouver, Canada, to catch Blumenthal unawares traveling to a fundraiser where political action committee money was being dispensed to Democrats.
“I don’t think we did that—that was the NRSC [National Republican Senatorial Committee]. Here’s the point I want to make: I don’t have any issue with taking special interest money. I’m funding my own campaign. I don’t have to do that [take PAC money], and I’m glad I don’t. But my issue with Blumenthal is he said he wouldn’t. The people of Connecticut need him to state the facts.”
McMahon is no Sarah Palin Republican, but solidly in the tradition of New England moderates. Although she markets herself as a tax-hating deficit hawk, she is pro-choice on abortion (with a couple of caveats: she’s against legalizing late-term “partial-birth” abortions, opposes federal funding except when the life and health of the mother are at risk, and she supports parental notification for girls 18 and under). And she endorses the right of states, like Connecticut, to legalize gay marriage—a position socially more liberal than President Obama’s.
In the meantime, she has become friendly with Sen. Joe Lieberman, the Democrat-turned-political independent who has held out the possibility of endorsing McMahon over Blumenthal. “You know if Joe endorsed me that would be fine with me,” McMahon says of Lieberman, a self-styled cultural critic who in times past has been disapproving of the violence, real and imagined, of the wrestling business. “I’m not seeking his endorsement.”
I ask her why she decided to run in the first place, given that her only previous political experience was as an appointed member of the state board of education and, like any prudent corporate executive, as a contributor to Republican and Democratic candidates alike.
“I reached a point in my career where I wanted to start giving back,” she says. “I served on the state board of education. I’m on the board of trustees for Sacred Heart University, and I really felt that I wanted to commit more time and effort to give back and to be involved at a very critical time in our government. Honestly, I’m very concerned about what we’ve become and what this country is, and I really wanted to step in.”
She adds: “I do believe that what our country needs today is more people like me, and not people like Dick Blumenthal, who actually said lawsuits create jobs. We need people who understand how to create jobs, and understand the consequences of taxes and regulations when they are placed on businesses. Dick Blumenthal has none of that kind of experience, and in this day and age, I think more is necessary than the typical politicians.”
Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
Gary Townsend, an analyst the CEO of Hill-Townsend Capital, believes Goldman's decision to unwind proprietary trading is an unfortunate one that has been forced by the hand of financial regulation.
I'm not a great fan of how this was done and in particular the Volcker Rule. It really strikes me as an aesthetic issue, as an opinion with respect to depository institutions and what they ought and oughtn't do.
We know that GS is not much of a depository institution. It really doesn't take a great deal of insured deposits whatsoever, yet its forced to do things that are not helpful to the firm.
Townsend is especially worried that Goldman will not make money on the spin off.
This is change, this is going to happen whether it's going to happen whether its aesthetics or risk management, but at the end of the day, this is hopefully going to be done in a way that's going to generate some capital for Goldman when these functions are put out into a new organization, but we're yet to see that.
Ideally, he believes, the prop traders might continue making money at banks, not elsewhere.
Keep in mind that many of these people do proprietary trading and have done it for years. They're very good at it. They make a great deal of money for their company and they can do it elsewhere.
And for this mistake, he blames financial regulators.
They're really pressuring Goldman to make some decisions that will allow them to move with some alacrity into the next state of their lives and that is causing this to happen so quickly.
This week was an important milestone for the forward progress of the democracy movement in the Middle East. In an Oval Office speech President Obama announced the end of combat operations in Iraq while at the same time saying that 50,000 troops would remain on the ground in a non combatant "support" role. This is good news from many angles including increased democracy and economic freedoms for the Iraqis...but you would never know it from the tone of the President's speech.
Unfortunately POTUS chose this moment to make a weak attempt to equate the sacrifices made by our soldiers and their success on the ground with the ongoing recession and rising deficits. Yes the economy is still on the skids and deficits are rising but they have more to do with the failed economic policy responses of this administration...not the "investments" made by the US taxpayer in a brave attempt to add another much needed democracy to this volatile region. It's as if the President was saying....the economic cost of Iraqi freedom and democracy was not worth it.
Tell that to our battle weary troops. And also in a broader regional context.....the message was that the Iraq war was a waste of time in pushing the concept of real democratization, political reform and economic prosperity in a region that needs much more of it...not less.
Yes it is unfortunate that the President chose this moment to make a point about the failure of his economic policies to yank the economy out of its deepest economic downturn since WW2 and equate it with Iraq. To me this is representative of one of the largest problems in America today...our need for instant gratification that leads to a counter productive long term is lunch policy making mentality on the part of our politicians. We all want it now...voters want an instant response from politicians to our problems...politic ans are forced to grade their policy success immediately based on the fickleness of the voters and their leaders...this leads to bad policy decisions on both the economic and foreign policy fronts.
Disappointingly, short termism was evident this week in the Presidents speech. In fact, I believe that history will show that Iraq was a military, political and economic success and we will all look back and be proud of the assistance we gave the Iraqis and the region in their ultimate quest for democracy and more economic freedoms. The sacrifice made by our troops and the investments made by Americans and our allies will not have been in vain. And that is a good thing!
What is my historic benchmark for determining this? Vietnam. Despite the pessimism and remorse that many still feel...I firmly believe that the sacrifices made by the US in that conflict were for the good and that in fact, despite the lingering consensus belief to the contrary, we won that one. Why? All you have to do is look at the economic progress South East Asia has made since the end of hostilities in Vietnam. Could that have happened if we hadn't been there? I doubt it. Would the dominoes have fallen if we hadn't stepped up? No one can say...but history has shown over the past 30 years that the region has become more like us then we like them...the dominoes have become economic dynamos....all thanks to the human sacrifices and financial commitment of the US. And that should be viewed as a good thing too!
As combat operations wind down, why can't our President and certain media elements take the high road and look at our commitments to Iraq in a more historical context and let history decide whether the "investment" was worth it instead of continuing to wallow in "long term is lunch" partisan finger pointing by attempting to blame our ongoing economic problems and deficits on the cost of the war...frankly I think it is inappropriate for the leader of the free world to put a short term price tag on our success in Iraq...let history decide whether it was worth it. I think in fact, using our success in SE Asia as a benchmark, that it will be...if we are all patient.
When the US government announced a 'better than expected' headline growth number in its non farm payrolls report for August, a loss of 'only' 54,000 jobs versus a forecasted loss of 120,000 jobs, people had to wonder, 'How do they do it? We do not see any of this growth and recovery in our day to day activity.'
Here's one way that those reporting the numbers can 'tinker' with them to produce the desired results.
As you may recall, there is often a very large difference between the raw, unadjusted payroll number and the adjusted number. Seasonality plays the largest role, although there can occasionally be special circumstances. Since this is designed to be a simple example I am going to lump all the various adjustments that could be and call them the 'seasonality factor' since it is most usual and significant.
Here is a chart showing the unadjusted and the adjusted numbers. As you can see, a seasonal adjustment can legitimately normalize the numbers for the use of planners and forecasters. This is a common function in businesses affected by seasonal changes. Year over year growth rates, rather than linear, comparisons, can also serve a similar function.
Quite a variance in numbers that are very large.
Since it probably is in the back of your mind, let's address the infamous "Birth Deal Model" now, which I have advised may not be such a significant factor as you might imagine. This is an 'estimate' of new jobs created by small businesses. A comparison of the last few years demonstrates rather easily that this number is what is called 'a plug.'
How can the growth of jobs from small business not been significantly impacted by one of the greatest financial collapses in modern economic history?
Certainly the Birth Death model offers room for statistical mischief. It is important to remember that it is added to the RAW number before seasonal adjustment, and that number has huge variances. So the effect of Birth Death is mitigated by the adjustment for seasonality. If it were added to the Seasonal number from which 'headline growth' is derived it would be a huge factor. But it is not the case, although the timing of the significant annual adjustments and additions is highly cynical, and supportive of number inflation. Perhaps calling it a 'plug' is too kind, and 'fudge factor' would be more accurate.
From my own analysis of each month's data, and especially looking at the changes made to the numbers over time, the two biggest factors are the restatements of prior months, and sometimes years, and the monthly changes in seasonality factor.
Let's take a closer look at the seasonality adjustment.
The raw unadjusted number for US non-farm payrolls is very large, on the order of 130+ million in the most recent month.
The 'headline growth number' these days is generally around a hundred thousand jobs or so, which is several orders of magnitude difference smaller than the unadjusted number from which it starts to be derived. Even the month over month fluctuations in the unadjusted number are quite large, and added to that are the Birth Death adjustments, which are often as large or larger than the 'headline number.'
Do you think the Government uses the same seasonality adjustment factor profile each year? Let's take a look at just the month of June, and how the adjustments were made since 2003. It is important to point at here that the seasonality factor is subject to backward revisions. What is used in the current month can and often does change substantially as it becomes 'history' and is no longer in the public eye.
As it turns out the seasonality factor varies over time, as determined by year over year. Here is a chart that shows the adjustment factor by year. It does not seem that great does it, but the variance is there.
How significant are these variances? Let's take a look at a specific example.
Here is the use of seasonal adjustment in June of 2010, compared to June of 2009. The takeaway from this chart is that even a slight change in seasonal adjustment can result in a large impact to the 'headline number' that Wall Street and the political commentators watch and expound upon.
Quite a difference isn't it? Plus 43,000 jobs can be a big difference from no growth, especially if a flat growth was forecast by the economists.
Let's take a look further into the past to see how much variability there can be in adjustments for the SAME month over time.
What is important is not the result for a specific year per se, but the huge variance in results for the same month each year with little or no justification. Further, these results can be restated, and significantly, going forward in benchmark revisions. Whether they are 'correct' or not is not the point. The point is that this variability renders the current headline number as data highly suspect, vulnerable to manipulation by special interests and short term agendas.
Given the degrees of freedom in setting the seasonality, and adjusting prior months to add and subtract jobs once they have served their purpose in supporting the headlines, I think it is safe to say that if you give me a spreadsheet of jobs data, and you are my politically appointed supervisor, I can make the numbers come out pretty close to whatever you want within reason to support whatever messaging you may wish to put forward. As the errors start to add up over time, I can 'restate' the past numbers in a wholesale change to bring them into line with reality.??So what is the point of this discussion. First, and foremost, judging the health of the economy over a monthly headline number like this is more artifice than substance. At worst it is leaked to Wall Street cronies to help them skin the public from their money, and provide a few sound bytes to support whatever political message the government wishes to promote that month to 'restore confidence.'??At best and most properly it can be included in a series of numbers, a moving average preferably that shows the trend in employment, which along with other factors can help economists determine the actual growth and health of the economy.
The government was able to turn around a tremendous loss of jobs, which is good news. The bad news is that they accomplished this by essentially throwing trillions of dollars at the problem, and in particular a corrupt and oversized financialization industry, in order to bring the trend back to zero. Without a change one cannot return to a bubble economy and hope it to be sustainable without a growing asset bubble. This implies organic growth and a return to a growth in the median wage which has been declining or stagnant in a long term structural trend. Has anything been done to promote this? No. And in this sense of over cautious lack of reform Obama is more a Hoover than a Roosevelt.??But this cult of 'headline numbers' as used by the mainstream media, the government, and Wall Street is a sad commentary on the frivolous nature of US leadership. This childishness should not be surprising given that they think they can hide their monetary inflation by leasing gold into the bullion markets and buying Treasuries to hold down the long term rates while a private banking cartel prints money and provides it to their friends. And the primary capital allocation mechanism of the nation is riddled with false trades, naked short positions, and accounting fraud, schemes and subterfuges, that go largely unaddressed by the financial authority charged with enforcement of the integrity of the system even when they become so blatant as to cause a flash crash collapse of the system.
The only thing that is surprising about Wall Street and the US financial frauds is, as Eliot Spitzer famously observed, their scams and schemes are so simple and so obvious when one can pry back the veil of secrecy and see what is actually being done.
Sadly it will likely continue because 'it works' for the short term, and the US is preoccupied with the short term, instant analysis and results over substance and solid progress built on strong foundations, every time.
Here is a close-up of the fight between a 20-something guy and a woman and her 70-year-old father that broke out during a U.S. Open match last night.
You can clearly hear their argument. Here is a part of the exchange:
The woman and the younger man are screaming at each other. She slaps him.
"Shut up, I will smack you to death," she says.
"I can talk all I want. I f*cking paid my ticket...I don't give a f*ck what anyone wants... I have a lot of money on the game... I can take 20 of those (slaps)," says the younger man.
The verbal fight escalates. For a second the two parties seem to withdraw and take their seats, but then all hell breaks loose. See below:
Gary Townsend, a financial analyst from Hill-Townsend Capital, told Bloomberg TV that Goldman's decision to close its prop trading unit, Principal Strategies, is a direct result of Obama's forcing their hand.
He basically said it's all Obama's fault that Goldman will lose this profittable unit so soon.
"If you could put it out 4 years, that would be nice too, so you could hold onto the revenues and earnings, but the personnel issues won't let that happen," he said on Bloomberg TV when asked whether Goldman's move was a signal that the bank is interested in moving past this as quickly as possible.
And when asked why it was happening so soon after Obama signed the financial reform bill, and if it was Goldman's own decision or if their hand was forced by Obama, Townsend said:
"The hand has been forced. It was forced with the passage and signature of the legislation. This is Wall Street adapting to the new environment as quickly as it can. The functions will go elsewhere and they will continue to generate wealth and employement."
Prop trading will not go away it will just be done in a separately capitalized form.
Trades will be "client related," now (read about Citi's plans for prop trader Sutesh Sharma for more details on why and how traders' jobs will change). And are expected to be less risky.
Townsend seems to think that Goldman's losing their prop trading unit will be bad for business because they will profit less. His sentiments echo many's around Wall Street who believe that financial regulations imposed by the government are too heavy-handed.
However there is too much speculation that it was prop trading which largely led to banks like Goldman needing to be bailed out to leave the issue unaddressed.
By disbanding prop trading units ahead of deadlines, which Goldman, JPMorgan, Bank of America, and Morgan Stanley are doing, banks will be able to take a test-run before the rules (and fines for breaking them) are in place.
Plus, by making changes now, banks are ensuring that the traders in these prop trading units are not left waiting in limbo. Now they can get on with their lives and find another job in a hedge fund or something.
The sunlight of summer has begun it's annual transition to equinox, and we are all reviving the pulse of the work-year.
The President has returned from Martha's Vineyard to face what will surely be a challenging fall. It's mid-term election season and the mood of the voting public is downright ornery.
ODS (Obama Disappointment Syndrome) a growing wave of depression, has created a huge anti-incumbent wave. "Throw 'em all out!" seems to be the mantra of the season.
In the last couple of weeks the number of negative op-eds on the President from both sides of the aisle have grown considerably. The mildest theme seems to be "he is too smart to be in touch with the people," or "we just don't know who you are or what you really are about Mr. President." The really challenging ones drift into the inevitable issues of racism.
I have long held that the most qualified people to be in government are business folk. Not just Billionaires like Mayor Bloomberg, but anyone who has successfully run anything, been responsible for making payrolls, paying back loans, paying bills on time, navigating through good times and bad. Most important: balancing a budget. But the reality is most people who have these credentials are too smart to get sucked into the dysfunction of the public sector. Nor will they submit themselves to the relentless intrusion and scrutiny of the press. So what's the next best thing for the "beleaguered" President? Take some lessons from the guys who know how to really get things done. And who better than the best CEO in the Universe: Steve Jobs.
So Mr. President, in an effort to help you succeed, herewith is a new playbook for your consideration:
1. You have to make other people cool. Being cool got you elected because it made people feel cool electing you. But then nothing much else happened. You thought healthcare would be the cool thing but dramatically misread your audience. Steve makes millions of people cool, it is his most amazing talent. Buy an iPhone and you are cool. But if you don't have a job, you have no chance of being cool. And the Healthcare plan? No one is cool with it (outside of DC). 2. Get citizens to voluntarily pay more taxes. Apple has been doing this for years. Customers happily fork over a big premium for their products. They will even camp overnight outside an Apple store to have the privilege of doing it first. We have a huge debt problem. In Europe everyone pays a VAT (Value Added Tax). Apple has a CAT (Coolness Added Tax). Watch and learn Barack. You just have to figure out what it is the Federal Government does that's cool, or useful, or is of particular benefit to anyone.
3. Replace Congress with a Genius Bar. The current spin is that the Republicans are obstructionist. But if there are Democratic majorities in the House and Senate, how could that possibly prevent you from bringing "Change we can believe in?" The answer is that Congress just isn't smart enough. Sure these are fine, well-intentioned people but we need really super-smart folks to fix our dysfunctional system. Steve Jobs figured out that even people savvy enough to buy Apple products were going to have problems now and then, and he wasn't going to subject them to someone you'd find working at the Division of Motor Vehicles. He recruited an army of Geniuses. So why not forget about political party affiliations and just support the election of Geniuses.
4. Wear the same outfit every day. I know it sounds trite but you probably have figured out it takes a lot of brain cycles to be POTUS. Why waste any time trying to pick out a slick Armani and matching tie (or arguing with the First Lady about HER selection). Steve's turtleneck and jeans thing has worked for 30 years now because it sends a simple clear message "all I care about is making insanely great products." You could be transmitting "all I care about is improving your life, making a better America."
5. You can't be afraid of pissing people off. Probably your biggest Freshman error has been to try and make everyone happy. Yes you passed a Healthcare bill but it didn't take on the tough issues (Tort reform, insurance rate controls). You decided we needed to "surge" in Afghanistan but also announced we'd only do it for a little while, so as not to over-irritate all of the antiwar constituency who voted you into office. Steve Jobs takes on the tough issues. He decided that Adobe's Flash, one of the most widely used media formats on the Internet, sucks and that was that. iPhone and iPad don't support it. So I can't view half of the stuff on the WWW on my iPad; but I still have one. Take a real stand on something President Obama and live with the fact that to be effective you are going to make some people angry. As long as there are more happy people then angry people you'll have a second term.
6. Vision without execution is nothing. We elected you because you understood how frustrated we were with DC Dysfunction. You had a vision for "not a Red America or Blue America but a United States of America." You said you would bring change to Washington. True you never said you'd make DC "Insanely Great" or "Magical" but you presented your campaign vision with compelling Jobsian conviction. Yet, the partisan aisles are wider than ever. No one seems to want to solve problems, they are just obsessed with maintaining or regaining their majority. Steve Jobs has a saying: "there are two types of people in the world: those who have shipped products and those who haven't." Steve has shipped more Innovative products over the last 30 years than any other tech executive. The lesson here? Get rid of all of the professors, policy wonks, career bureaucrats, and Chicago thugs and convince some real capitalist operational executives to come work for you (even if you hate the way we smell).
7. Build a little intrigue. Tell us something big is coming. Set a date for a big presentation. Leak a little here and there to tease. Cut all the deals behind the scenes so Congress backs you. Then get on stage and tell us all about our shiny new Healthcare Widget. We won't mind what's missing because we'll know it's just 1.0 and your bound to have a bunch of improvements next year and it will be much cheaper too. 8. Make us USA Fanboys. Right after the election it was fun to be an American again, especially while traveling abroad. Europeans in particular were not Bush fans and we took a big hit in our image. Electing you made the World feel good. But the bloom has quickly faded. No one can figure out what you really stand for. We are straddled with debt, and seem to be losing our innovative edge. We can't even give our kids a decent education. Apple went through bad times prior to Steve Job's comeback. It lost it's Mojo. But Steve returned with laser like focus. The company's back was against the wall and he put forth a simple proposition. He said they would only do two things and had to make them spectacular to survive. He thew away all of the previously bloated, PC-like Macs and introduced the first iMac and iBook. They were a hit. That led to iPod. Which led to iPhone. Which led to legions of proud Apple Fans. And most important huge financial success. All due respect President Obama, we need to focus on innovation and education. If we are not giving our children the best and nurturing our innate Yankee ingenuity, we will never create jobs and return to prosperity. It's hard to feel patriotic pride when your house is being repossessed.
9. When all else fails. Blame it on us stupid Americans. We just don't get it. We don't need to access our iTunes library on more than five computers. Calls dropping on our brand new iPhone4? We are holding it the wrong way! Go to the Genius bar and Apple will give you a rubber and show you how to practice safe iPhone4. Mr. President, Yes you can to bring change to Washington, but everyone else is going to have to want to change too. If they won't play ball, make it crystal clear that they are the morons and send them to a Genius Bar for help. Well actually looks like the voters are going to do that for you in November.
The final lesson is that passion and persistence against all adversity will pay off. After all of the adoration bestowed during the campaign, it must be horrible to have to endure the current spate of negative press. But hey, Steve was summarily thrown out of his own company, thrashed around for a bunch of years trying to get NeXT to be something. Perhaps it was a dose of humility that helped polish his edges a bit but he never lost his passion or focus. His return and turnaround of Apple is now epic. And the story is really just beginning. So President Barack Obama, can you turn it around and become an epic President? One for the history books? Take a lesson from Apple. It's all about Jobs.
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