Fun Reading About Big Banks

Uncle Billy pointed out this post by The Epicurean Dealmaker, which he described as “smoking.” TED actually is an investment banker (or an excellent imitator of one, down to the expensive tastes), so he can say things in more detail and more convincingly than I. Like this:

“But the assertion that large, multi-line financial conglomerates provide customers with services no smaller institutions can deliver is pure poppycock. The mid-1990s concept of globe-striding financial supermarkets has been completely discredited, most notably by their sad-sack poster child, Citigroup. Wholesale institutional clients make a point of using more than one investment or commercial bank for virtually all their financial transactions, no matter what they are. In fact, the bigger the deal, the more banks the customer usually uses. This is because banking clients want to 1) spread transaction financing and execution risk across multiple service providers and 2) make sure none of these oligopolist bastards has an exclusive right to grab the client by the short and curlies.”

There’s more.

By James Kwak

17 thoughts on “Fun Reading About Big Banks

  1. That’s one of my favorite blogs. My favorite posts were the ones he did on compensation.

  2. Was being more literal here, referring to the smoking references in the post:

    “Sadly, even I was too naïve to realize our crack corps of financial regulators were missing in action, and the executive managements of these financial institutions were off smoking crack in the boardroom instead of minding the store.

    But the point of my previous tirade stands: large, integrated, multi-line commercial and investment banks with fingers in almost every financial pie around the globe do not reduce systemic risk in the slightest. Instead, they comprise both the source and the pathway of contagion for systemic risk and potential breakdown.

    Too big to fail banks are not the solution to our problems: they are the source of them. And no amount of PR bullshit will ever change this irrefutable fact.

    Put that in your pipe and smoke it, Mr. Volcker.”

    Though I respect TED (always wondered if he’s related to this TED:, he seems too sophisticated beyond finance to be only what he says he/she/they is/are.

    It was a muscular post, and stokes the populist rage, but how can you avoid discussing international banking arbitrage when talking about this seriously?

    He in fact begins:

    “I try to believe that any glimmer of illumination I can occasionally shed on the structure, function, and operation of global financial markets has a positive effect on the net stock of knowledge about my business out there in the world.”

    …but we’re left only with a discussion of local banking. Maybe he can expand the discussion in a follow-up post? Canada stills seems to be doing ok with their outwardly more conservative and small-in-number big banks. Publicly visible size doesn’t seem to be helpful. And we STILL have yet to see a complete description of the ominously-named “Dark Pools.”

    Other stray thoughts — TED uses a “hushmail” address for contact through his/her/they’re blog. Don’t have any solid proof, but isn’t hushmail used primarily by wall street people and criminals who want to hide their activities? Not to say we all shouldn’t be using something like this to maintain our privacy, but does the fact that they’re using hushmail give us a hint? Are they moving money around offshore? Are they using it because they know gmail and all other email is easy to compromise, and they genuinely wants to maintain anonymity to preserve their job/safety? Or do they just want to make it seem that way to maintain the illusion that they’re employed in M&A on Wall Street?

    Guess as to identity: If it’s not someone affiliated with, then… D.E. Shaw?

    Finally, they seem to have the same qualms about Volcker that I do, despite Volcker coming out with the White House, in word, to pare down the banks. But this sort of comes out of the blue. TED, can you explain more clearly your thoughts on Volcker’s involvement? I’ve suspected his intentions ever since, at the start of the crisis, he wiped his nose and told us he didn’t know what to do. When the building is burning down and you bump into the fire chief in the hallway as you’re running out and ask him what to do, and he wipes his nose and tells you he has no idea… well then… there’s a problem. I’m inclined to believe he did this on purpose to stoke the fear.

  3. That’s beautiful. I love it.

    It reminds me of the argument we’re hearing more and more these days, since it has been so many years now since the repeal of Glass-Steagall, that there’s no way to “put the genie back in the bottle.” Again, what poppycock. Banks go through mergers, acquisitions, and divestitures all the time. I spent 10 years in a major bank doing M&A, joint ventures, re-engineering…nothing but change, change, change. It’s simply preposterous to try to argue that spinning off trading operations and investment banking would be any kind of major headache at all.

  4. I found this from Huffington Post’s Investigative Fund Site, which I highly recommend people to get on their bookmarks or RSS Readers if they haven’t done so already. They are the ones who broke the story on the Sheila Bair Mortgages recently. Some good stuff going on there. Here is a short video of William Black I thought was pretty good. It made me think about how when those 4 big bank CEOS testified to Congress, and when they were sworn in, they don’t even raise their hands in a serious or formal fashion, they hardly raise their arms to a 45 degree angle and the look on their faces is like “ya whatever”. All of these big bank CEOs need a hard punch in the face and then maybe a few hard kicks in the gut if that doesn’t send the message.

  5. “TED” or “Epicurean” deserves extra points for spelling Volcker’s name correctly, which is better than many of the commenters on this blog, Bruce Krasting, and one of the writers at Atlantic magazine can seem to do.

  6. I keep looking for political fun observations related to the whole TBTF and other interface problems between political elites and financial elites. The political elites got flamed in every possible sensitive area of their political bodies. The financial elites greased the political elites for decades. The political elites sought greasing for the sole purpose of retaining power. The financial elites provided the bread to pay the political elites advertising and promotion costs. Now, what have the financial elites done but set up the political elites for ruin. Effectively, the political elites paid their side of the bargain only to be terribly hurt by the financial elites.

    The unleashing of the populist meme means that the political elites must control the financial elites politically or the political elites face ruination. Whatever the political elites do , they must put the financial system honcho’s on a leash. I can see every act of the Fed being subjected to political theatre unless the whole financial mess is cured and that is simply not doable. The complexity introduced by software has changed everything. How can I as a an investor in the marketplace compete with Goldman’s software? The big firm’s software is the market until the Black Swan not contemplated in the sotware applications renders the system a failure. Congress now understands in the smoke filled room that they need a stand in at the Fed. A front man in a number of places . Yet, the pol’s are nervous about it all. They do not understand what is brining them to political ruination. Worse, they do not fathom how to end their gangster wars between themselves.

    The political elites cannot trust and are fearful of the financial elites. But the political’s control access to the guillotine. That is very dangerous for them because unless the knock off a lot of perp walks quickly, they too get the axe.

    Congress needs their weakling at the Fed and they fear that need at the same time. Yet the weakling to them needs to be a monster to the financial elites. That person would be street fighter that craves respectability like Joseph P. Kennedy.

    Drop the idea of using an academic. Spitzer would be ideal. But the political elites are also roue’s as we know from the theatre when they get exposed. So, get brave pol’s because if you are not you will get steamrollered in 2010.

  7. Great comment, TedK, and thanks for the WK Black video. Mr. Black is so correct but “fraud-as-SOP” is not relegated to only the financial sector. It is rampant in this country and there are few, if any, corporations/companies, large or small, practicing anything else. The telco’s, the cell-phone companies, insurance, pharmaceuticals, auto-makers, RE development, energy, etc. and dare I include all levels of government, ALL have fraud and deceit as their heartbeat and justification for improving their bottom-lines. More and more it seems to be “The American Way.” Moreover, even way too many individuals in this country are so motivated to “make a buck” they care not for who or how many may be harmed in the process. Indeed, Mssrs. Johnson and Kwak, among many others, are also correct observing that “the problem” is systemic. Alas, too few have too narrow a definition of the system.

  8. Dear Uncle Billy — Wow, what a barrage of questions. I’ll try to address a few of them in the spirit that you really are curious. Must be brief, as am typing on an iPhone.

    1) No affiliation with, although they probably owe me royalties. Like many of their videos, though.

    2) Notwithstanding Jamie Dimon, most banking, like most commerce in general, is local, or at least regional. USA is biggest market, but dynamics are very similar if not identical in Europe and elsewhere. Canada is a relatively tiny, insulated, and protected market, so I think the example of Canadian banks tells us very little about the bigger issues. Their conservatism was driven mostly by cowardice and last of capability, and their current relative health says more about luck than replicable results or good policy.

    3) I really am who I say I am on my site. Hushmail is only a way to protect my business identity from the frequently naughty and provocative things I write about colleagues, clients, and powerful people. There really is only one of me, and I do do investment banking for a living. Whatever credibility I have with you or others comes solely from my writings. Should you still doubt me, I would encourage you to ask yourself cui bono?

    4) I like and admire Volcker, but he has opened a huge can of worms. My closing remark alludes to the larger context of the debate and my hope–and warning–that he take special care not to cause more harm than good with his efforts.

    Thanks for engaging.

  9. I like your “NewDecembrist” blog. I liked your post largely lifting from Mike Konczal on REGISTERED EXCHANGES FOR DERIVATIVES. Very Excellent. I feel there is a great void on the topic of registered exchanges for derivatives in the financial blogosphere. Could you find more literature on this topic and post more on this in the future??? I know one reader (namely me) who would happily scarf down any posts and academic literature you could postulate on at your blog.

  10. Hi TED,

    My running thesis about econoblogs is that we must look very carefully at the cui bono of the bloggers themselves , especially when they reach a certain threshold of credibility, and examine them for propaganda and general flackery. Given that there are many interested parties who are sophisticated enough to understand the role that the blogs play in the influence game, it stand to reason, imho, that there exist a not insignificant number of blogs and bloggers whose entire existence is PR. Setser used to be affiliated with the Council on Foreign Relations and Roubini, Prof. Johnson is a Peterson acolyte, Boone — LSE, DeLong — hard to pin down, but it looks like both he and Krugman get their blogging orders from the Center for American Progress. CR is nearly inscrutable; Prof. Thoma too; Yves Smith has a whole host of interesting associations, but how can you doubt anyone who posts photos of cute animals daily? I asked Konczal where he went to school, where he works, and what his associations are, point blank, by email as he requested, and I received polite smoke and mirrors. Felix Salmon I like too much to impugn or question seriously in this forum. Zero Hedge — everyone wonders about (and why are we still waiting for the bombshell revelations that they claim Mark Pittman handed to them before he passed?).

    A whole constellation of personalities that have been delivering very influential content for many years now, most, directly connected to think tanks and other institutions, some seemingly independent.

    I hope this explains the skepticism. Now, when I look into my own soul and wonder if, as a Wall Street player or academic, would want to blog simply for the public good, the answer is, sure, why not. It feels good to do good, so it’s not hard to imagine that others might feel this way too. I think this explains the motivation of a few, but there are many others with dubious intent.

    As you probably know, blogs can be dangerous. There is a widespread mistrust now of the MSM among the media-literate. So we turn to the blogs for the real analysis. But what happens when we get there and all we’re getting is think-tank garbage dressed up as independent analysis? Not good. What would the motivation be to astroturf? I don’t think it’s all about astroturfing… I think the task of many blogs up until recently was to drive fear into the hearts of the influencers. It didn’t even need to be as overt as the literal Krugmanian commandments to “be afraid, be very afraid;” It can be as subtle as CR dripping, day in and day out, headline after headline: “Revpar down 0.5%, vacancies climb, bill fails, problem bank list grows,” etc. Can’t prove it, except by analyzing the circumstantial evidence, or until we get a whistleblower, but we appear to be the targets of a demoralization campaign. An extreme suspicion? Not when we had people like Goebbels running around in the previous century.

    So if you weren’t familiar with my overactive skepticism, there it is.

    Canada: You might know a lot more about this than I do, but I’ve read that a great deal of profit for Canadian banks came from criminal activity — laundering and so on. Maybe they make so much money from such activities that they didn’t need to play the derivatives, over-leverage, and cds games? There’s a weird Canadian/Hushmail connection btw… Scotiabank looks like the only big foreign bank with a major presence in Anguilla, where Hushmail has an office. They also have the First Carribean International Bank, a hybrid between CIBC and Barclays. Anguilla itself is British sovereign territory. (sorry, just musing here).

    Volcker: It would be interesting to see who he socializes with, off-camera.

  11. I have found it particularly difficult to find information about “how things work” that my feeble brain is capable of understanding. The Epicurean Dealmaker lays out things out in a way that even I can understand and that I can verify as I go along. If I were to find out he/she is dead wrong, I would continue to read the stuff because the writing is so terrific – a pure delight to read. It also provides a baseline for validation that I had to date been unable to find.

  12. Hi,

    I have a question on a statement Simon Johnson made during a brief TV interview*.

    “….For the six major banks of the United States, their total balance sheet is over 60 percent of U.S. GDP….”

    What’s he counting as being on the balance sheets? Where do the figures come from?

    I’m really grateful to see someone with his credibility taking on those who publicly pretend “Everything is just fine, ‘jobless recovery,’ stock market is happy,” and usually get all the air time for the official propaganda! In other words, I’m not trying to poke holes, I want to be able to be able to quote some solid facts.

    *( )

  13. William Black is so sharp. I watched him in an interview with Billy Moyer. Their bemusement at the utter shamelessness of people engaged in fraudulent behaviour (to the tune of many millions of dollars) is memorable.

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