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The US Federal Reserve has sent staff into some of Wall Street’s biggest firms and its New York branch is gathering evidence on key traders’ activities as America’s central bank raises its scrutiny of risk to an unprecedented level.
Fed staff have set up shop in Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns to monitor their financial condition just days after Henry Paulson, the US Treasury Secretary, proposed that the Fed become the financial industry’s “risk czar”.
So what's Treasury Secretary Henry Paulson's call for changes in regulation of the financial markets all about? A clue may have been revealed today by Randal Quarles, former Under Secretary of the Treasury who led the Treasury Department's effort in the coordination of the President's Working Group on Financial Markets and is a current Managing Director at Carlyle Group.
Quarles spoke at a luncheon meeting of the Washington DC-based National Economists Club. His topic: "Restructuring Financial Regulation". Quarles told the luncheon group that he chose the topic in January. Hmmm. Didn't Treasury Paulson just make the proposal to restructure the financial regulatory agencies last week? How did Quarles pick this topic back in January? Short-answer, Quarles is a major insider and his comments should be monitored to get a sense for what insiders are thinking.
In his talk, Quarles said that estimates go into the hundreds of billions in terms of capital that will be required by the financial industry, because of losses sustained by the financial industry. He said there will be more financial institutions that will go under in coming months.
He said that public markets will not supply the necessary funds because they don't have the capabilities to study in detail the risks and potential rewards of the complex financials of financial institutions. He said private equity firms have the capabilities to do so and to supply the necessary funds. (N.B. Carlyle Group is a private equity firm).
Randal K. Quarles
Washington , DC
Fund : Global Financial Services Buyout
Industry : Financial Services
Randy Quarles is a Managing Director and is focused on transactions in the global financial services sector. He is based in Washington, DC.
Before joining Carlyle, Mr. Quarles was Under Secretary of the U.S. Treasury, where he led the Department’s activities in financial sector and capital markets policy, including coordination of the President’s Working Group on Financial Markets, development of administration policy on hedge funds and derivatives, regulatory reform of Fannie Mae and Freddie Mac, developing policy on terrorism risk insurance, and proposing fundamental reform of the U.S. financial regulatory structure. Before serving as Under Secretary, Mr. Quarles was Assistant Secretary of the Treasury for International Affairs, where he was responsible for a wide range of international financial matters, focusing particularly on financial structure and stability, cross-border investment and financial regulation, and promotion of free trade in financial services. He led the financial regulatory dialogue between the United States and the European Union, was policy chair of the Committee on Foreign Investment in the United States, which reviews inbound investments that raise national security issues, led the U.S. delegation to the Financial Stability Forum (the semi-annual meeting of the heads of regulatory agencies from the world’s largest developed and emerging market countries), and negotiated the financial services provisions of several free trade agreements. Mr. Quarles was also the U.S. Executive Director of the International Monetary Fund, a member of the Board of Directors of the Overseas Private Investment Corporation, board representative for the Pension Benefit Guaranty Corporation and, in the private sector, is a member of the board of directors of NTR Acquisition Co.
Before entering the Bush Administration, Mr. Quarles was a partner with the law firm of Davis Polk & Wardwell, working at various times in both the New York and London offices, where he was co-head of the firm’s financial institutions practice and advised on transactions that included a number of the largest financial sector mergers ever completed.
Mr. Quarles received an A.B. summa cum laude in philosophy and economics from Columbia in 1981 and a J.D. from the Yale Law School in 1984.
Originally posted by JBA2848
Quarles told the luncheon group that he chose the topic in January. Hmmm. Didn't Treasury Paulson just make the proposal to restructure the financial regulatory agencies last week? How did Quarles pick this topic back in January? Short-answer, Quarles is a major insider and his comments should be monitored to get a sense for what insiders are thinking.
A confidential memo obtained by Wikileaks shows that not only has the U.S. Securities and Exchange Commission created an insider trading loophole big enough to drive a truck through, but that Wall Street is taking full advantage of it, establishing 'how-to' programs and even client service divisions to help well-heeled clients circumvent insider trading regulations.
Most of us think of insider trading as illegal. It allows those with inside knowledge to tilt the playing field, with the small investors invariably losing to the privileged few. Unfortunately for the small investor, the big boys get to play by different rules, and it has all been made legal, thanks to the SEC.
Here's how it works:
1. An insider client transfers all or a portion of their company stock into a JP Morgan Securities Inc. brokerage account.
2. The insider then develops, in conjunction with the 10b5-1 team, a 'phased, pre-planned sales program to be executed at either market or specified prices'.
3. Depending on the information available to the insider (but not the public), the insider can decide whether to execute the sale or not.
By gaming the system this way, JP Morgan teaches insiders how to use their knowledge to create a rigged market, one in which it is the "house" that always wins, and the small investor that always loses.
Alan D. Jagolinzer, an assistant professor at Stanford University Graduate School of Business, completed a study of roughly 117,000 trades in 10b5-1 plans by 3,426 executives at 1,241 companies. He found that trades inside the plans beat the market by 6% over six months. By contrast, executives at the same firms who traded without the benefit of plans beat the market by only 1.9%.businessweek.com...
One can only guess at how many insiders profited under JP Morgan's "insider trading program," leaving small investors holding the bag.
Ex-CEO wants shake-up of UBS
A former chief executive Luqman Arnold has called on Switzerland's biggest bank, UBS, to split off its investment banking unit.
The move, he says, would help counter the effects of massive losses incurred in the United States subprime crisis. The investor has also demanded a shake-up of the bank's governance, and the removal of the newly appointed chairman.
Arnold's proposal came after UBS announced writedowns totalling more than SFr40 billion ($39.7 billion) for the past nine months.
Critics have blamed the investment bank arm for convincing the traditionally conservative bank to move into trading high-risk mortgage securities. UBS results have suffered they say because the bank has stuck with an integrated model, which offsets the losses in one unit with profits from others.
A UBS spokesman said the bank would respond to a letter from Arnold. His Olivant investment company owns 0.7 per cent of the bank, making it one of its biggest shareholders.
Arnold was dismissed as CEO of UBS in 2001 after just eight months in the job and a reported power struggle with the bank's board and its chairman, Marcel Ospel.