Senators Move to Create 21st Century Glass-Steagall Act – Money Morning – Only the News You Can Profit From

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Senators Move to Create 21st Century Glass-Steagall Act – Money Morning – Only the News You Can Profit From.

Warren, John McCain (R-Ariz.), Maria Cantwell (D-Wash.), and Angus Kin (I-Maine) introduced legislation that would again separate bank’s traditional activities (like deposits currently backed by the Federal Deposit Insurance Corp.) from riskier activities like investment banking, insurance underwriting, swap dealing, and hedge funds.

Glass-Steagall was repealed by Congress back in 1999.

When the news broke of Warren’s determined attempt to bring back Glass-Steagall last week, it covered front pages across the country and instigated a firestorm of commentary on the future of the U.S. economy.

The problem, of course, is the ability to cut through the hype and understand if financial reform is necessary to fix the U.S. economy.

Rarely do I find myself championing regulatory efforts by the Federal Government, but the financial sector is an entirely different beast from energy, agriculture, and other resource sectors.

But reinstituting key elements of the Glass-Steagall Act is just one step on a long return to sanity for the economy.

The End of Too Big to Fail

In 2008, as the financial crisis unfolded, many in Washington wanted to reduce the size of the banks, because they had grown too large and were considered “Too Big to Fail.” The government was about to throw billions of dollars into the bailout of the Big Banks.

But during the financial crisis, in order to stave off more bankruptcies, the Treasury Department actually made it easier for banks to grow even larger in a swath of mergers and acquisitions that led to a staggering concentration of wealth among the largest banks in the country.

“The four biggest banks are now 30% larger than they were just five years ago and they have continued to engage in dangerous, high-risk practices,” Warren said during a Senate Banking Committee hearing.

Meanwhile, attempts to curb Wall Street excess in 2010 with the Dodd-Frank Bill did little to clean up the system.

In the end, Americans ended up with a piece of toothless regulation. The law was quickly watered down by remarkable lobbying efforts by the financial sector, including an unprecedented effort to limit even the Volcker Rule, which aimed to curb proprietary speculation.

Now, Warren and her colleagues are aiming to create the 21st Century Act. According to our Shah Gilani, this new proposal would “would separate institutions with savings and checking accounts, in other words FDIC-insured depository commercial banks, from investment and trading ‘banks’ engaged in capital markets activities, most of which are on the border between speculation and manipulation.”

Here Come the Lobbyists

The reaction from Wall Street is predictable. The banks will say that increasing regulation on their activities will help facilitate another financial crisis.

Of course, this was also predicted by the banks in 1997 when regulators proposed overseeing the derivatives markets. After they lobbied to kill any regulation, 10 years later these toxic assets facilitated a major crash.

Instead, we should have listened to those who opposed the repeal of Glass-Steagall, because they too predicted a financial crisis would eventually result because of this deregulation.

At the time of its repeal, opponents of repeal argued that unshackling financial companies from regulations would enable them to shift their focus into unchartered areas of banking activity. As a result, these critics said, economic crisis was not just possible, it seemed inevitable.

Perhaps the most chilling prediction came from former Senator Byron L. Dorgan, Democrat of North Dakota just two days after the repeal of Glass-Steagall.

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010,” Dorgan said.

”I wasn’t around during the 1930’s or the debate over Glass-Steagall<” he added. ” But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

For many, this statement is a chilling reminder of how vulnerable the U.S. economy had become by deregulation of the banking sector in the late 1990s.

Just a Starting Point

Our Shah Gilani isn’t entirely optimistic that the law or reform will be passed. He cites the obvious problem in Washington that would essentially make it impossible to fix: Lobbying.

Wrote Shah: “The only problem with trying to make banking 21st century safe is that we live in the new old age of robber barons, and they are the bankers and politicians they’ve bought.”

But the another important aspect of the conversation is that other types are reform would be needed as well.

Real financial reform requires more than just reducing the size of the banks and limiting their commercial and investment activities. Canada, for example, had only a mild economic downturn despite having a highly concentrated banking sector.

It also requires the willingness to address other factors that played a key role in the financial crisis and were essentially ignored or gutted from the Dodd-Frank Act of 2010 after extensive lobbying efforts and threats that the sky was falling.

Perhaps it isn’t the size of the banks that matters, but instead the types of securities that banks are allowed to invest in and the amount of leverage they may possess.

Congress seems to be overlooking the fact that it was massive derivative positions that led to this crisis, acting like weapons of financial mass destruction. But Congress also must recognize that banks were allowed to return to pre-Depression levels of leverage in 2004.

While Warren is getting the spotlight, a more important matter is happening in the Senate. Two Senators are looking to pass legislation to reduce leverage and increase capital-holding requirements.

Sens. Sherrod Brown, D-Ohio and David Vitter, R-La., recently introduced a bill that would force “Too Big to Fail” institutions to hold more capital, thus reducing leverage and protecting against significant losses.

This will be a very hard fought battle with a lot of misinformation being spread about the impact that such regulation would have on the economy. Stay tuned, as we continue to weed through the lies in order to deliver the truth on what reform in Washington would really mean to Wall Street.

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5 Warren Buffett tips

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1. Spend wisely

If you buy things you don’t need, you will soon sell things you need. – Warren Buffett

Rule No. 1 : Never lose money. Rule No.2: Never forget Rule No.1 – Warren Buffett

2. Saving: Save for the unexpected

Don’t save what is left after spending; spend what is left after saving. – Warren Buffett

3. Think long-term and be patient

Life is like a snowball. The important thing is finding wet snow (opportunities) and a really long hill (long term). – Warren Buffett

4. Borrowing: Limit what you borrow

I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing. – Warren Buffett

5. Risk

Investing without knowing increases risk. However, instead of shying away from investing one should acquire knowledge to get it right.

Shwetal – An Avid writer

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Wall street – Money Never sleeps

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Canary Wharf is a major business and financial...

Canary Wharf is a major business and financial centre and is home to some of the UK’s tallest buildings (Photo credit: Wikipedia)

Its been close to 7 years , i have spent in investment banking world. Though in technology , i still have seen the business while i worked in London. When i first entered my office in London , i felt i was in a world where people are running around as if they are about to loose their money. Business would almost kill you if you are not meeting the expectations. And fortunately or unfortunately i landed working in London with a group where calling a day hectic was a very small thing to do.

I still remember when i met my boss , there were two other team members who were constantly speaking to someone as if the person on the other end is about to kill them. That is when i got to know that this world is like living in forest “If you want to survive you have to be fit. No other choice.” Its all about money in investment bank. I used to feel people are greedy sometimes, but its not about greed . The market it self has set such a high expectations that during the good times that i remember a small drop in profit would leave people unsatisfied.

There was only one word around ” Client Client and client” . Working for client became my passion . Looking at their reports sorting out there issues was more of a passion than profession for me. And it was bound to happen as you get to learn so much.

English: Morgan Stanley's office on Times Square

English: Morgan Stanley’s office on Times Square (Photo credit: Wikipedia)

Even after i used to leave work i used to get calls from my boss. Blackberry kept vibrating , emails floating around, simply saying one thing ” Where is my money”.  And i used to wonder that why can someone not take one nice deep breath and relax and enjoy with family . But the immense pressure people saw and experienced , it was all about money. Bad times had already started. People getting fired, bonus getting affected , salary hike was issue but eventually it was all about making money. Raise capital , keep the firm well capitalized. Keep the balance sheet tied up. Keep the investors happy.

Why and why all this.  Because it was all about one  thing and that is “Money”

Just like we humans were not able to sleep in this investment banking world in bad times. ” Money never sleeps in this world. Be it good or bad time ” Its all about money

For now this is Shwetal signing off from here… Asta la vista … Enjoy reading and keep liking.

Shwetal – An Aspiring writer.

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A day in the life of a Investment banking Analyst

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I was reading through this small snippet on wall street prep website talking about a day in the life of a investment banking analyst and thought would be really usefull for anyone to know who is into investment banking.

 

  • 9:30am – Arrive to work and check email and voicemail
  • 10am – Continue working on a buy-side client presentation (“pitchbook”) from yesterday.  Since you already finished with the “Public Market Overview” pages last night, you now begin inserting a graphical representation of possible exchange ratios.
  • 11:25am – An associate calls to tell you that you have been staffed on another deal and you’ll need to put together a PIB (public information book) about the target.
  • 12pm – You finish putting together the PIB and get back to work on the original pitch
  • 1pm – You grab lunch with you friends at the cafeteria
  • 1:45pm – Back at your desk, you open up a Merger Model you need to have done for another deal team by the end of the night.  Since you pretty much finished the model last night, you’re now checking your work for bugs, mistakes, formatting, and analyzing various accretion/dilution results based on different scenarios (sensitivity analysis).
  • 3:45pm – Your associate from the buy-side pitch calls and tells you that the VP wants to met in a conference room to look at what we’ve got so far and discuss how to go forward.
  • 4pm – You meet with the VP and your associate.  The MD is traveling on another pitch so he’s conferenced in.  Basically, since the 40% of the target company is owned by an investment company, their consent is vital for the success of the acquisition.  As such, we need to put in a few pages on this investment company into the pitch so that our client (the potential acquirer) understands what he’s up against.
  • 5pm – Back at your desk, you incorporate some of the changes into the pitchbook from your meeting.  You include a profile on the investment company and a page on stock ownership.
  • 7pm – You order dinner with your friends from a big book full of menus that everyone uses on the floor and eat it in an empty conference room.
  • 8pm – Around 8:00pm things usually start to settle down and you can really start focusing on catching up on all the work ou were getting distracted from during the day.
  • 10pm – Off to the gym for a quick workout.
  • 11pm – Back in the office you pull up the merger model you were working on but had to stop because of the meeting in the afternoon. You’re putting the final finishing touches on it and send an email off to your associate letting him know it’s ready.
  • 2am – Call a car and go home

Tough one huh…. Anyways hope we all have learnt something out of it.

Shwetal Gajbhiye

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First banking activity of the world

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How many of us have actually given it a serious thought. Ok let me ask you this question. When did the first banking activity in this world began ? How many of us know an answer to this question . I guess not many so for those who dont know . The first banking activity began during Roman empire . It was name as Bank of Saint George also known as Banco di San Giorgio in Roman ,where moneylenders converted foreign currencies to the legal tender of Rome issued by the Imperial mint.

This was established in 1406 AD in Italy. The bank’s headquarters were at the Palazzo San Giorgio, which was built in the 13th century by order of Guglielmo Boccanegra, uncle of Simone Boccanegra, the first Doge of Genoa.

Many of Genoa’s overseas territories were governed either directly or indirectly by the Bank. In 1453 the Republic handed over governance of Corsica, Gazaria, and a number of other possessions to Bank officials, though over the course of the fifteenth century the Republic gradually reclaimed many of its territories from Bank control.[4] The Taman peninsula remained in the control of the de Ghisolfi family, but the princes of that clan now reported to the Bank.

The Bank lent considerable sums of money to many rulers throughout Europe during the fifteenth and sixteenth centuries, gaining widespread influence. Ferdinand and Isabella maintained accounts there, as did Christopher Columbus. Charles V was heavily in debt to the Bank during much of his reign. Niccolò Machiavelli writes in book VIII, chapter VI of the Istorie Fiorentine:

This establishment presents an instance of what in all the republics, either described or imagined by philosophers, has never been thought of; exhibiting within the same community, and among the same citizens, liberty and tyranny, integrity and corruption, justice and injustice; for this establishment preserves in the city many ancient and venerable customs; and should it happen (as in time it easily may) that the San Giorgio should have possession of the whole city, the republic will become more distinguished than that of Venice.[1]

In the seventeenth century the Bank became heavily involved in maritime trade, and for a time competed with such concerns as the Dutch East India Company and the English East India Company.

After Napoleon invaded Italy, he suppressed independent banks, and this led to the Bank’s closure in 1805

Courtesy of this information is Wiki Pedia. I was reading through it so i thought to share it with my readers.

Hope you will enjoy…Looking forward to hear from my readers… This is Shwetal Signing off for now. I will be back

Shwetal – An Avid Writer.

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Islamic Finance

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Many of us have heard of traditional banking. But h0w many of us have actually heard of Islamic financial policies. Let’s take a interesting look at what is Islamic finance? The way it operates.  Just to let everyone know this information about Islamic finance is taken from MCB.org.uk. All I am trying to do is spread the knowledge.

 

What is Islamic Finance?

The basis of Islamic Finance denounces usury, termed as riba (which is the lending of money at exorbitant rates) but it doesn’t stop just there. The concept is more accurately that money has no intrinsic value – it is only a measure of value, and since money has no value itself, there should be no charge for its use. Therefore, Islamic Finance is said to be asset based as opposed to currency based whereby an investment is structured on exchange or ownership of assets, and money is simply the payment mechanism to effect the transaction. The basic framework of an Islamic Financial System is based on elements of Shariah, which governs Islamic societies. Shariah, the law of Islam, originates from two principal sources: the Quran, the Holy Book of the Muslims and its practices; and the Sunnah , the way of life prescribed as normative in Islam, based on the teachings and practices of Prophet Muhammad (pbuh).

   When did Islamic Finance start being used?

 As mentioned, the basis of Islamic Finance is from the Shariah, so the concepts of Islamic Finance have been around since the origination of Islam itself. The practices of what we see today have been used throughout the last 1500 odd years across the modern Muslim world and beyond. The modern Islamic finance really originated in the 1960s, escalating with the petro-dollar boom of the 1970s when in 1975, the Islamic Development Bank was formed to promote acceptable financial practices according to Islam. While many banks originating in the Middle East strictly follow these principles, many also follow Western practices of finance, with a number following both practices to cater for both markets. Interestingly, many of the internationals larger banks (with HSBC, UBS and Citigroup as notable examples) all have Islamic banking arms, both in the Middle East and the West.

 

What are the main principles of Islamic Finance?

 The main principles of Islamic Finance include:                     

The prohibition or taking or receiving interest at exorbitant rates (Riba), but this does not preclude a rate of return on investment which is agreed up front by both parties contracting. In most cases, the references to interest rates by Islamic financial institutions are to help benchmark the return on investment to offer transparency. This does not imply interest is being used in the transaction.

 Risk in any transaction must be shared between at least two parties so that the provider of capital and the entrepreneur share the business risk in return for a share in profit.

 The prohibition of speculative behaviour (Gharar), meaning that gambling (Maysir) and extreme uncertainty or risk is prohibited and thus contractual obligations and disclosure

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Innovation …. World awaits

Leaders of the G20 pose for photos at the G20 ...

Leaders of the G20 pose for photos at the G20 Summit on Financial Markets and the World Economy in Washington, D.C. on November 15, 2008. (Photo credit: Wikipedia)

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“Dreamers are mocked as impractical. The truth is they are the most practical, as their innovations lead to progress and a better way of life for all of us.”
― Robin S. Sharma

As always i am back with something new and for a change a buzz word called innovation. Now we have been hearing this word tons of times in our lives . There have been products which have made our lives easy . There have been services that have been innovative so much that we these days order even glossaries online.  So whats the problem . Why is the current world economy is in so distress ?  I am looking for an answer and the answer lies within our pasts.

Lets take a classic example , the crisis of financial markets in 2007 . Now the reason i am talking about these crisis for the very reason that it impacted not only american economy but the world economy. Collateral debt obligations. If we take a look at the whole process it would sounds so funny that at each step of these CDO’s being sold , it lacked regulations.  Many of the economists had suggested the after effects of this , but it seems that there was a element of overconfidence and lack of risk management which led to the fall of many financial which the world has witnessed.  The government printing dollars , pumping cash into the markets but how long u can keep printing dollars. We had millions of people across the globes loosing their jobs , houses , many of them have to sell newspapers , what an agony.

The world is awaiting some thing and that’s what we call innovation. Now the million dollar question is how do we bring innovation in banking or financial institution ?  Recently i had read an article on social banking which i had posted on my blog. I am not sure how many banks or institution have implemented this concept but i think it will be a wave of changes in the world economy . My take is we should have a networking platform for investors may be online. Some thing that would already exist but not been taken seriously . The benefit of having a social networking platform for investors would be , they will have clear ,concise and correct visibility to markets as they will be able to interact with each other.  We can have even a platform for venture capitals online which if made global would not only boost economy but generate loads of revenue. Think about it. It is just an idea i am trying to suggest .  Comments welcome .

People will comment on it saying its impractical . But impractical is a word ” I M PRACTICAL ”

Looking forward for replies..

This is Shwetal Signing off for now …. Asta la vista..

Shwetal – An aspiring writer.

I love being a writer. What I can’t stand is the paperwork.

Peter De Vries

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Worlds most important financial institution

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The real truth of the matter is,as you and I know, that a financial
element in the large centers has owned the government ever since
the days of Andrew Jackson…

Franklin D. Roosevelt

Years and years have passed and we have learnt a lot in this financial industry. We have some financial institution  that are important for the health of financial industry. Forbes has published the list of most important banks in the world . Please see the list below.

Bank Of America
Bank of New York  MELLON
GOLDMAN SACHS
JO Morgan Chase and co.
Morgan Stanley
Citigroup
State Street Bank
Wells Fargo
Lloyds Bank
The Royal Bank of Scotland
Barclays
HSBC
Credit Agricole
Societe Generale
BNP Paribas
Banque Populaire
Deutcsche Bank
Commerz Bank
UniCredit
UBS
Credit Suisse
ING
Santander
Nordea
Mitsuishi UFJ , Bank of Tokyo
Mizuho financial group
Sumitomo Mitsui Banking Corp
Bank of China

I try to leave out the parts that people skip.

Elmore Leonard                                                 

 

This is Shwetal Signing off for now.. Asta la Vista… Hope to see some likes on this stats 🙂

                                                                         AUM

Defining and Executing innovation on investment banking

As i was getting down from the train station . I passed by a news paper shop . Looking at the headlines of the news papers , i could feel that we have a storm coming our way. A storm whose reason was being built few years ago. Markets going for a toss. Stock prices falling , Most of the mortgage firms booking heavy losses, banks filing for bankruptcy. It was a time where great economists , CEO’s and corporate giants were supposed to begin thinking strategically and have a outlook of the future which will make the firms on the rise higher grounds. Now i am sure after reading first few lines of this article people would start thinking what the hell am i talking about.

What i am refering to is the so called subprime crisis. I am sure it has now started ringing bells everywhere now.  Now one would start thinking that i am going to write about all the big stories as to why these banks failed or how the economy would have been boosted ? How can we increase the GDP.

All i am going to talk here is how to innovate. How can we drive , define and execute innovation in investment banking. Before i actually start putting my views on the same. I would like to iterate the fact that i am giving my views with the best of my knowledge and experience i have . I am more than happy for people to correct me and add their inputs on the same. Now what is the most  important parameter that drives this business ??

A simple answer to a simple question : ” Client ” . This is the point from where our innovation thinking caps needs to begin.  What we currently see as a state of world economy is a result of assumptions , Greed and taking more risks than what your appetite is.

A classic example of the same is “Goldman Sachs ” as they were able to foresee the crisis which they would face if they dont hedge their positions on time. And that is how even in the midst of crisis Goldman sachs was posting profits . Because the most important aspect that was taken care of was client , share holders and stakeholders interest.

While thinking about innovation (especially in the area of investment banking) we need to take care of certain aspects very carefully :

1. Client : as it is the on who at the end of the day we are going to keep happy by managing his portfolio effectively.

2.Risk: Innovating new dimensions where in how we can measure and manage  our risks effectively and minimize the same by diversifying our domains.

3.Technology : How can we do innovation in our technology platforms which will not only help redude our costs but also gives our client a platform for effective connectivity with markets.

4.Being well capitalized:  Saving for the rainy days is the idea here. The most important aspect is that any financial institution is supposed to be well capitalized and have enough cash saved for crisis .

Keeping this in mind we need we need to start thinking more on defning innovation and execution of the same.

More to come in my Next Blog … Happy Blogging !!!!!