Mystery of Disappearing Proprietary Traders: Michael Lewis
By Michael Lewis writing at Bloomberg
In the run-up to the vote on the financial overhaul bill, the big Wall Street banks squashed an attempt by Senator Carl Levin to pass a simple ban on any form of proprietary trading.
A Senate staffer close to the process told me the amendment was one of Wall Street’s highest priorities, spreading money around to exert as much pressure as possible.
It worked: Levin’s amendment never reached the Senate floor for a vote. The final version of the bill restricts proprietary trading but allows big Wall Street firms to invest as much as 3 percent of their capital in their own internal hedge funds. How exactly the new rules are enforced is left to regulators inside the Federal Reserve, but it’s not hard to see how a wholly owned hedge fund might become a proprietary trading group, with a different name.
The 3 percent loophole amounted to an invitation for the big banks to keep on doing at least some of what they had been doing — which is why Levin felt compelled to remove it, and the banks fought so hard to keep it.
Yet in just the past few weeks news has leaked that Morgan Stanley, JPMorgan and Goldman Sachs all intend either to close their proprietary trading units or to sell their interests in the hedge funds they control.
Obviously, something is wrong with this picture. Why fight for a right, and win, only to proceed as if you have lost? Why take prisoners only to surrender to them? Having preserved their loophole the big American banks now appear to be freely abandoning any attempt to exploit it. (Credit Suisse, on the other hand, just bought a stake in a hedge fund.)
Shark Watch
To see Wall Street turn its back on money is as unsettling as watching a shark’s fin veer away, and then sink from view. It leaves you wanting to know where the shark has gone, and why.
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