CONTINUATION AND EXPLArNATION

It wasn't an hour after I posted yesterday when I got a call from He Who Knows All Things.

"Better explain that better."

"Did I get it wrong?"

"I don't think so but I would bet that some of your readers don't know how something like this could happen or the real story behind the scenes in addition to what you laid out, naughty boy."

As usual he's right so with apologies is a bit more insight into the goings-on in today's regulating mess.

Citicorp has, on any one day, over 300 regulators inside of the institution.  Their job is, of course, to get a handle on the operations of the institution in regard to compliance and risk management among other thing.  I don't know how good they are but I suspect they are quite good as the staff of the New York Fed has always been first rate; it's only when one gets into the top brackets and the politics comes out do we have trouble.

You can bet the mortgage on the fact that the regs in NYC and Citicorp were pretty much on the same page.  There is a constant back and forth as to what the Fed wants to see both as a result and how it is achieved.  As I said yesterday, with so much at stake it is unimaginable that the CEO of the corporation would be off visiting clients half way around the world if he had been unsure of the outcome.  The regulators are practical guys; they know and understand the businesses and the "clients" vision of the same.

Danny Boy and his guys do not.  They understand Wells Fargo which takes deposits, makes loans and writes mortgages…all in the good ol' U.S. of A.  It is the simplest form of banking today if any of the business is simple.  And you know what?  In a sense J.P. Morgan is more like Wells than it is Citi as are most if not all of the other banks in the stress test.  So when Danny Boy and his quant guys write their programs, they are going to be a hell of a lot more accurate as applied to Wells than Citi.  And when your really don't understand the businesses you are evaluating…What's that you ask?  Was there an internal disagreement at the Fed?  Yep, and Danny Boy won, not because of right but because of might.  One size fits all apparently and to hell with anybody else.  We will hear more of this of course but for now if you think the supervision of financial institutions has improved, think again.

Tomorrow (perhaps) we will take a look at one of the subjects of last week's clam bake, to wit:  what have we learned in the past 30 years.  I think you will enjoy it.