Wednesday, June 1, 2016


Big Danny was on the front page of the Journal's business section today just as advertised.  The "most Powerful Man in Banking" was the title.  Ya gotta wonder.  Big Danny never spent a minute of his life working for or in a bank.  In fact, there is no secret as to the fact that taking his marching orders from Crazy Lizzy Warren he pretty much hates banks...well, not all banks, just the ones he doesn't like or who he thinks are too big.

How does he reach these conclusions?

"Nonaya business.  He's Big Danny Tarullo the chief of supervision for the Federal Reserve."

"Whoa!  How did he get that title?"

"Shutupayouface.  He's Big Danny."

"But isn't there a process where...

"Yeah, but he's Big Danny."

"So you mean he just assumed the position?"

"You might say that but it wouldn't be a healthy thing to do."

Danny was a law professor which means he has a fine legal and academic understanding of the operations of the Federal Reserve and of banking.  Which means he doesn't know a damn thing. And therein is the problem.   With the exception of Stanley Fisher there is no one...or very few our Federal Reserve system who knows the business of central banking and in the place which is the point of the spear for the business, the New York Fed, we are rapidly approaching the point where we must ask for the last person leaving to turn off the lights.  Tom Baxter is about to retire as General Counsel.   With his departure there is but Billy the Dud and only memories of what was one of the great financial institutions in the history of finance.

Tarullo and his ilk have no appreciation nor understanding of the business of central banks nor there function.  The present management is little better than a collection of social and political scientists who come to their jobs every days fully convinced that their purpose is to install their particular beliefs on a variety of issues and to try to figure out how best to use the institution to achieve those goals.  They are very smart and very good at so doing but along the way the very fabric of the business of finance in this country (and abroad if the truth be known) is being forever changed through crushing regulation which directs businesses in which a bank can participate and those in which they cannot by simply removing all profitability from the exercise.  As a result we find ourselves faced with "stress tests" supposedly designed to determine how an institution will react to a manufactured set of economic conditions.  We have another one coming in a month.  The last go-round cost the big institutions an estimated $500 million in order to prepare.  I wonder if that capital could have been put to better use.  At best they are an academic exercise created by academics leading to academic conclusions supposedly giving institutions an opportunity to plan for adverse times.  To once again quote Mike Tyson: "Everybody's got a plan until you get hit in the mouth."

Some things are quite clear, however.  Big Danny don't like no international stuff so he don't like Citigroup which if one gets down to it is the only remaining truly international financial entity in the United States.  Why doesn't he like it?  Simple.  He doesn't understand it.  Danny is a simple man or simple likes and dislikes.

Danny don't like complexity and he don't like big.  Why?  One person can't manage it.  Of course did he ever ask himself why must the management be left to one person?  Jamie Dimond knows damn well he can't manage all of J.P Morgan but he knows he has to be responsible for its management.  It is the responsibility that gets him the big bucks...and his choice of managers.  Big Danny doesn't understand that.  He never managed anything.

I think you can see where this is going.  The greatest threat to today's financial institutions is not internal; it is the very entities that are in place to keep them safe...their regulators.  The political influence and sheer incompetence in many cases on the part of the Tarullos of the world is what keeps me up at night.  Autocrats enraptured by their own sense of importance and emboldened by complete belief in their beliefs!  Many years ago whilst serving some time in London I became reasonably close to a very senior official at the Bank of England.  More than once had received a call beginning with, "Charlie, do come 'round this afternoon would you?  Something I want to talk to you about."  My friend knew damn well what it was about which he wished to talk but he never missed the opportunity to run it past a few practitioners he trusted just to be sure.  Same thing used to happen at the NY Fed.  Today?  I doubt it.   They were both very, very good.  But the Old Lady was special.  After five there was always a bottle of Bolly or a special single malt that would turn up.  Regulator?  What regulator?  And his picture never made the paper.

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