Posts filed under “Regulation”

Too Big To Succeed . . .

If they are too big to fail, make them smaller.”

-Nixon Treasury Secretary George Shultz about Fannie Mae and Freddie Mac


The operative expression about many of the bailouts we have seen — AIG, JP Morgan (via Bear Stearns), Goldman Sachs, Fannie/Freddie and of course Citibank — is “Too Big To Fail.”

Perhaps the better expression is “Too Big to Succeed.”

The idea of a massive, one stop financial supermarket is now under fire. Of course, the idea of ANY massive conglomerate has for the most part, been discredited. Unsuccessful monsters are usually the result of huge M&A deals, disparate business lines, frictional corporate cultures. Think AOL-TIme Warner, Citi-Travelers, Tyco, etc. Oracle has been one notable exception to this, but that is because they have mostly bought firms started by former employees, keeping the family relationship.

The most successful growth by acquisition strategies tend to be where a bigger company absorbs mostly smaller firms. Cisco and GE are the masters of this slow, small acquisition to round out product lines and technologies. They don’t disrupt the corporate culture, the acquired targets are thrilled for the windfall, the integration tends to go much more smoothly.

Indeed, when it comes to conglomerates, we tend to see a two-part cycle. During the first part, acquisitions, mergers, big combinations are all the rage. Its a giant ego stroke for the CEOs, and it generates lots of fees for the iBankers. The second half of the equation comes when the awful handiwork of the M&A binge needs to be unassembled. That generates criticism of the CEOs, and lots of fees for the iBankers.

With the components of CitiGroup being taken apart and returned to their original boxes, this is merely another typical cycle playing out. Where it might take an interesting turn in the near future is the recognition that these firms are too unwieldy to run, too complicated to manage risk, too big to succeed. That gives impetus to discouraging these mergers, mega banks, and loss of competition. Are shareholders, the economy, and the taxpayers better off with just three mega-banking centers? Or, are we all better served with dozens of mid-size and large banks, versus only a few behemoths?

I am in the camp that finds most of these giant mergers do not work very well. Just about everyone — excepting the CEOs and iBankers — fare better with more banks of a size below ginormous.

Over the past 10 years, Shareholders have voted against the mega-banking centers. The question for the next 10 years will be how the politicos and regulators, especially the Fed and FDIC — vote on the matter.


Pandit Dismantles Weill Empire to Salvage Citigroup
Bradley Keoun and Lisa Kassenaar
Bloomberg, Jan. 14 2009

Citigroup Ready to Shrink Itself by a Third
WSJ, JANUARY 14, 2009

Citigroup Plans to Split Itself Up, Taking Apart the Financial Supermarket
NYT, January 13, 2009

Category: Bailouts, Corporate Management, Credit, M&A, Regulation

From Washington to Wall Street

What caused the financial turmoil of the past year? MarketWatch’s David Weidner lays some of the blame on the relationship between government officials and Wall Street.


Category: Bailouts, Corporate Management, Regulation, Video

The Madoff Whistleblower

Fascinating piece you may have overlooked this week in the Boston Globe on Harry Markopolos, the author of the detailed November 2005 memo to the SEC, identifying 29 red flags about Madoff and concluding he was a fraud. Excerpt: “A month ago, Harry Markopolos was an accountant unknown outside Boston’s financial community. Now the slight,…Read More

Category: Investing, Legal, Regulation

$700 Billion Dollar Attaboy

Today’s must read MSM piece is a brutal Bloomberg column, delineating why the Bailouts have been such a sweet deal for the banks. Despite the gross incompetence and sheer recklessness of Wall Street and the Financial sector, they were handed massive amounts of money with little in the way of returns to the taxpayer, no…Read More

Category: Bailouts, Corporate Management, Regulation

How Long til Madoff Losses Are Recovered ?

Earlier today, we looked at the NYT interactive graphic that calculates how long it will take to return to breakeven for typical portfolio losses. But what if you were one of 8000 Madoff investors, and your portfolio is now worth zero? For starters, you should get $500k from SIPIC. Then, there is the $830 million…Read More

Category: Investing, Legal, Markets, Regulation

Inside Look: Madoff Mayhem

Analysis and Discussion with University of Rochester President Joel Seligman, Also an SEC Historian

January 03, 2009

Featuring Interview with Former SEC Official Jacob Frenkel

January 02, 2009

Category: Legal, Regulation, Video

How to Repair a Broken Financial World

Here is another excerpt — part II — of the all consuming OpEd of the Sunday New York Times by Michael Lewis and David Einhorn: Excerpt: When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole…Read More

Category: Bailouts, Credit, Derivatives, Legal, Markets, Really, really bad calls, Regulation

The End of the Financial World As We Know It (and I feel fine)

The entire OpEd section of the Sunday New York Times has been taken over by an article jointly written by Michael Lewis and David Einhorn, titled The End of the Financial World As We Know It. Its this morning’s must read piece . . . Excerpt: “OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required…Read More

Category: Bailouts, Credit, Derivatives, Legal, Really, really bad calls, Regulation

Looking Ahead: Madoff, Macworld, CES

The first full week of 2009 will be a busy one in the world of business and financial news, beginning with a House hearing into the alleged Bernard Madoff ponzi scheme and ending with the unemployment report. Stacey Delo reports.


Category: Markets, Regulation, Video

AIG’s Financial Products Division

I’m fascinated by this huge article in the Washington Post called The Beautiful Machine. Its about AIG’s Financial Products divisions, a hugely profitable operation specializing in derivatives, with roots in Drexel Burnham, that traces its AIG affiliation all the back to 1987. Its the first of three parts, and I’ll pull excerpts from each. Here’s…Read More

Category: Bailouts, Corporate Management, Derivatives, Regulation