Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Dark Pools of Capital Should Be Closed

Stock-Markets / Market Manipulation Sep 18, 2013 - 06:46 PM GMT

By: Bloomberg

Stock-Markets

John Thain--chairman and CEO of CIT Group, former CEO of Merrill Lynch and former CEO of NYSE--sat down for a wide-ranging interview with Bloomberg Television's Erik Schatzker and Stephanie Ruhle on "Market Makers" yesterday. Thain said that there is too much fragmentation and insufficient transparency in the stock market and that dark pools should be eliminated.

Thain went on to speak about bank compensation, saying that pay and talent can emphasize risk management and that "the problem is bonus is a bad word these days."


Thain on why he believes a 2008-style crisis could "absolutely" happen again:

"Well if you look at hundreds of years of markets, there have always been periods of time when you get over-exuberance, you get over-leverage. You get bubbles of some type, and then those bubbles burst. And there's nothing that would lead you to believe that that can't happen again. There's a great book written by Kindleberger on manias, panics and crashes, and it chronicles crashes and manias and panics over a couple hundred years. And it's just - it's the type of things that markets are susceptible to."

"We're right now in a post-bubble period. And the post-bubble period tends to be safer. Leverage is lower. The lending environment is more conservative. And we're seeing economic growth but weak economic growth. And so you don't see excesses right now in the system, but over time as people get more confident, and in particular as money remains very, very cheap, there is certainly a risk you get another form of a bubble."

On the London whale and whether regulators are really equipped to regulate the big banks:

"Well the London whale was a very different thing. It wasn't a loan. It wasn't lending. So the very complicated financial institutions when they're trading in very complicated instruments, which those were, that's a much more difficult question for the regulators. In terms of pure lending, they can get their handle on - on loans to leveraged institutions."

On whether those in risk management get paid enough or are respected enough that they can actually be influential:

"So I think this is a really good question, and it depends a lot on the financial institution. As you know, one of the jobs I had in the past was at Goldman Sachs. I was the CFO, and all of the risk management reported to me. Goldman had a unique philosophy of emphasizing risk management just as importantly as the risk takers...And so if you emphasize it correctly, if you take the most talented people and if you pay them, you can make risk management just as important as risk taking."

On Wall Street compensation:

"The problem is bonus is a bad word these days. And so people don't like the concept of bonuses. So think about it differently. Think about it as variable compensation. It has to be better to have variable compensation so that you can adjust compensation for the performance of the person, for the performance of the business, for the performance of the company. Because if you just had fixed compensation, which you could do, you could just pay people fixed amounts, but then you don't have the flexibility that the variable compensation gives you."

On whether anyone actually institutes clawbacks in a real way:

"So JPMorgan is the perfect example. They are in fact, to my understanding based on what I read in the press, clawing back money from the traders who lost that money. So they are in fact going to do that, and that's a good thing."

"So first of all, if you use equity as a substantial portion of people's compensation, you do tie them to the shareholders. And so if they cause big losses or cause the failure of an institution, they will suffer along with their shareholders. That's a different question when you get to the taxpayers and should the taxpayers be supporting these financial institutions. But from a shareholder point of view, if you use a lot of equity, you do in fact line up your employees. And if you tie it to long-term performance, along with clawbacks, you do in fact get better alignment."

On how he would fix the stock market:

"The biggest problem is the fragmentation. So you can trade stocks in 50 different places. There's no transparency in most of those places. That's not good for the market. That's not good for retail investors....One of the things you could do though is force transparency. So you have to have much clearer pricing and so you can see the..."

On whether he would eliminate dark pools:

"I would...I think that would go a long way. And then allowing stocks to trade in their primary market and have that primary market control when they trade. So for instance, part of the problem has been if you have a stoppage on the New York Stock Exchange, at least historically that didn't necessarily stop trading other places. And that causes a lot of volatility."

On what the NYSE's value is:

"Well, it's a number of things. First of all, it is a great brand, and it's also a symbol of America's marketplace. It's a listing venue where the most prestigious companies in the world are listed there."

On whether he has more faith in the futures market than in the cash equities market:

"No, it's not a question of faith. It's a question of the profitability model of the marketplaces. So as I said you can only trade futures in one place. You can't trade it in 50 places. The value of the New York Stock Exchange, and you see this in whenever there's something unusual. So opens, closes, some unusual event or somebody makes a mistake. The fact is a person can catch a mistake that sometimes the computers don't."

On whether he sees Federal Reserve policy as a big risk:

"Well I think it's a risk. It's not such a big risk right at the moment because, as I said, leverage is still relatively low and the lending standard are still relatively good. And so you haven't really seen the erosion in standards or quality, and you haven't seen leverage go up that much, but that's certainly a risk as people push out on the - on the curve to try to get more yield."

"I don't think it's the same as it was pre-crisis. So I don't think you're seeing as much leverage as in 2007. I don't think you're seeing as risky deals, but it is tending that way particularly on bigger deals, much less so in the middle market."

On what kind of impact the Fed taper will have on middle markets:

"So I think that the market is over-estimating the impact of the taper. We know that the Fed's been buying these securities. We know that they've been artificially pushing down long-term interest rates. That's got to change. It can't last forever. The market is already anticipating the reduction in the taper. Long-term rates are already higher. It's the short-term rates that are going to stay low, and that's what really drives the economy."

On whether Fed stimulus is addictive:

"I don't think so. I think that the Fed will simply slow down their buying. As I said, long-term rates already are anticipating it. They'll go up. The curve will get steeper...I think the market will be fine without it."

bloomberg.com

Copyright © 2013 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Bloomberg Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in