Technology & Finance

Thursday, June 17, 2010

Re-Run of the Thirties in Conventional Economic Wisdom?

The most interesting decisions around the world today are in finance and regulation. The countries which get the issues right are going to become world leaders. Countries which let the finance industry operate as a casino subject to state rescue in times of trouble, or encourage finance as an end in itself—generating tax revenues but not supporting a country’s productivity, will pay a high price.

Robert Skidelsky, biographer of John Maynard Keynes, raises an even more fundamental issue in the FT --
“Who governs – government or financial markets?” No clear answer has yet been given, but the question may well define the political battleground for the next five years, he writes.

His latest book, “Keynes, The Return of the Master” is a stimulating recounting of the battles over this topic in the thirties.

The conventional wisdom—a term from another economist—John Kenneth Galbraith—is running strong these days. Families have to balance their budgets, so must governments. Keynes took a more sophisticated view and pointed to the harm caused by cutting deficits.

“The international financial crisis caused by the collapse of the Austrian Credit-Anstalt bank in July 1931 brought huge pressure on the government to act on the May Report. In a notable display of patriotic fervour, the financial and political establishment united to demand cuts in unemployment benefits to “save the pound”.
“Keynes was one of the very few who stood out against the herd. Of the May Report’s authors, he wrote: “I suppose that they are such very plain men that the advantages of not spending money seem obvious to them.” They had ignored the fact that their proposed cuts would add 250,000-400,000 to the unemployed and diminish tax receipts.”

In both the U.S. and the UK, the economy didn’t recover until World War II; for some reason war seems to be the only occasion when conservatives approve of deficits.

Friday, June 11, 2010

BP and Goldman -- Greed as a common factor -- William Cohan

William Cohan sounds almost old fashioned in his op-ed piece in The Times, and then you realize how old-fashioned it is to talk morals in business.

“BP made $16.7 billion; ExxonMobil made $19.3 billion (Goldman made $13.4 billion). And that’s what mattered most, right? But thanks to BP’s extraordinary level of incompetence — and an apparent failure to anticipate or plan for a well blowout — the American people now have been handed not only the senseless deaths of 11 men working on the BP rig but also the worst environmental disaster in our nation’s history. It is both heartbreaking and sickening.”

The corporate structure, and the nature of global business, remove executives from the results of their work. BP, and some of the British press, are annoyed that American politicians and publications refer to the company by its old name, British Petroleum. And perhaps it wouldn’t have acted any differently drilling in the North Sea, closer to home. Look at the West Virginia coal mining disaster—the man in charge of the mine was active, very active, in the state, including funding the election of a judge who would be favorable to him.

Would Goldman bankers have been less enthusiastic pushing toxic investments if they had to face the buyers at a local restaurant or health club? Maybe. Maybe not.

“But the corporate structure these days rewards bad behavior. The problem is that the corporate veil protects the decision makers from the consequences of their decisions and, accordingly, they are encouraged to take asymmetrical risks — huge paydays for them if everything works out; huge consequences for us if they don’t.”

Cohan quotes Senator Christopher Dodd orrectly said in April 2008, during the first Senate hearing about the unfolding financial crisis, “We’ve socialized risk and we’ve privatized reward.”

But that’s hardly new. John Kenneth Galbraith was saying the nearly same thing at least 20 years ago—privatizing the gains and socializing the losses. The environmental movement was partly built on trying to stop this among manufacturers and refiners. (Forcing BP to pay the full cost of its drilling disaster—into the billions—would be a nice start in correcting this situation.)

The current financial reform legislation doesn’t address this adequately, says Cohan.

“Nowhere in the approximately 1,500 pages of the proposed bill is there anything about making Wall Street executives financially and legally liable for their decisions, as they once were when Wall Street was a series of private partnerships and a partner’s entire net worth was on the line every day. Talk about accountability!”

Perhaps it is time to take on the issues of corporate structure, revise the treatment of corporations as persons, which the Supreme Court relied on to overturn legislation restricting their political donations. Time to think big?

Thursday, June 03, 2010

Wall Street Systems in Second Major Acquisition of 2010

Wall Street Systems (Wallstreet), the global provider of treasury, trading and settlement solutions and services, has acquired City Financials, the corporate treasury specialist used by over 50 of the largest companies in the world. This acquisition further strengthens Wallstreet’s market leadership in providing solutions to the most sophisticated and complex organizations as treasury becomes more strategic and global. Better management of cash, liquidity and risk are high on the agenda of corporate boardrooms.

Wallstreet will integrate City Financials’ corporate treasury business into its existing portfolio of treasury assets.  The acquired software will sit between Wallstreet Treasury, which caters to the needs of mid-tier corporations, and Wallstreet Suite, which is favoured by Global 200 corporations and central banks. City Financials will be offered as installed software at the client’s site or as software-as-a-service (SaaS). 

The announcement follows last month’s acquisition of electronic bank account management specialist Speranza.  Paul Mahady, President of Market Advisory Services (MAS), was a strategic advisor to Wall Street Systems on its acquisition of City Financials.

Larry Ng, Managing Director, Corporate Development, Wall Street Systems commented, “City Financials is a great fit for Wallstreet. We now have a full range of the best treasury solutions and services in the marketplace. The economic turmoil has clearly demonstrated the vital importance of Treasury. Companies are demanding better access and control of their cash and liquidity. We are committed to helping our clients meet these new challenges for the long term by investing across all areas for the purpose of their benefit. We see our clients as partners, and therefore our success is tied to their success.”

§ Syndicate

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