A Secretive Banking Elite Rules Trading in Derivatives

Did everyone catch Louise Story’s “A Secretive Banking Elite Rules Trading in Derivatives” in last weekend’s New York Times? Here’s the link, don’t miss it.

The author tells a tale of nine men, representatives of the big banks, who gather in midtown Manhattan every third Wednesday to guide and protect access to the profitable derivatives market. Story points out that Bank of New York Mellon, State Street Corporation, as well as smaller firms like MF Global and Newedge can’t get in and are miffed that they haven’t been invited in.

All very mysterious. The article was the talk of the town, or at least the street, all week. Tom Keene of Bloomberg Radio brought it up several times with guests each morning, asking them if they thought there was indeed a ‘cabal’ governing the derivatives market. Sometimes the Wall Street insiders laughed, claiming that it was not nearly so secretive or interesting.

Others thought that the article brought important light to the important issue of making fees and costs transparent in the complicated arena of credit default swaps and derivatives.

It should be noted, however, that the newspaper never said derivatives were evil, just that they are profitable and in fact highly desirable. Interestingly, many of the posted comments to the story were of the ‘derivatives are inherently evil’ persuasion.

One suspects Keene is right to portray this as no more of a ‘cabal’ or secret society than other groups who naturally seek to protect margins and profits any way they possibly can. Most of us would prefer not to ‘share’ costs and margins and there is nothing inherently immoral with wanting to protect advantage.

I think the real test is the meeting itself. If the next location features at least one hidden chamber, is communicated by covert carrier pigeons and written in a secret code, and  if the members are obliged to wear masks, use code names, and learn secret handshakes and rituals, then we can call it a cabal. Otherwise, perhaps not.

Also, am I alone in being relieved that former UK Prime Minister Gordon Brown is heading home this week after his book tour for Beyond the Crash; Overcoming the First Crisis of Globalization? He was on John Stewart’s The Daily Show early in the week and was positively and to my eye embarrassingly giddy to be there. By the time he hit Charlie Rose towards the end of the week he had calmed down, but I have to say I agree with Stewart’s comment on Brown later in the week that he seemed a little too eager to please and too implausibly enthusiastic. He certainly said little to make me want to read his book. His interviews seemed to place too much naïve hope in the implicit and inherent benefits of global free trade, but perhaps I am wrong, let me know if you disagree and I am missing something.

Perhaps if he had left his lapel microphone on as headed in the limo from one interview to the next and we were able to get his real and candid thoughts? That slip cost him sorely in the last election as he complained off camera but on microphone about his interview with a Rochdale constituent which he referred to as a ‘disaster’. It went straight from his lips to prime time news. That Gordon Brown seemed believable (if rude). If he had staged something similarly so candid and real here in the States he might have actually sold more books.