GREED & fear CLSA Asia Pacific Markets Research

It has been a ridiculously long time coming. But President Barack Obama is finally reacting to
the catastrophic political damage caused by the perception that the primary achievement of his
administration thus far has been to bail out fat cats on Wall Street.

GREED & fear heard about the President’s pending speech late last night Asian time just before
sending out GREED & fear (Pro cyclical speed bumps, 21 January 2010). But the subsequent
announcement merits further comment. Obviously, the devil will be in the details and the
details are certainly not yet clear and will be the subject of much Congressional debate, not to
mention frantic lobbying. Still there is the sense that fundamental reform of the financial sector
is coming in the sense that real constraints will be put on the ability of banks taking federally
insured deposits to engage in trading activities; though a key issue will be whether trading will
be defined narrowly in the sense of purely proprietary trading or whether it will include taking
positions against clients in order to execute trades. But whatever the exact details famous
investment banks that obtained banking charters in the midst of the recent credit crisis story
are likely to want to shed them if they want to retain their present business model.

Still for GREED & fear the real point is less the details than the new political reality. This is that
a fundamental increase in regulation over finance in the West is coming despite the obvious
power and wealth of the finance lobby. If so, it will undermine the assumptions of the
consensus which had been assuming until yesterday that the 83-year-old Paul Volcker was too
old and anachronistic a figure to influence the debate. In this respect Obama has smartly, albeit
belatedly, sought out the advice of his one economic adviser with total credibility as a public
servant. Remember that Volcker, who is due to speak at CLSA’s AsiaUSA Forum in San
Francisco on 1-4 March, is chairman of the President’s Economic Recovery Advisory Board.
Meanwhile, if the President wants to maintain the political momentum he should now change
the rest of his economic team, all of whom are viewed as far too close to Wall Street.







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