• 2009 Capital Markets Summit: The US Chamber of Commerce

    By • Mar 11th, 2009 • Category: Pure Content, Where I've Been

    The US Chamber of Commerce put together a very ambitious agenda and stellar group of panelists in Washington DC on March 11, 2009. The conference, subtitled, “Restoring Confidence in the U.S. Capital Markets: From Main Street to Wall Street,” had several newsworthy moments and significant coverage by the media including several lead-in interviews on Bloomberg and live coverage of their keynote luncheon speaker, Jamie Dimon, CEO of JP Morgan Chase.

    The goal for the Chamber was to corner some of the speakers into signing, “A Call for Financial Services Regulatory Modernization.”  The signatories to this declaration, released at today’s summit, pledge their support for and urge the Obama-Biden administration and the 111th Congress to enact regulatory reform that embodies the following principles:

    • Establish Systemic Oversight
    • Promote Comprehensive and Sound Regulation
    • Enhance Transparency and Market Integrity
    • Provide Meaningful Investor and Consumer Protections
    • Promote Global Stability, Efficiency, and Growth
    • Maintain Innovation
    • Develop Sound Enforcement Mechanisms
    • Build Robust International Cooperation

    I was unable to attend in person.  Fortunately, photojournalist and friend Max Zeledon did. His report highlights Dimon’s speech and has a great album of photos to accompany his prose.

    The panel discussions were actually quite boring and often contradictory to what we’re hearing from both Congress and the White House. We know that trust has been “eroded” and we don’t need to be reminded about the “frozen” credit market as Tom Donohue did for twenty minutes. We get it! Former Secretary Snow was not particularly insightful either when he added “private capital will not enter this market until the toxic assets are cleared.” Really? I did like when he said the underpricing of risk was the chief cause of the crisis. However, the question many wanted to ask was how do you price risk appropriately? Who regulates this?

    Panel members also agreed that politics could not direct the allocation of capital, but try telling this to Congress. Senator Dodd himself opposed the idea of Congress setting the agenda of accounting standards because “It will comeback to bite you!.” He also insisted “short selling has a role and value in the markets.” But he also added “some ability to have a breaker system for regulators to use at critical moments is needed.”

    I Tweeted the sessions and also became a little bored towards the end.  I stayed until the panel with Ed Nusbaum, CEO of Grant Thornton, came up, but he had nothing new to say versus what I had heard in the morning on Bloomberg and I didn’t have any more to say either.

    Update:  Amid reports that the bankers have shamelessly started lobbying the PCAOB to force auditors to “lighten up” on them, I’m adding this report from BNA’s Malini Manickavasagam, also present at the hearings. She filed her report in their (subscription only) Daily Report for Executives today:

    Over the last several months, many have urged the SEC,FASB, and Congress to address the apparent problem of marking to market frozen assets. Statement of Financial Accounting Standards No. 157, Fair Value Measurements, requires companies to assign market prices to assets not actively traded, so that investors know the assets’ real, current worth. Implementing the standard has led companies to write down billions in mortgage-backed securities that are now frozen but may regain liquidity.

    In a statement announcing the House hearing (scheduled for today, Thursday March 12), Subcommittee Chairman Paul A. Kanjorski (D-Pa.) said he hoped that the hearing would bring “a constructive, thoughtful conversation… aimed at identifying fair-minded, incremental, and achievable fixes to this problem.” He also said the hearing would help pave a way “within the existing independent standard-setting structure” to provide investors with essential information “without continuing to impose undue burdens on financial institutions.”

    Preceding Senator Dodd’s speech, the Chamber’s President and Chief Executive Officer Thomas J. Donohue said fair value or mark-to-market accounting did not cause the crisis, but it is “needlessly exacerbating it.” FASB “could help” by quickly addressing the matter, rather than delaying while “losses mount.”

    Here are my Tweets, in reverse chronological order.

    Photo of Jamie Dimon Courtesy of Max Zeledon taken March 11, 2009

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    5 Responses »

    1. FM-your coverage of Chamber’s Cap Mkts Summit is excellent. You included a particularly significant comment by NYSE-Euronext Chairman Niederauer, that it’s become a trader’s market, not an investor’s market. This, together with his observation about the role of market psychology, has tremendous implications for markets generally, and mark-to-market in particular. I posted your tweet in the comments section of the FEI blog today, “Testimony Posted…” I thought it was so important.

    2. @Edith Orenstein Thanks Edith. I will write more after today’s hearings and after I have a chance to digest your report and the actual transcript.

      Today’s hearings should be very interesting. ;)

    3. Traders’ market, investors’ market, shmarket. Splitting the wrong hair. It’s a traders’ market when the investors leave, and the investors began leaving long before the assets were marked to frozen – no, investor-less – markets. Investors left much as they left in 1987 or 1998, in a “flight to quality” fueled by a risk aversion that was as deep as their yield greed before. The most troubled market (and the basis for trouble in CDO, ABCP, SIV etc.), the private MBS market, ballooned by low interest rates and then teaser rates in preposterous loan vehicles, relied for its value on the underlying housing market. Once that housing market stopped rising – in late 2005, 2006, depending what locality and what index you reference – the least committed (fraudulent, entirely dependent on repeated cash out refinancings to maintain life style/debt) began bailing. The investors who understood this problem began retreating as well. The investors who looked at yield and rating (in that order) – the CDOs, SIVs, etc. – kept on buying. It was only in 2007, as the mortgage banking units that made and lost money servicing (etc) the most credit-leveraged and untenable loans began to fail, that the broader market woke up. The plain fact is not that marking to market destroyed wealth that still exists if only the auditors would use the right model, but the wealth was artificial, it has begun to evaporate and will continue to evaporate. Until the decline in housing markets & now decline in employment and household incomes stops, prudent investors (which even the previously risk-loving have become) are unable to evaluate with any reliability expected returns on any of these “troubled,” “distressed,” “illiquid” assets. The risk premia therefore are very wide, the market values deservedly low. That is how market works. Anything else would be the emperor’s new clothes.

    4. […] I’m constantly amazed to find Grant Thornton’s CEO Ed Nusbaum acting as the designated spokesboy for the accounting industry all over the place. He probably drew […]

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