Great article in the Wall Street Journal today by Glenn Hubbard and Hal Scott. It talks about how business is uncertain now that Fin Reg is law. No secret that I think Fin Reg is the second worst bill passed by Obama, with Obamacare being the worst. Looking at the economic wasteland Obama is creating, I am beginning to think that O in Obama=0 or zero, nil, nada, O-fer, scratch.
Business is not going to commit capital until they see the results of all the loose regulatory ends of the bill. However, some firms on Wall Street will have an inside edge. Since there is a revolving door between Wall Street and Washington, they will have a big hand in writing the regulations. Already, Goldman is transitioning its prop trading desk from prop trading to “wealth managers”. They know full well how the regs will look, and are taking pre-emptive action to take advantage. Recall, Goldman converted itself into a bank when it made sense, then changed again a year later. No one can blame Goldman, they are in it to win and make money. The blame for all this uncertainty belongs in the office of Barney Frank and Chris Dodd.
Geithner said that they want to implement these regulations quickly. Speedy decisions will lead to bad regulation. It will make the bill worse. The unintended consequences could be worse than anything anyone imagined. Investment capital doesn’t have to be in the United States anymore. There are plenty of exchanges and foreign banks that would love to play with it. London, Hong Kong, Singapore, Rio, Shanghai and Mumbai are more than happy to take capital out of the US and put it to use somewhere else.
The macro level looks really bad. If you are a company, how do you invest? This magnifies an already pitiful employment situation. Companies might make very small investments, but I don’t see them making significant commitments to anything major in the US.
At a micro level, it’s like being a trader. Do you buy the market or sell? When you are truly uncertain, it’s best to put your hands in your pockets. Do some more research. Go on vacation. Take a long lunch. Do anything but commit capital to engage in a trade. Or, cut your size down to a level that won’t kill your trading account. Not as much money is made, but the risk is far less.
America is out to lunch for now.