On June 28, 2006, I spied an article in the print edition of the Wall Street Journal that prompted me to think, "Heh - I'll bet this article will come in handy at some point in the future."
But knowing that it was extremely unlikely that the article in question would be available online (given the subscription-only nature of the vast majority of the WSJ's content), I clipped it out and scanned it into my OCR software - on the hunch that the article would come in handy someday.
As it turned out, I was wrong about the article not being available online in the future.
But - unfortunately - I was right about it coming in handy.
Damn, sometimes I hate being right.
Here was the headline as it appeared in the Journal:
Wall Street Pushes for Fewer Market Masters
As Stocks Revive, Scandals Fade,
A Behind-the Scenes Meeting
Signals Effort to Reduce Policing
And guess who was the chief player behind this "effort to reduce policing"?
Between sessions at the World Economic Forum at Davos, New York Stock Exchange chief John Thain ran into Thomas Russo, vice chairman of Lehman Brothers Holdings Inc. Mr. Thain said he was concerned that big Wall Street firms like Lehman might try to delay a merger that would take the Big Board public, according to people familiar with the conversation.
In reply, Mr. Russo pressed a top priority of the Securities Industry Association, Wall Street's lobbying arm. He asked Mr. Thain for a commitment to combine some NYSE regulatory functions with another regulator, the National Association of Securities Dealers.
The Russo-SIA proposal would effectively reduce the number of national regulators overseeing and inspecting Wall Street brokerage firms from three to two, dramatically easing Wall Street's regulatory load.
Yeah - "dramatically easing Wall Street's regulatory load." That's been the leitmotif of Thomas Russo's tenure at Lehman Brothers for at least the past decade.
And now Russo - and the entire world - are reaping the whirlwind of his work and that of others of his pseudo-"free-market" ilk.
Flash back almost 10 years: In April 1999 - under the Clinton administraton - Wall Street, to much fanfare, announced that it would begin "policing itself":
With the blessing of the Federal Government, some of the world's largest financial institutions reached an agreement today to try to set their own industrywide standards in the huge and volatile market of the complex securities known as derivatives.
[snip]
Thomas A. Russo, an authority on derivatives regulation and managing director at Lehman Brothers, one of the companies serving on the group, said the formation of the group ''is highly significant and a credit to the Government regulators for encouraging a private initiative to have global best practices in the risk-management area.''
Not everyone at the time was so sanguine about the prospects for a self-policing voluntary fox watchdog:
But some analysts disagreed and were either critical of the effort or skeptical of what it would ultimately achieve.
''I think it's the fox guarding the henhouse,'' said Charles Peabody, a banking analyst with Mitchell Securities Inc. in New York. ''There's an inherent conflict because you won't police something too carefully if you're making a lot of money on it. That was the lesson of Long-Term Capital [a hedge fund whose spectacular failure in 1998 rocked the world of finance], and that's why you need an independent outside regulator.''
Here's Russo at the World Economic Forum in Davos last year, making us all feel better:
``There's always going to be problems,'' Lehman Brothers Holdings Inc. Vice Chairman Thomas Russo said in an interview yesterday. ``But I think you have very sophisticated people in credit, very sophisticated people in risk management.''
Verrry sophisticated.
At the same conference, Russo once again whined about "over-regulation":
But of the range of problems facing Boards across the world, overregulation was the most commonly cited as causing concern. A third of executives were "extremely concerned" with a further 40% "somewhat concerned" . . .
Thomas Russo, vice-chairman of Lehman Brothers, is the latest to add to the chorus of concerned voices claimed [sic] at Davos that the trend "probably cannot be reversed". Mr Russo did assert that the exodus could be stabilised through regulatory reform, the Financial Times reports.
More recently, last April the Bush administration, in a characteristic maneuver, used the credit crunch as pretext to "streamline" the regulatory system. But it was more of the Shock Doctrine at work, and most sane observers saw it for what it was:
It may sound like a tough new regime but consumers' champions are far from convinced, citing [Treasury Secretary] Paulson's record of favouring a light regulatory touch.
Barbara Roper, director of investor protection at the Consumer Federation of America, pointed out that the Fed would only be allowed to send so-called financial Swat teams to examine firms' accounts if it felt there was a risk to the entire financial system - in other words, when problems are already acute.
"This is a crisis management approach which is not conducive to market stability," she said. "If you look at the current crisis, the Fed's record on recognising risk in advance is remarkably poor."
Some people, though, looooved Paulson's idea. Guess who?
In spite of the sharper teeth promised in the new regime, big banks seem blithely unconcerned. Thomas Russo, chief legal officer of Lehman Brothers, told the Wall Street Journal: "Anything that moves the current fragmented regulatory system forward to a more coordinated structure is good."
Of course, when it comes to taking government money, "pure" "laissez-faire" capitalists usually sing a different tune. In February, Russo had his hand out and his Sad Clown face on:
``The direction we are heading in isn't a good one,'' Russo said in an interview. ``We need significant fiscal and monetary intervention.''
(Heh - come to think of it, Russo might actually know a little something about heading in a bad direction - he represented Exxon Valdez Capt. Joseph Hazelwood.)
The same article goes on to drily marvel at the amazing transformation wrought by sheer selfish panic:
The worst drop in new home sales on record has turned financial leaders into champions of big government with everyone from Russo to executives at Citigroup Inc. and JPMorgan Chase & Co. supporting public measures to keep the housing market from sinking the economy. It's a change from Wall Street's usual stance that markets work best without government interference.
``Sentiment can change when there's money on the line, even in an industry that up to now has been doctrinally opposed to government having a role in the markets,'' said Thomas Schelling, a Nobel laureate in economics who taught at Harvard University for 30 years.
Ya don't say, doc.
Rupert Murdoch's The New York Sun, in an April 2005 article, spoke glowingly of Russo's efforts to "do the right thing":
"The only way to regain investors' trust is to create a culture of doing the right thing," Mr. Russo said. "I always say to my colleagues, 'If it feels wrong, just don't do it.' You cannot compromise your integrity. Everyone in financial services always needs to keep in mind that, first and foremost, customers must be served to the best of our ability. I cannot emphasize enough the importance of doing the right thing."
[snip]
Mr. Russo's emphasis on "doing the right thing," and his probity, has acquired an almost mythic dimension in the financial-services industry. [Diarist's note: "mythic" is right.] Some 84 million Americans have invested more than $14 trillion in the equities markets in the United States; more than 3.2 billion shares are typically traded on the New York Stock Exchange and Nasdaq every day.
That emphasis on morality is transmitted by Mr. Russo not only to his associates at Lehman (which he joined in January 1993). It's a message that he conveys to hundreds of other professionals, students, and young people with whom he comes into contact each year . . .
Gaaackkkk
Hmm - in light of that little market correction that's taken place in the last day or so, I wonder whether the Bond Market Association will want Mr. Russo to give back the Chairmen's Achievement Award they gave him in 2005:
"During his years of involvement with the Association, Tom has been at the eye of the storm in helping firms maneuver through many issues affecting not only legal and financial liability, but in managing reputation risk," said Micah Green, president of The Bond Market Association. "Presenting Tom this award recognizes his extraordinary leadership and his significant contribution to the promotion of integrity in the capital markets."
Bwahahahahaha!!! "Promotion of integrity in the capital markets" - !!!
Yeah, um -
no.
Oh - and let's not even get started on Jeb Bush's involvement with Lehman Brothers. Let's not talk about how Lehman Brothers sold $900 million in bad paper to the state of Florida on Jeb's watch (he was one of three members of the State Board of Administration who OK'd the sale); sevn months after Jeb left the governor's mansion in January 2007, Lehman Brothers hired him as a consultant.
But I'm sure it was nothing.