Global Crisis/Innovation Blog

Secret Bankers’ Meeting:  Is This Restraint of Trade or What?

By Shlomo Maital

   Take senior business leaders from nine top companies in a vital industry.

    Arrange for them to meet on the third Wednesday of every month in New York.

    Purpose of the meeting: Protect their monopoly on an enormously profitable product.

    Secrecy:  “the details of the meeting and identities of the participants have been strictly confidential”.

    Question:  Does this qualify for breaking the law, under America’s anti-trust legislation, or what?

     In her front-page exposé in the Global New York Times “Secret group keeps grip on trading derivatives” [Monday Dec. 13 2010], Louise Story reveals how top global banks “fought to block other banks from entering the market [for derivatives], and are also trying to thwart efforts to make full information on prices and fees freely available.

     Let me get this straight. The huge, unregulated global derivatives market, including CDS’s (credit default swaps, that destroyed AIG), created by the huge banks, almost destroyed the global economy during 2007-9.  The same people who brought you the Global Crisis Act One are now conspiring in secret to recreate it and keep it alive – the very assets that caused ordinary working people all over the world enormous grief and job loss. 

      Why are they doing this?  Apparently, according to Story, because the derivatives market is hugely profitable, precisely because it is secret, unregulated, and no-one knows for sure how much the banks are charging legitimate companies for the vital hedging activities that derivatives permit. 

      How do we know it is enormously profitable?  Checked the banks’ P&L statements lately?  Wondered where all that profit is coming from, in a weak economy, with limited bank lending and borrowing?  Two sources:  Derivatives, and speculative trading. 

      The global banks failed to truly destroy global capital markets in their first try.

      Perhaps this time, unless they are brought under control, they will succeed.

  For the record, the bankers who meet secretly are: Thomas J. Benison, JP Morgan Chase; James Hill, Morgan Stanley; Sthanassios Diplas, Deutsche Bank; Paul Hamill, UBS; Paul Mitrokostas, Barclays; Andy Hubbard, Credit Suisse; Oliver Frankel, Goldman Sachs; Ali Balali, Bank of America; Biswarup Chatterjee, Citigroup.  Note that it was JP Morgan who invented credit default swaps in the first place.

     Ostensibly they meet to manage a “clearing house” for derivatives. In practice, they are effective in keeping out newcomers, including respected banks including Bank of New York-Mellon Clearing.

    “Fundamentally the banks are not good at self-regulation”, said a former Federal Reserve regulator Theo Lubke who oversaw derivatives review until last autumn.

     Here, we have the hands-down winner for Understatement of the Year!