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Journey with DWM to
What's Next
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Some economists say "up" and some say "down". The truth is, no one knows the future. But affluent, enlightened investors recognize that DWM strategies perform in up markets and protect in down markets. Regardless of what the future holds, with DWM, savvy investors are ready for what's next. | |
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Financial Reform: Obama Signs Overhaul of Financial System |
 Last Wednesday, President Obama signed a sweeping expansion of federal financial regulation. This bill includes a major rewrite of rules touching every corner of finance, from ATM cards to Wall Street traders, in the biggest expansion of government power over banking and markets since the Depression.
Consumers should be pleased with the new Bureau of Consumer Financial Protection. Federal regulators have had the dual duties of protecting consumers and ensuring the safety and soundness of the nation's financial institutions. Consumer protection often took a back seat. Terry Connelly, dean of Golden Gate University's business school says, "They used to say you were more protected from sausages than mortgages at the federal level."
The BCRP will have the power to regulate a wide range of financial products and services, including credit counseling, payday loans, mortgages, credit cards and other bank products. And it is charged with financially educating consumers. Other regulators, such as the Federal Reserve, Office of Thrift Supervision and the Federal Trade Commission, will transfer some of their consumer protection duties to the BCFP. Initially, the annual budget for BCFP will be $450 million to $500 million per year.
Other key components of the new law have been designed to:
· Create the Financial Stability Oversight Council to monitor systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.
· End "Too Big to Fail" financial firms requiring huge taxpayer bailouts
· "Streamline" bank supervision to increase clarity and accountability
· Provide transparency and accountability for derivatives
· Require hedge funds to register with the SEC as investment advisers.
· Create a new Office of National Insurance to work within the Treasury Department and coordinate insurance issues.
· Create an Office of Credit Ratings at the SEC with its own compliance staff and authority to fine credit rating agencies.
· Provide shareholders with a say on pay and a non-binding vote on executive compensation.
· Strengthen regulations on the books by increasing investor protection and encouraging more whistleblowers by creating rewards up to 30% of funds recovered for information provided.
The 2,300 page bill will now be turned over to 10 regulatory agencies to write the new rules. This process will determine the precise contours of the new landscape and could take years. And, of course, lobbyists will be there step by step with the regulators, "helping" them with the details. We all know much more about the Washington lobbyists after the July 12th Time article "The Best Laws Money Can Buy."
Is it any wonder that Bloomberg reported on July 13th that in its national poll four out of five Americans doubt that the financial regulation bill will do what President Obama says it will: help avoid another crisis and make their finances safer. However, by a three-to-one margin, Americans have grown more favorable to stronger regulation rather than less. This apparent contradiction was explained by J. Ann Selzer, whose firm did the polling, "The mood of the American public is highly skeptical toward government and its ability to do right by the average person. So, while Americans see the need for more regulation they have little confidence the new bill will provide it. They feel like they have been played and they don't want to be fooled again." Time will tell whether we will receive real reform or not.
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Goldman Sachs Settlement: A New SEC Sheriff in Town |
On July 15th, two hours after the Senate passed the new financial reform legislation, Goldman Sachs and the SEC struck a deal; a $550 million settlement. GS decided to steer clear of a protracted and damaging trial by paying a $550 million penalty, the largest ever against a Wall Street firm. This settlement now means none of us will get to see the epic court battle that was looming between GS and the SEC over the Abacus mortgage deal that went sour.
Back in April, GS had called the SEC's case against it for defrauding investors "unfounded in law and fact". Now, with the settlement, many GS investors felt the company won on key points: the cost was only about two weeks of profit for GS, no management changes were required and apparently, the SEC won't be going after any other GS mortgage-linked deals.
But the GS settlement may be just the start of real changes on Wall Street. Particularly, now that the SEC has a new "Sheriff in Town". Robert Khuzami, chief enforcement officer for the SEC and a former in-house counsel at Deutsche Bank, is, according to the New York Times, "well-versed in the inner workings of Wall Street deal making." It was Mr. Khuzami and GS's general counsel that hammered out the deal.
At the SEC news conference announcing the GS settlement, Khuzami said he was sending a signal to entire industry. Here are his words:
"In agreeing to this settlement, we also took into account that Goldman is engaging in a broad-based self-assessment of their overall business practices that will increase transparency, evaluate and remediate conflicts, and take other steps that collectively will reduce the chances that investors in the future will be misled.
This resolution achieves the goal of accountability, punishment for past misconduct and prospective reforms that are the hallmark of a successful outcome.
Today's settlement is a stark reminder that there will be heavy price to be paid if firms violate the principles fundamental to our securities laws- full disclosure, honest treatment and fair dealing- and those principles do not change, even if the product is complex or the investor sophisticated.
For that reason, today's settlement sends a powerful message of deterrence and accountability."
Bloomberg reported that the settlement changes the vetting and approval process for the marketing of structured securities. "Those changes will probably lead to a new industry standard for disclosure in private sales of securities, even to the most sophisticated investors."
It sure sounds like we have a new sheriff in town. If so, it is possible that "business as usual" may change for GS and all of Wall Street. If so, the GS settlement may actually be a more important development than the Financial Reform Bill just signed into law.
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Technology: Robocars May Revolutionize Transportation in Future | |
We've all heard much about high-speed rail for the US, but in the next decade, the trains may get lapped by driverless cars.
President Obama's so-called high-speed rail plan mostly consists of moderate-speed trains running at top speeds of 90 to 110 miles per hour, speeds attained by many railroads in the 1930s, and a far cry from the 350 mile per hour trains currently in use in China and other countries. America's population distribution makes passenger trains far less effective than in Europe or Japan. Amtrak's high-speed Acela trains between Boston and Washington cover most of their operating costs, but this is one of the few routes that is not mired in red ink. Few Americans are prepared to get out of their cars for a train ride, except in highly populated urban areas.
Consider the robocar. In 1939, at the New York World's Fair, futurist Norman Bel Geddes provided a vision for the future: "Your grandchildren will snap across the entire continent in 24 hours on a new kind of highway and in a new kind of driverless car that is controlled by the push of a button." His science fiction is becoming reality; first the interstate highway system and now driverless cars.
Last week, a team of Italian engineers launched a modern version of Marco Polo's journey- an 8,000 mile, three-month road trip from Italy to China, not to find silk, but to test the limits of automotive technology. The remote controls for the robocars will be in Parma, Italy. The vehicles will brave the traffic of Moscow, the summer heat of Siberia and the bitter cold of the Gobi desert before the planned arrival in Shanghai at the end of October. Governments have yet to write rules of the road for these robocars, so the team has obtained prior permission from all countries along the route to carry out the experiment. In addition, they've placed a technician in the driver's seat, ready to assume control or slam a red shutdown button if necessary.
Driverless cars could render the hand-wringing over roads versus rail needless. Back in 1997, eight robocars in California successfully operated just one car length apart at 65 miles per hour. Volkswagen says enhanced GPS can keep moving vehicles within two centimeters of their desired location on streets and highways.
Robocars offer huge advantages over current autos. They can operate safely more closely together, potentially tripling highway output. They have a huge cost advantage over passenger rail; 25 cents per mile on autos, 60 cents per mile on Amtrak and 90 cents per mile on urban transit. No wonder 85% of all our passenger travel is by automobile. In addition, proponents say that driverless cars will be greener, first by significantly reducing congestion and eventually because vehicles will be lighter in weight due to reduced collision risks.
Finally, the driverless scenario relies on new technology, not old; and will be largely funded by users rather than tax dollars. As a result, driverless vehicles, including programmed tractors that plow and seed fields throughout the night, might be quite prevalent in the next decade, providing mobility to everyone, even those unable to pass a driver's test.
Now, if driverless cars are about to become a reality, can we be that far away from our personal family jet?
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World: The New "Country" of Facebook | |
Social Networking sites are growing quickly:
Facebook is growing so quickly, some feel it has formed its own Country. It may remind some Chicagoans of the Country of Streeter, the forerunner of Streeterville. Streeterville today is home to some of the most expensive real estate in Chicago, including Michigan Avenue's Magnificent Mile plus all land east of it. But, back at the end of the 19th century, it was the Country of Streeter.
Captain George Streeter was an entrepreneur who ran a ferry boat service from Chicago to Milwaukee. His claim was that as he was returning to port in Chicago during a storm in 1886 his boat hit a sandbar just east of Michigan Avenue (the then most eastern boundary of the city). He and his wife were stranded. No worries. Sand filled in and Streeter created his own island. He declared it the Country of Streeter, USA, an "island in Lake Michigan". By order of Cap'n Streeter, the country and residents were exempt from all federal and state taxes. It was a combination tax haven and off-shore casino; with gambling, alcohol and no taxes.
Streeter was brought to court in 1902 for land fraud. Then he was put in jail. And, ultimately, lost everything, when in 1918 the courts invalidated his claim of sovereignty. In the ensuing 90 years, Streeterville has been filled in and developed. Today there are hotels, restaurants, professional office centers, residential high rises, universities, medical facilities and cultural venues.
Now, due to social networking, according to the Economist, another country is forming. The Country of Facebook.
This is the same Facebook created in the Harvard dorms six years ago. The same one that reported last week that it now has 500 million members. This is the same Facebook whose CEO, 26 year old Mark Zuckerberg was contacted by David Cameron, Britain's prime minister, who wanted tips on how social networks can help governments.
Facebook seems like even less of a Country than Streeter. It has no land to defend, no police to enforce law and order and no subjects, bound by a bill of rights, obligations and cultural signals. But it does have many country-like features.
David Post, a law professor at Temple University points out "Facebook is a device that allows people to get together and control their own destiny, much like a nation-state." In centuries past, people looked up to kings and bishops, but in an age of mass literacy, online communities, according to legal scholar Lawrence Lessing, are transcending the limits of conventional states.
If Facebook were a physical nation today, it would be the third most populous on earth. And Mr. Zuckerberg is confident the Facebook nation will have over 1 billion "citizens" in a few years.
Facebook has attempted to guide the development of its online economy much the way governments do. Interestingly, just like many governments, some of Facebook's policies, including use of its own virtual currency, Facebook Credits, did not meet with universal approval. Yet, Facebook knows that it relies on the consent of those "ruled" and seeks advice from members on governance matters. Real governments can trump Facebook, by pulling the plug on the service. That is happening now in China and was cutoff in May in Pakistan.
Facebook's founders say their mission is to make the world more open and connected and bring the "global village" closer. Facebook may also impact how governments supply services and compete to provide them. And, certainly, there is the question about how social networks may change politics.
Mr. Zuckerberg has declared that "Facebook is a place where people can express their views and discuss things in an open way, as they can and do in many other places." He may not have a real territory, but just like Captain Streeter, he is determined to stand his ground.
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