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The question of adequate financial regulations

Former Barclays Chief Executive Bob Diamond leaves Portcullis House after appearing before the Treasury Select Committee on July 4, 2012 in London, England.

Jeremy Hobson: News this morning that Bob Diamond, the former head of Barclay's bank has given up $30 million in bonuses after resigning over that interest rate rigging scandal. And the scandal has brought up the issue -- yet again -- of whether current regulations on the financial industry are adequate.

And that's where we'll start with Juli Niemann, analyst at Smith Moore and Company in St. Louis. Good morning.

Juli Niemann: Good morning, Jeremy.

Hobson: Well Juli, what do you think is the lesson of this interest rate scandal?

Niemann: Probably the biggest thing is that we're trying to find something that nobody really understands how it works. -- top executives, CEOs, the SEC, everybody in the trading areas, Congress -- nobody knows and understands exactly how this is done. It's all the kids in the trading playpen who know how to do it. There are big bonuses; they get these big bonuses so they don't want to go somewhere else. All management knows is that we're making 35 percent on this kind of swap or these trades. And that's a huge profit margin -- great for the banks, but it always means the buyer's getting hosed.

Hobson: But of course, this new law -- the Dodd Frank financial reform law -- is going into effect slowly, and many businesses and financial firms are saying: this is going to make things even more complicated.

Niemann: Well, it's an attempt at getting some disclosure here; basically trying to qualify what is and what is not part of gambling. You know, you have to think of it this way: the bank is the utility, the trading operations and underwriting, and trading is a casino. You've got to separate the two out. They're not ready to do that yet, so instead they're going to have a huge number of new rules that probably even more people don't understand within the industry.

Hobson: Juli Niemann, analyst with Smith Moore and Company, thanks as always.

Niemann:  You bet.

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.

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