A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy.
“Walk across any of the trading floors — they are full of 29-year-old kids,” he said. “The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.”
Griffin’s worries over credit default swaps might put traders of those instruments on red alert; he advocates sensible solutions to reining in the risks inherent an a $50 trillion business. Griffin would like to see derivates and swaps traded on exchanges with clearing houses involved in monitoring the exposures. Griffin’s critics will argue he is just talking his book, but something cleary needs to be done.
“It’s not sexy, but it’s simple, it’s cost forward, its straightforward, and it’s what we should have done after 1998,” referring to the collapse of Long-Term Capital Management, a big hedge fund. He added that it “is a very sad commentary on where we are from a regulatory perspective” that such a move hasn’t happened already.
If enacted, Griffin’s proposals are sure to delay a profit recovery in the banks and brokers. But the more innovative firms are already finding a way to prosper; Griffin’s recent comments on how Goldman Sachs is as much a partner as a competitor might provide a template for the struggling brokers to follow:
Goldman Sachs Group (GS) is Citadel’s largest trading partner, is larded with “incredibly talented” people and is emerging as a partner, client and service provider that adds tremendous value to his firm’s trading strategies, Griffin told a Milken conference audience filled with investment banking honchos. “The future of finance,” he added, lies in those rare banks who understand that investment banking is not about accumulating top market share in every category but in making the revenue pie bigger.
“There are a handful of firms interested in being partners,” he said. “That’s not only the future, it’s here today.” Dow Jones
Yes, the future is here today, and Wall Street needs to adapt quickly. And keep an open mind; while Goldman and Citadel are as disliked as much as the New York Yankees in many parts of the country, rooting against them is not necessarily profitable or a good use of your time.
Wall Street faces an uphill climb back, and the firms prospering, like Citadel, deserve to float trial ballons, and help shape the future direction of our capital markets.
And if Griffin is talking his book so be it. To the victors go the spoils.
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A Wish List for Fixing Wall Street
New York Times
April 30th
Citadel’s Ken Griffin Drops IPO Hints At Milken Conference
Dow Jones
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. NP
Allowed traders to take too much risk? I take with that depiction, issue was risk management accepted the “wisdom” that it is close to riskless, hedged. That was the error. Levered up hedged models failed. How many directional players have been carried out? Although one can argue that given the mortgage exposure on multiple desks wall street was effectively long real estate. Still, that was not his contention.
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