From the February 01, 2010 issue of Futures Magazine • Subscribe!

Tops & bottoms of 2009

Big Brother Alert

• Terra Nova Financial, a Chicago-based broker was fined $400,000 by the Financial Industry Regulatory Authority (Finra) for unauthorized payments to a client. Payment to hedge fund customers included covering the cost of visits to gentleman’s clubs. If they also treated regulators, at least we would know where Finra was when it wasn’t investigating Bernie Madoff.

•To curb Wall Street bonus excesses, the White House hired a “pay czar” to watch over this process, which prompted Wall Street to pay back the loans as fast as possible.

Stumble out of the gate

The new Obama administration offered promise in volatile times but some appointees were more of the same.

• Mary Schapiro faced tough questioning as new SEC chair as she served as CEO of the Financial Regulatory Authority since 2006 and previously was president of NASD, the main regulators of Mr. Madoff. She promised to “act like our hair is on fire.” She wouldn’t need to if she did a better job in the last decade.

• Treasury Secretary Tim Geithner was greeted with a U.S. dollar rally when his appointment was announced. But then he had to answer questions about why he skipped paying a previous tax bill and why, when he was head of the New York Fed, he didn’t ask AIG counterparties to take a haircut at the end of the year.

• CFTC Chairman Gary Gensler’s nomination was held up for months by Senators angry over his support for keeping OTC trading free from regulation. He promised to change and has, as he has been one of the biggest proponents of stronger OTC regulation. He also has listened to those who would blame futures speculators for the 2008 spike in crude oil and is prepared to place hard positions limits on the industry in 2010.

China is stuck with us

In February, a month after President Obama accused China of manipulating its currency to boost exports, Chinese banking official Luo Ping was quoted in the FT: “Once you start issuing $1-2 trillion…we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Off The Charts

• Electro shock therapy? Reuters reported that a new device, the Rationalizer, senses traders’ stress levels so they can call time out. The prototype created by Netherlands-based Philips Electronics and ABN AMRO allowed users to wear the “EmoBracelet,” which detects stress and makes a accompanying “EmoBowl” change color from yellow to red as stress levels rise.

• Shhh… Transparency is one of the basic tenets of capital markets. Publicly traded companies have a legal obligation to disclose material facts about the value of their company. Unless the Federal Reserve and Treasury Department muzzle them, that is. In April, the Wall Street Journal reported that Bank of America CEO Ken Lewis was prompted by Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson not to discuss the financial woes of Merrill Lynch as BofA negotiated its government-backed purchase of Merrill.

• Fog follies: In mid-December, President Obama held a summit on how the banking industry could help the ailing economy. But the CEOs from Goldman Sachs, Morgan Stanley and Citigroup failed to show up. Their excuse? Their flights were delayed due to foggy weather. Despite other available transportation options, including trains that run to and from New York and Washington, D.C. several times a day, execs chose instead to join the meeting via teleconference. Talk about “phoning it in.”

• Citi cancels jet order: In the midst of public outrage over banks receiving bailouts in one door while handing out bonuses from another, Citi, one of said banks, was ready to receive delivery of a new $50 million executive jet. The order was cancelled after pressure from the government and Citi executives had to resort to traveling on the old jet(s).

• Man sues BofA for $1,748 billion, trillion dollars: No this isn’t John Thain trying to get his bonus (we think, it could be an alias). The man, Dalton Chiscolm (yeah right) apparently was unhappy with his customer service. The figure written out would be 1, followed by 21 zeroes.

• Little help from above? FaithShares Trust launched three exchange-traded funds addressing the investment needs of Christian investors. They are the first ever Christian-based ETFs, according to FaithShares, though there are several Christian-based mutual funds. Each fund — FaithShares Catholic Value Fund (FCV), FaithShares Methodist Value Fund (FMV) and FaithShares Christian Values Fund (FOC) — will be tailored to each denomination’s teachings and include 100 stocks of large well-known companies, but exclude companies from specific industries considered to be objectionable industries by a specific denomination. FaithShares plans on adding a Baptist and Lutheran-based ETF. Sound like an interesting arbitrage opportunity.

• Et tu Barack? Past administration officials constantly responded to international concerns over the falling dollar with the trite comment, “We have a strong dollar policy,” despite policies, particularly on interest rates, that weakened the dollar. In November, Treasury Secretary Geithner continued the annoying tradition.

• A very good year: While oil speculators continued to be under siege in Washington, five of the world’s largest oil trading houses reaped bumper earnings, according to the FT. The group of five trades has close to 15% of the world’s crude and oil products output. Together they made about $4 billion.

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