Business writer extraordinaire Michael Lewis explains on Bloomberg:
Having not merely preserved but bolstered their place at the heart of capitalism -- with little banks failing everywhere, the big keep getting bigger and stronger -- the major Wall Street firms have experienced an epiphany about their relationship to wider society. They don't need to screw people!
Newly able to raise their prices, they want to return to serving their customers, rather than exploiting them. ... In a smaller and less competitive financial industry, it will pay to be the nice guy, and so Goldman Sachs now wants to play nice.
There's only one problem. Just like Lewis' own reaction to his hypothetical explanation of the situation, I don't believe it.
But it's definitely happening. Goldman has already decided to disband its prop trading unit, and that unit is being hungrily eyed by firms such as Avenue Capital and KKR
What's so confounding about it is that the banks had actually won the right to more or less keep some internal trading action via the ability to invest up to 3% of capital in internal hedge funds. They fought tooth and nail to get this concession, and now they all seem to be collectively throwing their hands up and surrendering their victory.
It's hard to beat Lewis' imagery on this strange situation. He writes:
To see Wall Street turn its back on money is as unsettling as watching a shark's fin veer away, and then sink from view. It leaves you wanting to know where the shark has gone, and why.
And it's similarly hard to argue with his conclusions. After dismissing the highly implausible possibility of the banks simply deciding that it's time to ditch the shark act and start looking out for its clients, Lewis suggests that the movement away from proprietary trading is likely a combination of the fact that prop trading desks were starting to face tougher conditions and the firms have realized that they can run similar activities -- and, more importantly, reap similar profits -- through other parts of the bank. And with regulators bearing down, prop trading, at least under that specific name, is simply becoming a hassle.
Sharks are revered as the frightening rulers of the ocean because of their deadly ruthlessness. In that way, Lewis' imagery is perfect when comparing bankers to the giant fish. The sharks haven't swum away to find a nice spot to peaceably munch on some seaweed. They're just out of sight for the moment, readying for the next swift, deadly attack.
Charlie Munger doesn't have great things to say about Wall Street. Of course, Charlie Munger has plenty to say on a lot of topics.
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