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The Trade

A Test Where the Banks Had the Questions and the Answers

Later this month, the Federal Reserve is going to let banks know how they did on its most recent round of “stress tests.”

Credibility Shaken, Hedge Funds Are Punished by Investors

Now for a bit of good news: Rationality may be breaking out in the hedge fund world.

Investors are punishing funds that have engaged in questionable behavior and balking at ever-escalating fees. Regulators are showing uncharacteristic backbone, insisting that they will not merely fight the last war when it comes to new rules.

In Postcrisis Report, a Weak Light on Complex Transactions

The report from the Financial Crisis Inquiry Commission has been assailed as a confusing mishmash -- poorly organized, unclear about what's new and weakened by conclusions that are at once obvious and unsatisfying. The problems of the commission were evident from the start: its mandate was too broad, its timetable too short, its budget too small and its commissioners too partisan.

Those criticisms are true, but overdone.

Goldman’s Self-Help: Eat, Pay, Trade

Looking inward in the grand tradition of American self-improvement, the investment bank promises to be nicer and more transparent, but ignores the structural problems that helped ignite the financial crisis

Standard & Poor’s Triple A Ratings Collapse Again. The Question is Why?

Two weeks ago, Standard & Poor’s put out a press release: The credit rating agency warned it was poised to downgrade almost 1,200 complex mortgage securities.

So what? Isn’t that dog-bites-man at this point?

Where Are the Financial Crisis Prosecutions?

You may have noticed that prosecutors in this country are in something of a white-collar slump lately.

The stock options backdating prosecutions have largely been a bust, not because it wasn’t a true scandal. The Securities and Exchange Commission and the Justice Department investigated more than 100 companies. Over a hundred took accounting restatements. Yet only a handful of executives went to prison, with some high-profile cases fizzling out.

Trading for the Client? Or Winning on Its Own?

The regulatory overhaul of the financial system that passed last summer scored a big victory: It barred investment banks’ wagering with their own capital. Some cynics expect Wall Street will find a way around these rules. By "some," I conservatively estimate that to be 99 percent of people who don’t work on Wall Street, and 100 percent of those who do.

Yes, banks like Goldman Sachs, JPMorgan Chase and Morgan Stanley have been jettisoning hedge funds and other “proprietary traders” to comply with the new edict, called the Volcker rule.

But there isn’t a clear and bright line here. Defining proprietary trading is extremely difficult because it’s almost impossible to distinguish it from making markets. Goldman gets most of its profits from trading businesses, but says that the majority of such trading is for clients. Regulators are struggling to define this, and investment banks are pouring their lobbying muscle into educating them.

The Dukes of Moral Hazard: The Dangers of Quantitative Easing

Across the world, there are booms. Chinese Internet companies are flourishing. Energy companies are finding new sources of power. Commercial real estate is coming back.

Unfortunately, this isn’t happening in the real world, which is still crippled by sagging economies, but in the investing one.

Jesse Eisinger

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at .(JavaScript must be enabled to view this email address)