Sunday, March 1, 2009

Shadow Banker Arthur Levitt Offers Half Moone Advice

Arthur Levitt, former SEC Chairman and Carlyle Group Senior Adviser, spoke at the Economics Club of Hampton Roads. He gave an hour long address at the Half Moone Cruise and Celebration Center. Highlights from the Virginia Pilot include:

1. Levitt blamed an array of players for the meltdown of financial markets, including politicians, regulators, lazy investors and those on Wall Street. Wall Street "used to be a place to build wealth for others," he said. "More recently, it became a place to take wealth from others."

2. Levitt was recently chosen to co-chair a panel that will recommend ways to improve regulation of U.S. financial markets. The Investors' Working Group, assembled by the Council of Institutional Investors and the CFA Institute Centre for Financial Market Integrity, is scheduled to issue its initial report by late spring. Solutions include stronger enforcement of existing laws rather than a lot of new rules. Another is better training for the SEC's enforcement personnel.

Funny, what about America's shadow banking system, private equity and hedge funds? What about vaporware financial products like credit coverage bets and securitizing anything that generates a fee? Wall Street badly wants to restart securitization.

Will the Carlyle Group's distressed asset fund be able to buy credit default swaps on affiliates nearing bankruptcy? That way they win, even while losing. Did they buy any CDS's on Hawaiian Telecom or Edscha as they approached bankruptcy? Are they playing such a hand with imploding affiliates, IMO Carwash and Freescale Semiconductor?

Arthur Levitt joined L.Paul Bremer in receiving an award foundered in irony. Levitt received the club's Economic Impact Award for his contributions to economic and financial policy. Now, his and boss David Rubenstein's job is to remake the global financial system, keeping private equity underwriter's preferred position. I smell a PEU.