Michael Hirsh

Stories by Michael Hirsh

  • Derivatives Regulation Has Loopholes

    Wall Street's biggest banks aren't just back to handing out fat bonuses. They're also engaged in a stealth lobbying effort to keep one of their main sources of profits—derivatives—free of government control. These are the unregulated financial instruments, like credit default swaps, that helped cause the crash. To take the heat off itself, the banking industry has stood aside as a newly formed group, the Coalition for Derivatives End-Users, fights efforts to curb the use of exotic securities. The group includes Wall Street's biggest corporate customers, from Apple to Whirlpool, organized by the Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable. The lobbying met with some success last week, finding support among Wall Street–friendly "new Dems." The House Financial Services Committee passed a bill that its chairman, Rep. Barney Frank, said would force "large numbers" of derivatives trades to be done on open and regulated exchanges. But critics...
  • A Russian Stars in Geneva

    Much was made of the meeting between U.S. diplomat Bill Burns and Iran’s nuclear negotiator, Saeed Jalili, in Geneva on Thursday. The 45-minute one-on-one was a breakthrough for the Obama administration, which has been trying to “engage” with Tehran for nine months. But perhaps the bigger star of the nuclear talks was Sergei Ryabkov, the Russian deputy foreign minister who has not been a big player until now, according to a European participant....
  • Don't Dump on the Hedge Funds

    Hedge funds took the blame for much of last year's financial havoc, but the fact is that they have played a much more benign role than is commonly thought. Sure, plenty of funds went under with the market plunge: a record 1,471 in 2008 out of a total of 6,845, according to the Chicago tracking firm Hedge Fund Research. But the government didn't bail out a single one. That's the way capitalism is supposed to work: incompetents go out of business, smart guys clean up. And overall, the hedge-fund industry has shown remarkable resiliency, turning in a gain of more than 12 percent for the first seven months of 2009. The firms that caused most of the trouble on Wall Street were not hedge funds but big investment banks and insurance companies trying to act like hedge funds. They did a lot of risky proprietary trading with other people's money, and they failed. "The hedge-fund industry has frankly acquitted itself fairly well," says Dan Gertner of Grant's Interest Rate Observer. "Much...
  • U.S. Policy Toward Cuba Hasn't Changed Yet

    It's been about four months since President Obama announced looser restrictions on travel and sending money to Cuba. But they haven't gone into effect yet, the Treasury Department confirms to NEWSWEEK. So what's the holdup?Some in the "Cuba lobby"—Cuban-Americans in Congress like Rep. Ileana Ros-Lehtinen and Sen. Bob Menendez—suggest the administration may be mulling their objections (Menendez questions lifting remittance restrictions; he favors travel). Others cite red tape in an administration dealing with 1,001 issues.But a State Department official, who isn't authorized to speak for the record about internal policy discussions, suggests one reason for the delay is a flurry of new talks between the countries that could lead to an even wider opening to Cuba, including a lifting of restrictions on diplomatic movements. "There are discussions going on, and some new things have been put on the table," says the State official.In late July, in yet another sign that the Obama...
  • Will Fed Chairman Ben Bernanke Be Reappointed?

    President Obama is expected to decide by autumn whether to give Ben Bernanke a second four-year term as Federal Reserve chairman. Obama's chief economic adviser, Larry Summers, has long been said to covet the job, while Bernanke has pushed back at the Obama administration on a couple of proposals, risking the president's displeasure. Bernanke says he doesn't agree with the need for a new Consumer Financial Protection Agency; the Fed has got a handle on that, he says, and in fact it has been announcing new rules for lending and meeting with consumer-advocacy groups regularly. Bernanke is also taking a somewhat different tack from Treasury Secretary Tim Geithner and Summers over whether the Fed should supervise "systemic risk" in the financial system.But Bernanke's performance during the financial crisis has been widely praised, making a move to replace him politically risky. Last week he silenced some critics in Congress by laying out an "exit strategy" for the Fed after the...
  • The Bernanke Watch -- Part One

    The Ben Bernanke sweepstakes is heating up. Sometime over the next few months, President Obama will decide whether to reappoint the Federal Reserve chairman to a second four-year term. The betting now is that Bernanke will be back, and he almost certainly helped himself on Tuesday with his Humphrey-Hawkins testimony before the House Financial Services Committee. In his prepared remarks, along with an op-ed in the Wall Street Journal, Bernanke answered the most strident questions posed by his critics. He does, in fact, have "an exit strategy" from the Fed's expanded balance sheet and loose monetary policy, he said. He's prepared to wield a wide array of tools to make that happen. "The extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed," Bernanke said -- in other words, of course I can deal with future inflation, it's just not going to be now....
  • Iran's bumbling ‘China model’

    Now that they’ve had their bloody crackdown, the next step for Iran’s mullahs is economic reform. That, after all, is the “China model” they’ve been talking about in Tehran for years. If we give the people a taste of the good life, it will take their minds off political freedom and we’ll get to keep our authoritarian regime. The problem is, there is very little evidence that Ayatollah Ali Khamenei and Mahmoud Ahmadinejad have any clue how to reform and open up their economy the way Beijing’s mandarins did after 1989. Or that they want to even try. ...
  • The New Democratic Insurgents

    Maria Cantwell sat aghast in front of the TV in her Senate office last fall, watching Wall Street crash. Not long after her arrival in D.C. in 2001, Enron imploded. Energy speculators wielding complex derivatives had gouged her constituents in Washington state out of $1 billion. The federal government, she thought, had done little since then to prevent fraud and manipulation. So last September, after Fannie Mae and Freddie Mac nearly failed, Lehman Brothers went under and the stock market plummeted, she decided she'd had enough. "I have seen this movie, and I know how it turns out," Cantwell said.Cantwell knew something about business—she had made millions as an executive at RealNetworks during the dotcom boom. And she was concerned that the administration, filled with men who had supported financial deregulation during the Clinton administration, didn't have the stomach to impose the kind of tough reform she thought Wall Street required. So, along with a small group of insurgent...
  • No-Stress Tests

      The resurrection of Wall Street is at hand. That isn’t quite the intended message of the results of today’s stress tests, but it’s pretty likely to be the bottom line. Led by Citigroup and Bank of America, the 19 big banks that got us into much of this trouble will, by government-orchestrated means, receive the tens of billions of dollars in additional capital they need. But that’s mainly for another rainy day (as opposed to another perfect storm). “All the banks are solvent,” Federal Reserve Chairman Ben Bernanke said today, declaring he was “very pleased with the results.”   All of which means that whatever opportunity once might have existed for fundamental change in the financial system – with its giant institutions privately trading derivatives with each other globally --is probably slipping away. Oh, the reigning authorities won’t quite say that. There is going to be all sorts of new regulatory oversight, new capital requirements, reduced leverage rules, and such. But basi...