Monday, October 31, 2011

Wall Street's Opacity Protection Team meets Financial Watch

A Der Spiegel article discusses the formation of a new organization, Financial Watch, to battle Wall Street's Opacity Protection Team and its army of lobbyists.

According to its website,

Finance Watch is a public interest association dedicated to making finance work for the good of society. 
Our mission is to strengthen the voice of society in the reform of financial regulation by conducting citizen advocacy and presenting public interest arguments to lawmakers and the public as a counterweight to the private interest lobbying of the financial industry. 
Finance Watch works according to the following principles from its Articles of Association: 
 The financial industry plays an important role in allocating capital, coping with risk and providing financial services and this role has strong public interest implications. 
 The essential role of the financial system is to allocate capital to productive use in a transparent and sustainable manner.

Naturally, your humble blogger welcomes another voice calling for transparency.

The article tells a little more about the organization and the background of the individual who runs it.
..Indeed, some things will take getting used to in the offices Finance Watch has just leased near the building housing the European Parliament in Brussels. 
The project is backed by 40 European organizations, including unions, consumer-protection groups, foundations and think tanks. And it has a single goal: to make financial markets more transparent and influence future legislation so that it serves the needs of society rather than the financial industry. 
[Thierry] Philipponnat runs the organization, which will soon have a team of a dozen people. 
"When I heard about the project, I knew right away that it was the job for me," says the 50-year-old Frenchman. "As a former banker, I was immediately hooked." 
Philipponnat spent 20 years in the industry, which included positions at the Swiss bank UBS and the French bank BNP Paribas, where he was in charge of structured financial transactions, the highly complex products that have now come under sharp criticism for being both shady and highly risky. In his most recent position, Philipponnat was the global head of equity derivatives at the Euronext exchange in London....
Both areas of finance where Wall Street benefits from opacity.
Although efforts are underway worldwide to regulate the financial industry more rigorously, implementation is a different story, as evidenced by the work of the European Parliament in Brussels, where members are under constant observation and attack by an estimated 700 financial lobbyists. 
These professionals work around the clock to ensure that none of the new laws adversely affects the interests of banks, hedge funds, insurance companies and private equity firms. 
The lobbyists target EU politicians like Burkhard Balz, a member of Chancellor Angela Merkel's center-right Christian Democratic Union (CDU) from the northern German city of Hanover and a former banker himself. 
"In the runup to the regulation of hedge funds, I was constantly receiving requests for meetings with lobbyists," says Balz, who is now his party's deputy parliamentary spokesman on the European Parliament's Economic and Monetary Affairs Committee. 
Balz says he met with many of the lobbyists -- or at least until he felt that he was familiar with all of their arguments. But the lobbyists were unrelenting. "If I had said: 'I'm at the Stadthagen swimming pool with my son,' they would have said: 'No problem, we'll bring our trunks,'" he says, with some irritation. 
If you listen around in Brussels, you can hear about the opulent dinners members of parliament have in the city's most expensive restaurant during which representatives of a major bank will explain to them why their speculation in agricultural commodities has absolutely no effect on the world's food supply. Or about the amendments to existing legislation that are sent to members of parliament prewritten, and of the printed copies of voting lists that explain to the parliamentarians exactly which box to check
"There are 200 financial-industry lobbyists for every paragraph of the law," says Udo Bullman, a member of the European Parliament from Germany's center-left Social Democratic Party (SPD). 
This problem prompted members of the Economic and Monetary Affairs Committee to take an unusual step in June 2010, when they publicly called for the creation of "one (or more) non-governmental organization(s) capable of developing a counter-expertise on activities carried out on financial markets by the major operators … and to convey effectively this analysis to the media." 
The gulf between the capabilities of the financial industry and politicians' relatively poor understanding of the field "poses a danger to democracy," a group of parliamentarians wrote. 
Please re-read this point as even the EU lawmakers realize there is a problem.
The petition initially had 22 signatures, but soon more than 140 politicians in Brussels -- from all member countries and the entire range of political parties -- added their signatures. Eleven members donated money to fund a six-month exploratory phase and began searching for the right person to head the organization: Philipponnat. 
When he left the banking industry in 2006, Philipponnat had lost faith in the sense and purpose of his work. "Many financial transactions are useless at best," he says, "but, at worst, they have a massive impact on politics and society." He then made his way to Amnesty International and became the head of its French section.... 
Philipponnat will need both because his job comes with high expectations. Finance Watch still has a small budget of only €1 million ($1.4 million) derived from member dues and donations.  But the various EU institutions are now considering injecting another million euros into the venture. 
Even then, it will still be difficult to become a counterweight to what is probably the richest and most powerful economic sector of all, whose lobbyists are backed by an estimated €400 million in funding.
Actually, regulators are suppose to help as a counter-weight to the industry lobbyists.  After all, their primary mission is to prevent a financial crisis.
In mid-October, Philipponnat spoke for the first time as an expert at a hearing on whether to require European banks to have higher equity capital requirements. 
Last Sunday, when EU leaders meet in Brussels to discuss how to battle the euro crisis, Finance Watch appealed to them to take a closer look at the balance sheets of major banks.
Philipponnat is careful to point out that: "We are not an anti-bank group, nor do we condemn any lobbyists." The only thing that Financial Watch really wants, he explains, is a balanced debate that includes not only the players, but also those affected by their actions. "The financial industry often uses highly technical arguments," he says. "On the one hand, (it does so) because many things actually do revolve around technical issues. But, on the other hand, (it does so) because it means that no one outside the financial world can seriously follow the debate." 
Finance Watch wants to change this. For example, it wants to explain EU banking rules -- such as the cryptic CRD IV and MiFID -- to the general public as well as issue position papers and compose informational materials. In addition, Philipponnat and his team will make themselves available to the parliament and the public to serve as individuals who can debate with bankers and hedge fund managers on a level playing field. 

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