Wall Street has reason to worry about working from home

Legal and regulatory hazards mean bank bosses are itching to get a better view of the action

Gary Silverman 

     © Efi Chalikopoulou

The big bankers on Wall Street like to play it cool in public. 

As we say in New York, it’s their shtick — the technique they employ to win the trust of other participants in the financial markets.

So it has been discombobulating in recent months to see so many masters of the universe — JPMorgan Chase’s Jamie Dimon, David Solomon of Goldman Sachs, Morgan Stanley’s James Gorman — fretting so openly about the need for their employees to return to the office.

Their proclamations have been buttressed by high-minded sentiments emphasising the importance of mentoring younger employees, building cohesive teams and promoting diversity. 

But their tone has been different — irritated, if not insensitive to the concerns of staff worn down by the demands of hours-long commutes.

The fact is bank executives have more reasons to worry than they let on. 

Working at home with trillions of dollars of other people’s money is a risky experiment. 

The legal and regulatory hazards are significant. 

It stands to reason that bank bosses and their government supervisors would be itching to get a better view of the action.

 “In an industry that is more heavily regulated, there is going to be a concern about a lack of control over the day-to-day activities of their employees,” says Charles Elson, a corporate governance expert at the University of Delaware. 

“You are much more casual at home than you might be at an office — there is no one to watch you except your dog.”

The difficulty for banks is that it takes more than a clever canine to make sure employees follow the exacting rules of their federal regulators. 

One example involves the requirement that they preserve records of business communications for years — even if the conversations take place on personal devices, using messaging services such as WhatsApp.

JPMorgan revealed this month in a government filing that “certain of its regulators” had been asking about “its compliance with records preservation requirements” for electronic messages sent over channels the bank had not approved. 

JPMorgan said it was “co-operating with these inquiries and is currently engaged in certain resolution discussions”.

Of course, concerns about Wall Street wheeler dealers gabbing among themselves on WhatsApp predate the pandemic and have involved companies other than JPMorgan. 

Two senior commodities traders at Morgan Stanley lost their jobs last year for their failures to stop using such communications. 

Other banks will almost certainly face similar issues.

But it is hard to see how working from home would reduce the opportunities to send prohibited texts to colleagues. 

Nor would the practice necessarily foster compliance with, say, insider trading laws or the corporate policies aimed at preventing bullying or sexual harassment.

Bankers will tell you that they embarked on working from home in much the same way that Donald Rumsfeld said he went into Iraq — conscious that there were “known unknowns” that could undermine the mission. 

On the fly, and benefiting from the forbearance of regulators hoping things would work out, they redoubled efforts to improve risk, audit and other controls aimed at preventing everything from slacking to stealing by employees outside the office.

But what they cannot say for sure is whether they have succeeded. 

Hope abounds these days because Wall Street has dodged one bullet after another during the pandemic and prices only seem to go up. 

But one industry executive confessed to me that the final verdict on working from home might be years away. 

Banks are that complicated.

Waiting for the process to play out could be especially hard on the older CEOs who are leading the calls for a return to the office. 

I’m not saying they deserve sympathy — just understanding. 

Many of them grew up in a less bureaucratic, more personal Wall Street, where they interacted closely with their bosses and grew accustomed to such relationships.

Economist Henry Kaufman, a former Salomon Brothers executive committee member who at 93 remains an incisive commentator on the ways of Wall Street, told me that as recently as the early 1980s, the dawn of the Reagan revolution, a partner of his firm would sit at every large trading desk to make sure no one was doing anything foolish. 

“There was close observation by a partner of what was going on,” he adds. 

“The partners were at risk — it was their capital.”

That kind of personal touch faded as firms such as Salomon shed their partnership structures and were absorbed into bigger banks — in this case, Citigroup — with high-speed computerised trading businesses. 

Now, Kaufman says, “the owners of the business are stockholders, who are outside somewhere — and unknown”.

Wall Street’s ultimate bet is that the automation will save the day, creating audit trails that will make fraud or malfeasance harder to cover up — whether workers stay at home or not. 

Lurking in the background is the promise of blockchain technology and decentralised finance protocols that threaten to eliminate human intermediaries altogether.

It is almost quaint that so many bank bosses still want to look their employees in the eye. 

Then again, maybe they know something the rest of us don’t.

SPACs Tank. Are NFTs Next?


Towards the end of financial bubbles, two things generally happen. 

First, legitimate ways to put capital to work become scarce as prices outrun expected cash flows. 

Second, large numbers of traders, who have grown used to seeing everything they buy go up, start chasing “innovations” with exciting stories but (in retrospect) insanely high risks.

One recurring variation on this theme is the “dark pool” or “blank check fund,” which is someone with a well-known name saying “Hey, give me your money and I promise to do something cool with it.”

Today this con is known as a SPAC, for “special purpose acquisition company,” and generally takes the form of a publicly traded shell company that raises money with the intent of buying another company, in effect taking the acquisition target public. 

In other words, it’s a quicker, simpler version of an IPO, which appeals to the instant wealth mindset that dominates late-bubble markets.

SPACs emerged, boomed, and – inevitably because they don’t add any real value – are now tanking. 

From last week’s Wall Street Journal:

SPAC Rout Erases $75 Billion in Startup Value

The blank-check boom has turned into a rout.

More than six months after the SPAC craze crested, a broad selloff has wiped about $75 billion off the value of companies that came public through special-purpose acquisition companies, according to a Dow Jones Market Data analysis of figures from SPAC Research.

A group of 137 SPACs that closed mergers by mid-February have lost 25% of their combined value. 

At one point last month, the pullback topped $100 billion. 

The analysis doesn’t include companies that hadn’t closed mergers as of mid-February or those that are no longer trading.

Over the same span, an exchange-traded fund that tracks companies that recently went public through initial public offerings slid 12%. The Dow Jones Industrial Average gained 13%.

SPAC declines are concentrated in companies tied to green energy and sustainability, though the damage is widespread. 

About 75% of the SPACs that have announced deals but haven’t completed them are trading below their listing price. 

Earlier this year, when the sector was perhaps the hottest area of finance, SPACs nearly always rose after announcing deals. 

Now, it is common for SPACs—such as the one that said in June it is taking electric flying-taxi firm Vertical Aerospace Group Ltd. public—to unveil mergers and see their shares fall.

Even so, the eye-popping returns of early this year have boomeranged on many late arrivers, highlighting the ever-present risks of piling into the latest sure thing. 

Some investors have watched paper fortunes dwindle in the past few months.

In today’s wildly overvalued world, SPACs aren’t the only sector with the feel of a well-worn scam. 

One could make the case that the majority of asset classes now have blank-check-fund traits, in the sense that it’s unclear how they’ll ever generate enough cash to justify their current price.  

But one new asset stands out even in this crowd: Non-fungible tokens, or NFTs, are generating the same kind of frenzy as SPACs did a year ago.

Generally speaking, an NFT is created when someone registers an image or other “virtual asset” on a blockchain, thus proving ownership of the digital file. 

If that sounds a bit tenuous (not to mention pointless), well, yeah. 

But the hot money sloshing around out there really wants to believe that owning such a configuration of bits confers value rivaling that of the actual physical asset.

Some recent headlines:

Launchpool Labs Debuts Football-Based NFT Card Game ‘NiftyFootball’ 

Fake Banksy NFT sells for $340K — then returned for full refund 

The original ‘Doge’ meme sold as an NFT for $4 million–now you can own a piece of it for less than $1

NFT market will see “massive increase” in volume in 12 months: Devere CEO

RM50,000 for a Pudgy Penguin? Welcome to the NFT revolution

Now, when critiquing NFTs it’s important to distinguish them from “smart contracts,” which might be a way of using a blockchain to streamline and strengthen financial transactions. 

Criticism of the former doesn’t imply anything about the latter.

But since the standard bubble script calls for an imminent crash that sends hot money pouring out of “peak crazy” assets, it’s reasonable to look forward to a nice bit of Schadenfreude when the SPACs and NFTs of the world have their dot-com catharsis. 

miércoles, septiembre 08, 2021




So, this —AIR QUOTES— “infrastructure bill” is roughly the size of the Larry Summers stimulus back in 2009. 

And the spending bill that was just unveiled, at $3.5 trillion, is five times the size of that.

It’s all “Up” from Here

When Biden was elected, I said that there would be a $10 trillion deficit in 2021. 

If all of this passes in its current form, we will be up to $7 trillion, with four months to go. 

I will be owed an apology from the people who said my prediction was ridiculous.

Of course, we are going to have inflation—and a lot of it. 

We’re at 5.4%, right? 

Up from 1.4%. 

That’s insane.

This isn’t breathlessly being reported in the news. 

Are we becoming numb to it? 

A deficit-to-GDP of 30% isn’t news? 

Boy, are we in for a surprise.

But here is the thing from a sentiment standpoint… 

We have lost the capacity for moral outrage. 

Nobody sees our national debt as a problem that affects them personally, so nobody cares. 

And nobody is drawing the connection between spending and inflation.

I mentioned this last week: it looks like the Republicans are going to pick up a bunch of seats in Congress. 

And yet, there’s a chance spending won’t go down under a Republican Congress. 

This — AIR QUOTES— “infrastructure” bill was bipartisan, after all. 

This is not a fiscally conservative Republican party.

I think that a couple of years from now, we will look back at this period of time, with the 10-Year Treasury Note at 1.2% and $4 trillion of spending coming down the pike, and say, “Dang, I should’ve had a V8!”

You remember those V8 commercials, right?

It’s that obvious. 

But it’s only obvious if you’re flying at 35,000 feet. 

If you have your head in the screens all day, you won’t see it. 

This is why I advise people to take a break from staring at the screens and go take a look around.

Everything Is Free Now, Right?

We extended the eviction moratorium. 

No more rent!

We extended the student loan payment moratorium. 

No more student loans!

All that is left to do is to make food free. 

It won’t cost that much! 

You think I am joking... 

Someone is going to suggest it.

I’m not sure there are adjectives in the dictionary to describe this. 

“Moral decline” doesn’t quite capture it. 

But there are precedents in history, and since the Germans are so good at documenting history, we have book after book covering the Weimar Hyperinflation of the 1920s. 

Not to get all Austrian hardhat on you, but Weimar is a pretty close analog. 

I don’t think the world is going to end, but I would not be betting that inflation is going lower.

The Psychology Is Changing

I had the great Peter Atwater on my radio show, talking about sentiment and psychology.

(If you don’t know who Peter Atwater is. Here’s a one-sentence summary: He’s a really intelligent guy who transitioned from helping hedge funds successfully navigate the banking crisis to teaching social psychology in the financial realm.)

I told him that inflation is 90% psychology. 

He corrected me and told me that inflation is 100% psychology. 

That sounds about right.

The mechanism is clear: When people believe that prices are going higher, they act in such a way that causes prices to go higher.

… which leads us to the present day.

This Fed Won’t Make the Hard Choices

Back in the 1970s, early 80s, former Fed Chair Paul Volcker wasn’t about economics; he was about psychology. 

He had to crush the inflationary psychology. 

He was vicious, people were uncomfortable, but the deed got done.

This time around, we are tolerating much higher levels of inflation, but no one is going to do a thing about it. 

Jerome Powell isn’t Paul Volcker. 

That much is apparent.

Inflation is 5.4%, and people aren’t even squealing yet.

Unfortunately, the only analog that people have when it comes to inflation is the 1970s’ stagflation. 

Yes, the inflation of the 1970s was caused partially by too-loose monetary policy. 

If you want my interpretation of it, the “stag” part was partially caused by an encroaching regulatory state.

Prices and wages were fixed throughout the economy in many sectors. 

Price signals were not permitted to function.

And we might get there eventually. 

I suspect that when inflation gets to double digits (which is, I expect, what will happen in the next 12 to 24 months), our instincts will be to do the easy thing and fix prices by fiat rather than to take our medicine and raise interest rates. 

Of course, this will make things worse. 

For now, this is the beautiful deleveraging part of the inflation, where asset prices go up. 

We can worry about the stag part later.

Sticky Wages

$45 an hour to paint a house. 

$93,600 a year, tax-free. 

Can you imagine? 

More to the point, can you imagine turning this down? 

This is the type of work that used to pay minimum wage.

It is said that economics is the only profession where you can be upset about people making more money. 

And that’s because economists have to view things from the standpoint of the employer and the customer.

When the worker gets paid more, the employer raises prices on the service/product offered, and... then the consumer pays more.

That’s how this works.

And if you think, “Oh, this is temporary. 

We can just bring wages back down,” then my response is: Try it. 

You’ll end up with a strongly worded letter at best and a riot at worst. 

Wages are sticky.

Long Haul

Inflation isn’t a 3–4 month phenomenon. 

This is a secular trend that will last 10 years or more. 

Sure, there will be corrections along the way, but at this point, the trend is irreversible.

Russell Napier, a well-known independent financial strategist, recently said that we are going to (paraphrasing) experience a period of time with low bond yields and high inflation, leading to deeply negative real rates as a political necessity. 

He’s not really predicting the future; he’s simply describing what is happening right now.

Let’s think through this: inflation continues to rise to 6, 7, 8, 9%, and interest rates are held artificially low. 

What do you think will happen then?

My conviction level on inflation is off the charts. 

I will change my mind when the circumstances change. 

I will change my mind when we start balancing the budget or hiking interest rates. 

That is nowhere on the horizon. 

This thing is an unstoppable freight train.


Like I said at the beginning of this email. 

I don’t offer problems without solutions.

It may sound far-fetched, but I’m not really worried about inflation. 

I’ve positioned myself correctly and plan to not only offset but outpace rising inflation.

Food Systems on the Edge

Those most affected by the negative consequences of large-scale industrialized food production must play a vital part in discussing how to transform it. The world therefore needs a people’s Food Systems Summit that aims to end hunger and malnutrition, protect ecosystems, and provide small farmers with a decent livelihood.

Barbara Unmüßig

BERLIN – The COVID-19 pandemic has ruthlessly exposed the global food system’s deficiencies, and a massive escalating hunger crisis now looms. 

A quarter of humanity lacks secure access to food, with one in ten people affected by severe food insecurity, and up to 811 million people hungry. 

Another quarter of the world’s population suffers from various forms of malnutrition, including obesity, with huge negative effects on health.

Both trends are on the rise, and both are directly connected to injustice and poverty. 

No matter how much food the world produces, failure to address power imbalances in the global food system will mean that hunger persists and foodborne illnesses explode.

Many hope that the United Nations Food Systems Summit in September will be a catalyst for real change. 

But the gathering is more likely to legitimize and cement the current inequitable model of industrialized food production.

That would be bad news for the world’s hungry people, the majority of whom – 418 million – live in Asia. More than 282 million live in Africa, where chronic hunger affects one in five people and is increasing faster than in any other region.

Hunger is primarily a problem of accessibility. 

People go hungry not because there is insufficient food in the world, but because they are poor. 

Were it not for injustice and inequality, the record global wheat production in 2020-21 could in theory feed up to 14 billion people. 

But agricultural products go to those with the greatest capacity to pay – including in the feed industry and the renewable-energy sector – and not to the most vulnerable people. Market power trumps food sovereignty.

Violent conflict, extreme weather due to climate change, biodiversity loss, and the economic turmoil caused by COVID-19 lockdowns have worsened the situation of vulnerable people. 

And water becomes increasingly scarce for smaller farmers when bigger investors use it in intensive irrigation schemes.

All these crises limit poorer people’s capacity to buy food or produce enough to be self-sufficient. 

As a result, 155 million people across 55 countries suffered from severe hunger in 2020, an increase of 20 million from 2019.

Since the Green Revolution in the 1960s and 1970s, we have continuously heard that increasing agricultural productivity is the key to fighting hunger and feeding the world’s population. 

Today, global corporations like Corteva (formerly the agricultural unit of DowDuPont), Bayer/Monsanto, and ChemChina/Syngenta promote productivity through the use of chemical pesticides, artificial fertilizers, and genetically modified or commercially grown hybrid seeds that cannot be reproduced. 

But such capital-intensive agriculture cannot serve those who lack the basics for secure food production: land, water, and regionally rooted knowledge systems.

Meanwhile, nearly two billion people globally are now overweight or obese. 

Mexico, where about 73% of the population is overweight, is a particularly worrying case. 

If current dietary habits persist, 45% of the world’s population could be overweight by 2050. 

This will result in exploding health-care costs, with diet-related health costs linked to mortality and non-communicable diseases projected to exceed $1.3 trillion per year by 2030.

Again, powerful economic interests are fueling this trend. 

The food and beverage industry profits greatly from selling unhealthy processed food and sugary drinks. 

After all, fat, sugar, and carbohydrates mixed with a lot of salt are the cheapest calories. 

In 2019, the world’s five largest food and beverage companies – Nestlé, PepsiCo, Anheuser-Busch InBev, JBS, and Tyson Foods – had a combined revenue of $262.7 billion.

Healthy diets are much more expensive, so obesity is often a result of poorer populations’ low purchasing power. 

The UN’s Food and Agriculture Organization estimated that a diet with sufficient calories cost $0.79 per day in 2017, whereas a diet with sufficient nutrition cost $2.33 per day, and a healthy diet cost $3.75 – making it unaffordable for more than three billion people.

Scientists around the world have proposed future food systems that protect the health of both humans and the environment. 

The EAT-Lancet Commission, for example, has shown that it is feasible to provide a healthy diet for ten billion people by 2050 without destroying the planet. 

The panel advises doubling consumption of fruits, vegetables, nuts, and legumes, and reducing red-meat and sugar consumption by more than 50%.

What is missing are political leaders who understand the urgency of the food-system crisis and initiate the necessary transformations. 

In doing so, they should stand up to powerful economic interests and focus on the needs of the most vulnerable.

The pandemic has accelerated demands for a more resilient, diverse model of farming and food production. 

Grassroots initiatives based on community decisions and open-source ideas can help to develop local food systems that are free from corporate capture, such as community kitchens, nutrition centers, and urban farming initiatives. 

About 300 urban farms influenced dietary choices in Johannesburg, South Africa in 2020.

Barbara Unmüßig is President of the Heinrich Böll Foundation.