Posts Tagged ‘Stock market’

Funny thing about …

October 1, 2010

October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.

– Mark Twain, American humorist, 1894

At a NIRI meeting last night in Kansas City, I commiserated with a friend over dinner about the state of the economy. It’s like a patient drifting in and out of consciousness in the recovery room – we don’t know whether the surgery was a success until the patient wakes up, smiles and moves a bit. Meanwhile, the job market is lousy. Consumers are cautious. The Fed frets. Companies worry. Waves of regulation and additional costs are looming. And the Nov. 2 election? Bah.

This morning brought a new month and fresh outlook. Hey, let’s have some fun in October – look beyond the macro anxieties – and do some good in investor relations this fall. And the market will do what it will do.

© 2010 Johnson Strategic Communications Inc.


‘The new normal’ for IR

September 20, 2010

Chatting with colleagues last week, someone tossed out the phrase “the new normal.” And a co-worker shot back: “What is the new normal, anyway?”

Ever so conveniently, then, on Thursday and Friday I attended the client conference of DeMarche Associates, a Kansas City-based investment consultant. The theme: “The New Normal and How It Affects Investment Strategy.” DeMarche’s audience of pension fund managers and other institutional investors came seeking to divine the outlook for their portfolios – and to get ideas on long-term investing strategies.

But the concept has important implications for investor relations people, too.

What is the new normal, anyway?

The “new normal” is a buzzword current in business and economic discussions. It embraces the outlook that things are not going to get better, at least not much better, for some time. Maybe three, five, eight years. We’ll all come to realize, the narrative goes, that a difficult economic environment has become normal. And if a rapid recovery isn’t going to appear and solve our problems, we need to adapt to hard times and learn to live with lower expectations.

Not everyone believes in the new normal. Pundits seem split 50-50 between those who see a recovery launching us skyward into the upside of a U-shaped cycle and those who see us slogging across the bottom of a flatter, more prolonged U. My intention isn’t to take either side – just to beware of the implications.

DeMarche is in the “new normal” camp. While bullish market gurus pointed the audience to positive signs, DeMarche consultants outlined six “supercycles” since 1890: periods of 15 to 30 years when the market trended strongly up – or down.

Data indicate we’re now in a negative or neutral supercycle that began in 2000, after that lovely 1980 to 2000 period when the Dow soared 1,400%, DeMarche says. The past 10 years have treated long-term equity investors roughly: two bear markets, two bull markets, a lot of pain, volatility and – overall – no gain.

Welcome to the new normal. DeMarche expects this malaise for the stock market and other investments to continue for the next 3 to 5 years. DeMarche analysts list five trends as defining the new normal:

  • Slow economic growth – a weak recovery with GDP rising 1% to 3% a year, lacking the oomph to support robust sales and earnings growth
  • Consumer angst and frugality – consumers, who make up 70% of the economy, remaining cautious while struggling with debt and job fears
  • Declining corporate profit estimates – earnings tending to disappoint if market expectations are based on a strong recovery that doesn’t appear
  • Sideway grinding market for years – stocks trading up or down, not unlike the past decade, but without “a rising tide that lifts all boats”
  • Volatile bull and bear cycles – within a broader overall trend, markets still experiencing bull/bear cycles and recessions

Bob Marchesi, chairman & CEO of DeMarche, said the market today reflects an expectation of stronger recovery with no fear of a double-dip recession. Equity prices haven’t factored in a slow-growth scenario with a challenged consumer sector, he said. That leads him to expect a near-term correction, followed by lower average returns for equities over the next several years.

Why should IR care? What should we do?

Taking DeMarche’s prognostications for institutional investors and viewing the implications from a corporate perspective, here’s a new normal primer for IR. (Blame me for these ideas, not DeMarche, as they weren’t discussing IR.)

  • “Buy and hold” will be less common as an investment strategy. IR has to get used to it. Speaking to an audience of mostly pension fund managers, with very long investment horizons of the kind IR people love, DeMarche is recommending “dynamic” strategies and “tactical asset allocation.” Instead of buying a stock forever, investors may shift money in and out of asset classes based on valuation and changing investment characteristics. IR needs to think tactically, as well, adjusting to changing investor outlooks.
  • Hedge funds won’t be fading from the investment scene – probably the opposite. As institutions look to protect assets and wring some return out of up or down markets, DeMarche has dropped the “Alternative investments” label on hedge funds and the like. Institutions may de-emphasize the stigma and allocate more money to managers with nimble market strategies. Hedge funds come in all shapes and sizes, but we shouldn’t exclude them from IR.
  • Expect drama, up and down. In the 1930s, the US experienced three bear markets – and three of the best years of the stock market. In a negative or neutral supercycle, DeMarch says, equities may be “churning sideways” for a few years but it may feel like a rough roller coaster. When the market goes up (2009-10?) we shouldn’t break out the champagne and sing “Let the good times roll.” The new normal calls for a restrained tone in IR.
  • Consumers may not drive economic expansion of the kind we saw in the post-World War II era. The aging of Baby Boomers, pullback in spending and slowing of population growth will be a demographic drag on the economy for the next 20 years or so, DeMarche believes. One question for IR: What do demographics say about your products and markets?
  • No one has a crystal ball – so IR should communicate both the risks and our strategies for thriving in up or down times. If GDP grows 4%, revenue and earnings may boom … but what if GDP grows 1%? What if the economy goes negative and we get that double-dip?  While DeMarche’s prediction of disappointing earnings focuses on the S&P 500 as an aggregate, it’s a cautionary note for IR at individual companies.
  • Political winds are blowing in a direction more favorable to business – for the moment. But public opinion shifts rapidly. Even a “pro-business” outcome in this fall’s Congressional elections would leave a government facing high debt, on the prowl for tax revenues, and prone to regulatory solutions. The financial consequences may not seem like a tea party.

There’s a somber set of thoughts. I hope we’re not in the new normal – but we all need to prepare for that possibility in communicating with the capital markets.

What’s your view?

© 2010 Johnson Strategic Communications Inc.

It’s not about ‘flash crashes’

May 20, 2010

Well, that kind of day in the market takes your breath away!

The Dow down 3.6%, broader indices like S&P 500, NASDAQ or Russell 3000 off even more. Not much fun today in investor relations – or capital markets as a whole. We’re officially in “correction” territory now, though not a bear market.

The analysts, pundits and politicians will have much to say. Let me just offer this perspective: Life is about the long haul, not the “flash crashes.” I would suggest three applications of a long-term view:

  • The practice of IR has less to do with today’s market price – especially when your company is caught up in a market stampede, up or down – than it has to do with your company’s performance in the next year, or two, or five. Be energized and on top of everything, but keep your eye on the horizon.
  • Investing isn’t really about the short term, either – although some fortunes are no doubt gained or lost on days like today. Investing is still about putting money to work in businesses with the knowhow and guts to create value … long-term. The lemmings are charging headlong one direction or another, but the wiser heads will survive and even thrive in the long run.
  • Regulation of the markets shouldn’t be about a “flash,” either – whether it’s the May 6 “oops” market or the May 20 “we’re really worried” sell-off. Short sellers, or even trading glitches, don’t do much permanent damage – an economy full of fear does. The focus in Washington should be on fostering an environment that encourages the capital formation that, in turn, fuels economic growth. Flogging investment bankers or hauling fat-fingered traders before Congressional committees, while entertaining, doesn’t really help anyone. Ensuring an honest, free, liquid market that enables new and existing companies to raise capital should be the focus of legislation and regulation.

We live in a world dominated by instant media, politicians and analysts eager to jump in front of a TV camera, opinions driven by Internet chatter – so we see a lot of breathless proclamations of one instant “crisis” or another.

Let’s take the long view.

© 2010 Johnson Strategic Communications Inc.

Analysts “still too bullish”

April 21, 2010

Most of us remember a decade ago, when the stock market bubble of the 1990s finished inflating and began to spring leaks. Nasty stories were everywhere of Wall Street analysts overselling the stocks they were paid to peddle to investors.

The bear market of 2000-02 led to legislative and regulatory efforts to “fix” equity research, separate the sell side from – well, selling – and bring trust back into the markets. Alas, that’s probably not something new laws can accomplish.

New evidence from McKinsey & Co. suggests the sell side is “still too bullish,” based on a study of earnings estimates for S&P 500 companies from 1985 to 2009. Somewhere in the DNA of the sell side, it seems, lurks a gene for salemanship.

Only two times over the 25-year period did actual earnings on the S&P 500 beat analyst estimates, three McKinsey consultants write in the Spring 2010 issue of The McKinsey Quarterly. Analysts have been “persistently overoptimistic,” typically forecasting S&P earnings growth of 10-12% a year, nearly twice the actual 6% growth. McKinsey concludes:

Exceptions to the long pattern of excessively optimistic forecasts are rare …. Only in years such as 2003 to 2006, when strong economic growth generated actual earnings that caught  up with earlier predictions, do forecasts actually hit the mark.

There’s an obvious caveat emptor for investors in data like this. In fact, the market as a whole doesn’t believe the sell side: Actual price-earnings ratios on the S&P 500 are almost always lower than the implied P/E based on analysts’ forecasts, the consultants note.

McKinsey also sounds a cautionary note for corporate staffs: Don’t put too much confidence in the sell side when formulating your own company outlook. Base your outlook on what’s really happening in your business, not so much on Wall Street’s view from a distance:

Executives, as the evidence indicates, ought to base their strategic decisions on what they see happening in their industries rather than respond to the pressures of forecasts, since even the market doesn’t expect them to do so.

Easier said than done, of course. But investor relations professionals ought to keep this advice in mind when serving as a conduit for communications between Wall Street and senior management.

Let’s NOT squash trading

January 20, 2010

As you know from reading the papers, Washington “powers that be” have two impulses when it comes to Wall Street and stock market activity:

  • If it’s an activity where people can lose money, we need to regulate it.
  • If it’s a thing where people can make too much money, we need to regulate it – and maybe just outright squash it.

Following the market’s unfortunate meltdown in 2007-09, and the even more unfortunate fact that Wall Streeters who remain are taking home big bonuses, Congress and the Obama Administration are in full rush to “do something.” You know, do something so “this will never happen again.” No one believes that last part – mostly it’s about casting blame and seeming to punish someone – but they are working on a wave of escalating regulation, which could be very real.

Update: On Jan. 21 President Obama pledged to go after big banks, again using that “never again” language. Among other things he proposed a ban on proprietary trading by banks, curbs on advising hedge funds and limits on involvement in “risky financial products.” Depending on how it’s structured, this might greatly reduce trading – or just drive traders out of mega-banks into smaller firms.

Earlier this week the Kansas City chapters of NIRI and the Security Traders Association put on an educational panel, “Not Your Grandma’s Market Anymore,” on how the new world of trading affects public companies. The Jan. 19 audience was a mix of 50 investor relations people, long-term investors and short-term traders, all in one room.

Speakers were Joe Ratterman, CEO of BATS Global Markets, the No. 3 US equity exchange behind Nasdaq and NYSE; Tim Quast, managing director of ModernIR, an analytics firm that tracks trading patterns for public companies; and Jeff Albright, VP and head of equity trading for mutual fund family Waddell & Reed. I moderated.

In another post, I’ll share ideas from the session on what investor relations people can do amid this new world of trading. But let’s start with Washington – because regulatory excess in trading could do a lot of damage to the markets our public companies depend upon. Some examples of what the power brokers are up to:

  • The Securities and Exchange Commission issued a “concept release” on equity market structure on Jan. 14. It’s a good primer on changes in how stocks are traded. The SEC seeks public comment on how to beef up regulation of market structure, high-frequency trading and “undisplayed liquidity” such as the private markets called dark pools. That’s the start of a push for expanded regulation. I’ll post excerpts in a page called “Not Your Grandma’s Market,” but the full 74-page release is worth reading.
  • Democrats in Congress are proposing a new tax of 0.25% to 0.5% on securities transactions – every trade of stocks, options, futures, etc. Proponents say the tax could raise as much as $354 billion a year for Uncle Sam and curb “speculative excess” by cutting total trading volume, say, 25% to 50%. Those last numbers are, well, speculative – no one knows what the actual impact of lobbing a new tax into the markets would be.
  • The SEC proposes to regulate dark pools, whose very name suggests something sinister – should have sent that one to the branding consultant before going with “dark pools.” They’re generally platforms for securities firms to match orders and do proprietary trades without disclosing price and volume offers. The new SEC rules would bring that trading out into the open.
  • Also targeted by the SEC are flash orders. Flash trading essentially is a way automated traders’ computers can get a peek at pending orders from other investors 30 milliseconds before those orders go to the broader market. The fear is that high-tech trading desks are gaining an unfair advantage.
  • And, of course, the SEC has been tinkering with rules on short selling, a hot button for some companies that have felt victimized on the downside of the market – and another unpopular group of Wall Streeters.

Now, the opinions here are my own – I can’t speak for the other panelists. My takeaway from the discussion was that, yes, technological and regulatory changes of recent years have created a huge new realm that basically is automated trading.

Perhaps two-thirds of the trading volume in US stocks is short-term activity. The traders are math majors who program computers to make or withdraw offers from the market, hundreds or thousands of small trades at a time, in milliseconds. They use algorithms to implement strategies based on tiny anomalies in price, or theories about market movement. The activities go by a bunch of acronyms and names like “high-frequency trading.” They use ultra-fast technology.

And, yes, this trading activity makes life complicated – both for public companies trying to figure out what is happening with our stocks day-to-day, and for individual or institutional investors who may be trying to do a trade for long-term investment but encounter a flurry of “noise” moving the price or spiking volume.

The fact that life has become more complicated, however, doesn’t mean it’s worse – or that trading cries out for a regulatory crackdown. Automated trading certainly was not responsible for the financial meltdown we just came through, and those traders Washington likes to label “speculators” aren’t doing anything wrong.

The societal benefit of short-term trading, as it emerged in discussion, is that when a long-term investor is trying to put a trade on – say, buy 50,000 shares of your stock – the automated traders often are the ones putting up the offers that match that bid and form the other side of the trade. Liquidity comes from more offers, and this lubrication enables people to own stocks less risk of being stuck.

My bottom line: Let’s NOT squash trading. Taxing trades will only add costs, ultimately borne by the people who own equities or mutual funds. And we ought to be very careful about dictating market structure based on an understanding of today’s needs and technologies – which tomorrow will already be changing.

Capitalism thrives in free markets. Rigidity in capital markets will inhibit the flow of money and hinder investment in new technologies yet to be envisioned. And let’s face it, the equity markets (however bumpy) ultimately enable businesses to exist, grow … or in some cases disappear. We don’t want to lock in the status quo.

That’s my two-cents’ worth. What’s your opinion of regulating trading?

© 2010 Johnson Strategic Communications Inc.

On the bright side

January 8, 2010

Brian Wesbury, chief economist at First Trust Advisors, is seeing V’s everywhere. A strong recovery, he believes, is in full swing for the US economy. The stock market, of course, is up. His graphs all show a V-shaped ascent after the nosedive of 2008.

Yet people everywhere are still worried, intent on reliving the worst of the 1930s:

What I sense is that the panic [Autumn ’08] altered a lot of psyches. It’s like people are in the grip of an economic ‘Stockholm syndrome.’ The Stockholm syndrome is when people taken hostage fall in love with their captors. In the panic, people fell in love with pessimism.

The market economist delivered the annual economic forecast today for the Kansas City chapters of the Association for Corporate Growth (ACG) and Financial Executives International (FEI).

Wesbury doesn’t buy into the “pall of pessimism” or the “new normal” idea that has become conventional wisdom. He’s confident that we are fast returning to the “old normal” (except for unemployment, which he expects to improve but stay stubbornly high – largely because government is gobbling resources that might have fueled private businesses). Overall, he’s an unabashed optimist:

I believe we’re in a V-shaped recovery that’s going to take [the market] back to the pre-Lehman levels: 12,500 on the Dow. The question is whether whether we’re going to 13-, 14- or 15,000.

If you want Wesbury’s evidence, check out his book It’s Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive. (Confession – I haven’t read it, so I can’t offer an opinion.)

Let’s hope he is right. My crystal ball is hazy, but a “V” would be a victory for all.

© 2010 Johnson Strategic Communications Inc.

R.I.P. Equities?

January 6, 2010

“The equity party is over.”

If this were the lead on a story in Time or Newsweek, it might be a contrarian signal that stocks are heading for a prolonged bull market. But “The Equity Culture Loses Its Bloom” is in the December ’09/January ’10 issue of Institutional Investor.

In a somber but interesting long-term look at the markets, II lays out demographic, psychological and legal reasons for a cooling of the passion for equities that investors felt from the ’80s through the ’00s (with occasional nasty setbacks).

Pundits no less than Jeremy Siegel and Roger Ibbotson weigh in on how aging baby boomers, bruised by two bear markets in 10 years, are fleeing from stocks. On the upswing: funds that invest in bonds, infrastructure and hard assets that produce income, seen as more retirement-friendly.

A few images from the article’s crystal ball:

  • About 68 million Americans reach retirement age in the next 10 years will favor investments less prone to “wild fluctuations” than equities.
  • Pension funds are shifting toward bonds, driven by a 2006 law.
  • A Grant Thornton study shows the number of public companies in the US dropped 38% in the past 11 years.
  • Waning interest in equities will discourage new IPOs, and investment banks will put more emphasis on debt underwriting.
  • “Banks’ equity research departments can expect to feel a pinch,” including continued cutbacks in analyst coverage.
  • Smaller companies will find going public, or staying public, more difficult.
  • Private equity firms will continue to struggle to find profitable “exits.”

Of course, the obituary of equity markets has been written before – and II emphasizes it is talking about a loss of vitality, not the death of stocks. We should never bet too much on taking recent datapoints and drawing a line through them.

And then there are those who see the trend through a contrarian prism. Clifford Asness, head of AQR Capital Management, talks about the long-term decline of IPOs and shift in investor preferences toward bonds. But then he adds:

The decline of the equity culture means, all else equal, it’s time to invest in equities.

So there. What’s your thought on it?

© 2010 Johnson Strategic Communications Inc.

Psychoanalyzing Goldman Sachs

November 10, 2009

If Goldman Sachs is a star in your investment universe, or even a remote planet you aspire to add to your universe, you ought to read the fascinating company profile (“I’m doing ‘God’s work’. Meet Goldman Sachs”) in The Sunday Times of Nov. 8.

The newspaper’s piece is heavy on pop psychology and a bit overawed by Goldman (in the mode of “Gee, these guys really have a lot of money and aren’t they smart!”). It delves into the bailout controversy and those evil bonuses. But it’s also full of anecdotes and insights into how Goldman works – and gets ahead. A few tidbits:

There’s no name plate on the building, no sign on the front desk and the armed policeman stationed outside isn’t saying who works there. There’s a good reason for the secrecy. Number 85 Broad Street, New York, NY 10004, is where the money is. All of it.

… “I know I could slit my wrists and people would cheer,” [Chairman and CEO Lloyd Blankfein] says. But then, he slowly begins to argue the case for modern banking. “We’re very important,” he says, abandoning self-flagellation. “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.” To drive home his point, he makes a remarkably bold claim. “We have a social purpose.”

… the bosses work hard to foster a “we’re in this together”, family-style approach. Others say it feels more like a cult, but they mean it as a compliment.

… Goldman staffers are also trained to “brain pick” contacts and clients harder than the other guy. “You ask what’s their best trade. How do they see the market,” says one. “You offer something in return, but you always come back with something. Then you feed it to colleagues …”

… with Lehman Brothers and Bear Stearns off the street, Merrill Lynch a crippled shadow of its former self, and neither Citigroup nor UBS the forces of old, Goldman has a bigger slice of a growing pie. “We didn’t f*** up like the other guys. We’ve still got a balance sheet. So, now we’ve got a bigger and richer pot to piss in,” is how one Goldman banker puts it. Small wonder the bank is on course to set aside over $20 billion for salaries and bonuses.

Even the firm’s IRO comes into the story, commenting on the sublimation of individual egos to the corporate ethos:

Dane Holmes, 39, Goldman’s head of investor relations, is a 6ft 8in tall, 260lb former college basketball player. He looks like he could run straight through opponents — hell, through brick walls! — if he wanted to. But, he says: “That’s not the way Goldman works. You can have a great career in banking as an individual, but it won’t be here. The system weeds out those who can’t play nicely with others.”

Anthropology of Wall Street

September 24, 2009

If you’ve worked on stock offerings or M&A transactions, you have probably noticed that the smartest guy in the room is always the investment banker. At least in the investment banker’s opinion. (And I say this without any envy or doubts.)

So I perked up when I saw a piece in my college alumni magazine about a new book. In Liquidated: An Ethnography of Wall Street, Karen Ho explores the culture of investment banks. She says the i-bank tribe’s most revered value is “smartness.”

Ms. Ho started researching the culture of Wall Street as a Princeton grad student in Anthropology. Usually, talk of Anthropology conjures images of going to a rain forest to study strange customs. But Ms. Ho, now an Anthropology prof, finds her cultural oddities in the jungle of downtown Manhattan.

At one point she decided field interviews were not enough – she needed to get inside Wall Street by working there. She recalls a Goldman Sachs recruiting session:

“So why should you work here?” asked the recent white male alumnus from Harvard. “Because if you hang out with dumb people, you’ll learn dumb things. In investment banking, the people are very smart; that’s why they got the job. It’s very fast, very challenging, and they’ll teach as quickly as you can learn.”

Sound a little elitist? Repeatedly, Ms. Ho says, Wall Streeters told Ivy League prospects in recruiting sessions for i-banks things like, “We hire only superstars” and “You are the cream of the crop” and “You are all so smart!” (A few years ago, recall, Wall Streeters had jobs – and even needed to hire more.)

Once inside, of course, the oh-so-smart bankers reinforce the self-image. Ms. Ho says that feeling of smartness is what the Wall Street culture is all about.

Now fast forward to the financial meltdown of 2007-09. The article notes Ms. Ho’s conclusion that Wall Street’s latest downfall resulted not so much from greed or stupidity as from the smartest-guy-in-the-room syndrome:

The crash is the natural result of a Wall Street culture in which the self-proclaimed smartest people in the world came to believe that high share prices trumped all other corporate values and, in doing so, imposed their ethos of live-for-today risk-taking on the economy at large.

Not everyone on Wall Street, of course, embraces an elitist culture. I have worked with i-bankers who are humble, down-to-earth and friendly. And some investor relations and corporate execs play know-it-all. On the other hand, as a stereotype for i-bankers, there is some truth to the image of “smartest guy in the room.”

[Disclosure: I have not read Ms. Ho’s book. The magazine version was fine, but I don’t think I’m up for an Anthropology tome published by a university press. Her bottom-line conclusion is interesting. Let me know if you read the ethnography.]

Schoolmarm & the three Rs

September 14, 2009

FederalHall-GovtPhotoPresident Obama commemorated today’s anniversary of the collapse of Lehman Brothers and the ensuing financial panic by going to the Wall Street playground and delivering a schoolmarm’s lecture to the boys who’ve been acting up. (News story here, text of speech here.)

Like many a grammar school teacher, Mr. O lectured all the kids without differentiating much between those who actually misbehaved and those who followed the rules. For example, the president said:

I want everybody here to hear my words: We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

The president retold the brief history of the financial crisis since September ’08. Not delving much into root causes or the cyclical nature of markets, he focused on the misdeeds of Wall Street. He reminded us (twice) that the crisis was already raging when his administration walked in the door. In this lecture, he made it clear that the schoolboys have failed to learn the three R’s.

The first “R” word is risk. And risk, we gathered from the president, is bad. At least, it’s bad when Wall Street fails to properly anticipate or control it – he spoke of risky loans, risky behavior, reckless risk. These may be seen more easily in hindsight, perhaps, but the president definitely wants financial markets to take less risk.

The president also invoked responsibility. We heard the second “R” word 20 times in its various forms. Mostly, he chastised the giants of the financial world for not acting responsibly … and urged them to grow up and embrace responsibility.

Most of all, Mr. O lectured on regulation. He said the financial crisis came about, essentially, because of a lack of adequate regulation from Washington. And he promised the errant schoolboys more regulation – much more – and by the end of this year if he and Vice Principal Barney Frank have anything to say about it.

Don’t get me wrong. I’m not defending executives on Wall Street, or elsewhere, who failed to disclose risks to investors, dodged responsibility for their actions, or found ways to exploit loopholes in regulation. The wreckage of shareholder value is producing recriminations – and malefactors deserve what they get, you might say.

Mr. O offered one admonition to corporate leaders that I think is correct:

The reforms I’ve laid out will pass and these changes will become law. But one of the most important ways to rebuild the system stronger than it was before is to rebuild trust stronger than before — and you don’t have to wait for a new law to do that.  You don’t have to wait to use plain language in your dealings with consumers.  You don’t have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote.  You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.

Those are actions CEOs and boards of directors could begin taking, and if they demonstrate responsibility maybe the powers in Washington will feel less need for severity in imposing all manner of new regulation. Maybe.

President Obama had all the rhetoric right today at Federal Hall. His speech, of course, was short on detail and long on generalities. He really was speaking to people outside the financial markets, those who deeply resent the bailouts and bonuses and (especially) both happening at the same banks. The symbolism of going to Wall Street to deliver the lecture was the main point today.

Whether the new rules that the financial markets eventually do get will actually improve things – or merely shift risks into different forms and sectors while stifling the flexibility (and discipline) of the free market – we will see in time.