Let’s fast-forward to the next bull market, in early 2013. Regulators and market participants have learnt the lessons of the 2007-09 credit crunch. There are signs of a new bubble, and everyone wants to avoid the excesses that made the last downturn so dramatic. Here’s what key players might do.
Lehman Brothers Holdings Inc. chairman emeritus Dick Fuld complains that stock investors have conspired to send the firm’s share price to unsustainable highs.
The US Securities and Exchange Commission, or SEC, struggling to find its third new chairman in five years, announces a sweeping probe of buyers of rocketing financial stocks, aimed at rooting out market manipulation through the spreading of falsely optimistic rumours.
The SEC also sets emergency limits on investors’ call option positions.
Ben Bernanke, the US Federal Reserve chairman who has been raising interest rates by 0.1 percentage point each quarter for two years, talks the Federal Open Market Committee into a rapid series of sharp interest rate hikes to curb what his predecessor, Alan Greenspan, called “irrational exuberance” in markets.
The US treasury and the Fed make a Sunday announcement of plans to temporarily increase financial institutions’ capital requirements to offset the inflated value of financial assets.
Morgan Stanley’s newly appointed chief and her Wall Street counterparts say bonuses for 2012 will remain unchanged from 2011 despite a 200% increase in profits.
“We don’t see why everyone should benefit from the huge profit on our carbon trading desk, which was an aberration in an isolated part of the firm,” she says.
The financial industry alliance speaks out against fair value accounting, saying the method has artificially inflated financial firms’ assets and profits.
The industry group proposes that compensation on Wall Street should be adjusted downwards to reflect this.
Credit rating giant Poor and Moody declines to rate collateralized pollution derivative options, saying CPDOs are “untested and overly complicated” and indicating it has insufficient resources to rate the instruments.