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May 20, 2009

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A Proprietary Trader

interesting to note that the Volker rule is trying to eliminate some of these conflicts of interest by trying to rid the banks of proprietary trading. However, I cannot realistically see banks like Goldmans who made more than 10% of global profit from prop trading actually eliminating this activity. They will rebrand their prop traders as "asset managers" or move them out-of-house in some financial sleight of hand to comply with the rule and keep the profits.

Michael L.Weiss

The Fed and Treasury have no experience valuing assets. It makes sense to contract this to the most experienced firm. This is a perfect example of how the maladies of the crisis can help jumpstart the economy.

Michael Lent

We need to recognize that the critical Treasury bailout programs' support contracts (not FAR-based as you point out) are for the firms to be Financial Agents of the United States, real fiduciaries in the legal sense. Subject to the most intense scrutiny and audits in that role, they would be fools to exploit their positions of trust. (Yes, we have seen a few fools and miscreants on Wall Street in recent years.) Others that hold such positions, e.g., in Treasury bond marketing and distribution, pass the smell test, except for scandals every 10-20 years. I don't believe the firms supporting Treasury bailout, though worldly, truly appreciate the relative fishbowl they inhabit, but they live by their reputations and have lusted for the cache of advising Treasury. We need to know more about their firewalls and other COI mitigations. Regarding alternative firms, let's get real: none of the typical government services contractors has even one of the several kinds of the right financial expertise and experience to serve in these roles in financial asset management, valuation, and market operations. And they are not ready to sign up to be fiduciaries, like a bank. Some have suggested the large accounting firms, but their rap sheets, including nolo contendere settlements, and big client lists are both much too long. The hardworking crew at 1500 Pennsylvania Avenue are desperate for top advice and staff. But the government would be unwise to take the bait of unsuitable contractors. We can't afford learning on the job just because of the risk or appearance of conflicts of the Wall Street firms. Cooler heads will need to agree on the right additional detailed disclosures, measures and surveillance. Surely there must be surgeons of redaction rather than just bludgeons.

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