The U.S Congress is in the final stages of tinkering into existence a Wall Street reform law.

One of the simmering issues is the adoption of the Volcker rule (named after the former Chairman of the Reserve in the US). 

The rule will discourage banks trading on their own account unrelated to their customers’ needs and  will also clamp down on banks’ involvement with hedge funds and private equity funds.

Banks are seeking exemption from the rule in cases where their participation is small.

Paul Volcker is having none of it and the President respects the views of the former Reserve chief.

The struggle is far from over.

Hedge fund managers and derivatives are a lethal mix to swallow and when managers are busy shorting shares the prospect is not for the chicken-hearted. 

In recent times fiddling hedge funds going short have become frequent and fearful.

There is neither animus nor affection for the hapless targets.

It’s just plain and simple - Gordon Gekko ‘greed is good’ hubris.

Last week it was reported that our banks were riding for a fall.

U.S hedge funds were dumping their shares, ostensibly because the bottom was about to fall out of our housing market.

US hedge funds dump Australian bank shares

It is indeed comforting that the Chairman of APRA in a speech delivered on 9 June 2010 has assured that APRA’s recent stress-test has provided important evidence that the Australian banking system has the capital resources to weather an economic contraction much worse than that expected during the depth of the global financial crisis.

THE AUSTRALIAN BANKING SYSTEM UNDER STRESS?

Ever wondered what other people are searching for on IntelliConnect?

Is there something I’m missing?

Is there a particular search term that will reveal the answer to life, the universe and everything?

Never fear, all is revealed below with a list of the top 100 search terms in IntelliConnect this week:

Top 100 search terms in IntelliConnect (week ending 28 May 2010):

1. fbt
2. Division 7A
3. insurance
4. depreciation
5. GST
6. margin scheme
7. superannuation
8. investment allowance
9. debt forgiveness
10. Living away from home allowance
11. non-commercial losses
12. Depreciation rates
13. permanent establishment
14. managed investment trust
15. Capital Gains Tax
16. commercial debt forgiveness
17. finance lease
18. lease
19. car parking fringe benefit
20. rental property
21. stamp duty
22. annual leave
23. residency
24. long service leave
25. redundancy
26. relocation
27. motor vehicle expenses
28. depreciation rates 2010
29. effective life table
30. interest
31. otherwise deductible
32. bamford
33. caveat
34. directors
35. low income tax offset
36. payroll tax
37. minor benefit
38. small business cgt concessions
39. indemnity
40. capital works
41. resident
42. effective life
43. reportable fringe benefits
44. main residence
45. employee share scheme
46. fringe benefits tax
47. retirement exemption
48. minors
49. active asset
50. going concern
51. family law
52. cost base
53. TOFA
54. Trading stock
55. trust
56. sexual harassment
57. share buy-back
58. superannuation guarantee
59. Entertainment industry expenses
60. insider trading
61. trust losses
62. withholding tax
63. income
64. family trust election
65. penalties
66. allowance
67. partnership
68. salary sacrifice
69. thin capitalisation
70. education tax refund
71. Liquidation
72. interest deductibility
73. property
74. Condition of release
75. car parking benefit
76. assessable income
77. superannuation contributions
78. gifts
79. director
80. incurred
81. car parking
82. 40-880
83. personal services income
84. employee share schemes
85. tax rates
86. software
87. reportable fringe benefit
88. “consequential loss”
89. cabcharge gst
90. work test
91. base value
92. car
93. “section 45″
94. distributable surplus
95. deduction
96. ACL_HANDLE ca4-s.48AA
97. “work test”
98. foreign losses
99. principal place of residence
100. ohs

What is happening to the development of the law? We have seen more and more law making – indeed an explosion of law making in the past 20-30 years. Yet litigation is in decline.

For many reasons new laws are not being tested or explained by the courts. The trend towards principles based legislation – it makes for a shorter Act – only compounds this. 

Case management models encourage parties to settle.  So regulators and other government agencies can often provide the only authoritative view. Yet at law school we are taught that the “law” is the law of cases and precedent.

CCH grappled with these questions at a recent internal editorial workshop that brought together some of the best thinkers in the country – Professors David Weisbrot and John Wade, and Steve Mark, NSW Legal Services Commissioner. Here we began to understand the pyramids of conflict and where lawyers and judges fit in, if at all.

John Wade led us away from the lamp post into the darkness – to look for the hidden law. Is it in the customer call centre rather than the Federal Court that most consumer disputes are resolved? 

David Weisbrot explained that soft skills can be as important as (if not more important than) technical skills in recruiting practitioners and appointing partners.

Steve Mark told us that complaints against lawyers are overwhelmingly about their relationships with their clients not about their knowledge of the law. Where do they teach how to be a good manager at law school?

So writing about the law in the future will take CCH to different worlds – to statistics, trends, best practices, rules of thumb, more one page summaries and checklists.

CCH will continue to look under the lamp post but will also look into the darkness.

Will this help you understand better what is really happening in the legal and regulatory environment. We hope so. Please tell us what you think.

Got a question about Australia or Australians? A new search engine developed by the National Library will have the answer.

Its called Trove. It searches across content from mostly Australian libraries and other institutions.

Just one of its many nice feature is that it includes archives of Australian newspapers from 1803 to 1954.

But you can also find things like books, diaries, journals, magazines, articles, pictures, maps. music, sound and video archives all sourced from Australian libraries and other institutions.

You can find it at this URL: trove.nla.gov.au.

And just in case you’re wondering … What is Australia? Try this search: http://trove.nla.gov.au/result?q=what+is+australia%3F

George Soros is back in the news warning that the financial world is relentlessly hurtling headlong into a bigger boom and bust than the GFC.

The continuing lack of effective financial market regulation, the spiraling trade balance between countries, gloomy employment prospects in most countries and the looming Greek crisis are getting uncomfortably close.

Soros has been consistently questioning the reasoning in high circles of finance that the ‘magic of  markets’ has the wherewithal to correct itself and that the efficiency of the markets is a bastion of stability.

Well, nothing seems to have changed for the better with regard to the regulation of markets - we’ve only seen stimulus packages.

The regulators believed that the financial markets had the ability to reach equilibrium and that behavior in the market place was predictable just like under the laws of natural science.

In his famous book “ The crash of 2008 and what it means” Soros refers to his favorite ‘theory of reflexity’.

According to this theory, prices cannot only be determined by assuming that the markets are efficient (and that they will reach an equilibrium) but also by considerations such as bias and expectations of market participants.

He argues that bias of market participants has the potential to influence the course of events, which in turn can change the bias of other market participants.

The spiraling decline in the value of securities and derivatives (especially synthetics such as the CDS’s) is a good example of reflexity at work.

There are a few reported observations by Soros that may well be considered  here in Australia:

1. The package negotiated for the rescue of Greece should be levying only concessional rates of interest. Higher rates would invariably lead to greater problems in the future. Similarly if a business is in a cash flow difficulty lending should be at a reduced rate so that the threat of insolvency does not make a comeback;
2. The ‘oligopoly’ of the four largest banks in the United States should be broken up (the number of ‘oligarch’ banks in the US  sounds familiar); and
3. Implementation of the ‘Volcker rule’, according to which banks should not be allowed to take part in owning hedge funds and private equity operations.

Paul Volcker (“Slay the inflation dragon”) was succeeded by Alan Greenspan as Chairman of the Reserve in the Unites States.

Click here for SMH article “George Soros issues stark economic warning”, 15 April 2010.