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The New York Stock Exchange is being sold, but the game’s the same
By: Dennis SDec. 23rd, 2012more from Dennis S
Of all the potential suitors for the New York Stock Exchange (Technically NYSE Euronext), I would have kept IntercontinentalExchange (ICE) and its sketchy founder and CEO, Jeff Sprecher at arm’s length until the venerable 220-year-old institution was sold off to somebody (anybody) else. My reasoning will soon become obvious.
If my background research is any indication, the NYSE may have to be relocated to Dodge City, a move befitting the history and fiscal mentality of its probable new owner. The takeover of the NYSE is still pending approval of the sale to Sprecher for a bargain basement price of $8.2 billion, about $3 billion less than Sprecher’s co-venture offer with NASDAQ of just one year ago. In the Wild West, Sprecher would have been considered a financial gunslinger given his firm’s role in clearing Credit Default Swaps (CDS) barely regulated over-the-counter derivatives at the very epicenter of the Bush-era financial collapse. These contracts are often described as an insurance policy assuming the entity in question would eventually go belly up and when it did the CDS holder (buyer) would collect handsomely (generally on the debt total) after having paid ongoing fees to the seller . Problem is there’s often no money to pay said holder.
No equity player in the world comes anywhere near clearing as many CDS’s as ICE. Specher is also a huge participant in the oil, gas and energy markets with deep connections to every power player of every major petroleum company not to mention every huge bank extant. And, pardon the pun, power plants as well.
The real reason for his takeover of the NYSE could be enormously irresponsible and downright dangerous to the exchange and the world’s financial markets. As I’ve written before, there have been between 60 and 70 trillion dollars worth of CDS grenades in existence in ’07 just waiting in trader drawers for their pins to be pulled. If that happened a world fiscal collapse would ensue. The big boys insist that the estimated current CDS count is nearer to 12 or 13 trillion; veritable chicken feed. Since there are no regulations forcing a report on CDS contract transactions, nobody really knows how many are out there. Who clears more CDS’s than anybody? Why, ICE, of course, which clears the vast majority of the contracts. Virtually every major bank does CDS business with Sprecher.
ICE, an acronym not to be confused with the federal agency, Immigration and Customs Enforcment, was founded by Sprecher in May of 2000. He remains its CEO. He’s dabbled in every investment sector you can think of; online energy and commodity trading, exchanges, futures markets, consulting; you name it. And, like many high rollers, he’s considered to be, well, sketchy, even back in 2008 where a New York Times piece quoted Washington Democratic Senator, Maria Cantwell as saying, “To be clear, ICE is a dark market.”
The article further describes his derivative trades as “esoteric.” In numerous appearances before lawmakers, his company has been called shadowy, conspiratorial, unregulated and opaque. According to the online account, there may even have been the possibility of connections to market manipulation and the Enron scandal. All these suspicions notwithstanding, there are no convictions in Sprecher’s CV.
According to Bloomberg Business Week, he lives in a $10 million Atlanta mansion and flashes a $40,000 watch. God forbid we should raise his taxes a couple of percent. But flashy guys like that are usually not to be trusted. I think we’ve got another Romney on our hands. A guy who seeks out every questionable legal advantage he can find to make more money. Fine; let him play with OPM and sweet-talk the energy companies and banks and charge fat fees for his friendship and advice about where to go for the least regulation and federal hassle from liberal government lifers who would have you obey the rules. To hell with that. I’m sure unquestioningly following regulations was not what he was taught in his business classes at right-wing Pepperdine University, ever the academic protector of all things that bespeak of capitalistic excesses.
If it’s true that you’re known by the company you keep, let’s take a look at the ICE Board of Directors and see what kind of company Sprecher’s company keeps. I’ll name one name, then just connections. The name is well-known in New Hampshire politics; the former New Hampshire Governor and three-term U.S. Republican Senator, Judd Gregg. He, of course, will serve as the government insider for ICE. He’s also been named an “International Advisor” by Goldman Sachs. Other board members include a member of President Obama’s Economic Policy Advisory Committee and former Chief of Staff to the former Louisiana Democratic Senator John Breaux, now a top DC lobbyist.
Another one of the Board Boys has an oil background with an affiliate of Shell and as President of a major pipeline company. A Brit Director was a one-time CEO of Shell U.K. A VP of Verizon is also a member, not to mention the NY Superintendent of Banks in the Mario Cuomo administration. Let’s face it; all the bases are covered at ICE. Now they’re going to own the New York Stock Exchange. Bank, Oil, Power companies and Investing interests are going to run the equity portion of the holding.
However, the NYSE is not really the plum here. In fact, in the NASDAQ co-venture I referenced earlier, Shrecher was willing to give its partner the whole of the NYSE. That didn’t work out so Shrecher will put all his aforementioned insider chips to good use as NYSE owner. As Time Online explains it, the other part of the NYSE that Shrecher really coveted is not even in the U.S. London is home to Liffe which trades in the much more lucrative derivatives market. Given computer and electronic availabilities, the equities market is really not the most desirable fish in the sea any more. But Shrecher, even with the baggage of the NYSE, will continue to prosper by multiple millions annually because he’s covered all his bases. And he’ll benefit from a probable NYSE bounce-back.
So brace yourself. Once this sale is approved (and it will be with that Board), you’ve got an incredible and concentrated power base that will have both Republicans and Democrats doing its bidding. The little guy and girl investors, even the fairly big, little guy and girl investors, are again just along for the ride.