Or take Deutsche Bank, as the FT does here:
In yet another case, during the course of 2007 the proprietary trading desks at Morgan Stanley and Deutsche Bank entered into a dispute about the value of a $16bn subprime CDO deal. Morgan Stanley valued the position at 95 per cent of its face value; Deutsche at 70. In the event, since Deutsche had lent money to the Morgan Stanley team as part of the deal, it was able to force through the lower price – creating a $9bn loss for the American investment bank. (Deutsche’s proprietary trading desk went on to make more money from that transaction. One of the consequences of the settlement was a fall in the value of such CDOs in general – a shift that played into the hands of the German bank’s traders, who had taken considerable short positions betting on precisely such a price drop.)
Who was actually right on the pricing? I don’t know and neither does Deutsche or Morgan Stanley. The point is the power that one bank has over the other and the conflict of interest that creates when that bank is betting prices will go lower.
The nut comes from the sidebar writing about the financial-reform bill and its effect on such issues:
A central reason why banks have enjoyed so much power, and profit, in recent years is that they have been able to control information flows in obscure corners of the market that politicians do not usually have the energy – or appetite – to probe. As things stand, that is unlikely to change.
No surprise there.