Category: Publish to KM Space

The House Financial Services Committee Wants to be Your Friend

Congressman Bachus must have let one of his grandkids near the computer. The House Committee on Financial Services, of which Congressman Bachus is the chairman, has jumped into the world of social media. They have a Twitter feed, a YouTube Channel, a Facebook page and a blog: The Bottom Line.

Even though the SEC has not yet come out with its final whistleblower rule, the committee has set up its own whistle blower form. They have a comment box so you can send comments about legislation.

As for the blog,

“We will bring to your attention what we think is important and interesting. We will post what we’re reading and what we’re thinking. We will post short reaction pieces and longer thought pieces. We will blog about ideas and policies that we support and that we don’t support. We will try to entertain. Most importantly, we will try to engage our readers.”

It’s a nice, although extremely partisan, attempt to provide more information. I’m all for open government and an open discussion of the issues. Maybe using these communication channel will help bring more openness. Maybe they will just bring more grandstanding and partisan bickering.

One of the features on the committee’s website is Collateral Damage: the real impact of the Democrat’s bailout bill.  I get the sense that the website is more about political propaganda than open government.

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The Monstrous Size of Dodd-Frank

“What is 20 times taller than the Statue of Liberty, 15 times longer than “Moby Dick” and would take the average reader more than a month to read, even if you hunkered down with it for 40 hours a week?”

If you’ve been Dodd-Frank’ed, you know the answer.

The last round of financial overhaul was the Sarbanes-Oxley Act that came out of the Enron scandal. SOx weighs in at 66 pages. Dodd-Frank eats that for breakfast; It’s in heavyweight class at 849 pages.

That is just the legislation. Dodd-Frank put a big burden on financial regulators to work out the details to implement their vision (as myopic as it may be at times).

“In addition to the 30 rule-making procedures that already have missed the deadline set by Congress, 145 are supposed to be completed by year end…. Officials at the SEC, on the hook for more Dodd-Frank-related regulations than any other U.S. agency, have finished six rules, proposed 28 additional rules, missed deadlines on 11—and still have 50 to go, on which they have yet to issue any proposals.”

So far the regulatory “process has produced more than three million words in the Federal Register—or more than 3,500 11-inch-high pages.” And almost 2/3 of the rules required by Dodd-Frank have not even been proposed.

Congressman Barney Frank thinks missing the deadlines is no a big deal. “There is no penalty for not meeting the deadline,” Mr. Frank said during a webinar sponsored by the National LGBT Bar Association. “There’s no gun at their heads. Nobody gets fired.”

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The Case for Executive Assistants

Why would you pay managers big salaries and then ask them to make their own hotel reservations?

Since it’s Administrative Professionals Day, a story in this month’s Harvard Business Review caught my eye: The Case for Executive Assistants. (Now looking at the Administrative Professionals’ website, I see it has grown from being mere a day to become an entire week.)

Technologies like e-mail, voice mail, mobile devices, and online calendars have allowed managers at all levels to operate with a greater degree of self-sufficiency. At the same time, companies have faced enormous pressure to cut costs, reduce head count, and flatten organizational structures. As a result, the numbers of assistants at lower corporate levels have dwindled in most corporations. That’s unfortunate, because effective assistants can make enormous contributions to productivity at all levels of the organization.

The author does some simple math to justify the cost of administrative assistants.

Consider a senior executive whose total compensation package is $1 million annually, who works with an assistant who earns $80,000. For the organization to break even, the assistant must make the executive 8% more productive than he or she would be working solo—for instance, the assistant needs to save the executive roughly five hours in a 60-hour workweek.

Of course, lots of the burden for getting that productivity boost lies with the executive/manager. You need to delegate wisely.

It’s a great, short article and timely. Unlike most content from the Harvard Business review, this article is available for free. (At least for today.)

Free Will and Compliance

“Human Irony” from Saturday Morning Breakfast Cereal

Heisenberg Uncertainty: Published by Werner Heisenberg in 1927, the principle implies that it is impossible to determine simultaneously both the position and the momentum of an electron or any other particle with any great degree of accuracy or certainty.

The SEC is Looking at Advisers’ Use of Social Media

According to a story in Investment News, the Securities and Exchange Commission began a sweep of investment advisers’ use of social media and social networking last month.

The story hast a quote from Doug Flynn, an adviser at Flynn Zito Capital Management LLC, that is exactly on target for traditional investment advisers:

“I’d love to start tweeting to the general public once they can clearly tell me what I can and can’t do. However, putting yourself out there too much without specific guidelines is just not worth the risk.”

I don’t think the same is true for private fund managers who will soon have to register with SEC as investment advisers. How does the SEC’s regulation of Web 2.0 affect private fund managers once they register as investment advisers?

Not much.

Private funds are limited by the prohibition on general solicitation and advertisement.  They usually rely on Regulation D to keep from having to register the interests in their funds. Rule 502(c) of Regulation D states that “neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:

1. Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and

2. Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. . . “

The very public nature of social media and social networking sites are going to put them squarely in the box limited by this regulation. Even though there is some ability for a fund manager to use social media under the Investment Advisers Act, that ability is curtailed by the limitations under the Securities Act. Certainly, fund managers and their personnel can use web 2.0 tools for personal reasons and business reasons not related to advertising their firm or its funds. (You will notice that I don’t publish posts about my firm or its funds.)

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Read a Free Book

I have an extra copy of All the Devils are Here by Bethany McLean and Joe Nocera.

They put together an insightful look at the many factors that created the housing bubble and amplified the destruction when it popped. Pundits and purists have tried to pin the blame on a single element. It seems clear that many “devils” were at work. It’s not just institutions that failed in the crisis. The authors paint the pictures of key individuals who helped inadvertently build up the housing bubble or allowed for it cause mass destruction.

I thought it was a great book, but I don’t need two copies sitting on my bookshelf. If the book is on your reading list and you have not yet purchased it, here is a chance to get a free copy.

To enter the giveaway,

  1. leave a comment in this post, or
  2. send a message to my contest email address [email protected].

[button link=”mailto:[email protected]?subject=Contest Entry” color=”red”]Enter the Contest[/button]
The entry deadline is February 21, 2011. I’ll randomly pick a winner from the entries I receive by the deadline. If you are the winner, I’ll contact you for your mailing address.

Looking at the Residential Mortgage Crash

Matt Phillips at WSJ.com’s Market Beat put together some great charts showing the problems with the residential mortgage market: Fannie and Freddie: The Saga in Charts.

The first one that caught my eye shows how Wall-Street took such a quick, big chunk of the market share of residential mortgage-backed securities during the housing boom.

Fannie Mae and Freddie Mac’s share of mortgage-backed securities issuance plummeted from 70% to 40% during the housing boom. We have seen in many companies and markets that rapid growth comes without a similar growth in market controls and compliance. I think the lack of market systems and compliance contributed to the crash. It’s hard to understand the market when it barely existed a few years earlier.

Did Wall Street take business away from Fannie Mae and Freddie Mac? It looks like Freddie Mac and Fannie Mae’s origination activity was relatively stable. The private mortgage-backed securities were tapping into a new market.

As Joe Nocera and Bethany McClean noted in All the Devils are Here, the vast majority of that subprime activity was refinancings or second home purchases.

For those trying to pin the blame for the 2008 Crisis on Fannie Mae and Freddie Mac theses charts point in a different direction. Not that Fannie Mae and Freddie Mac are without blame, it’s clear that Wall Street excess carries a big chunk of the blame.

The last question, and the last chart, help answer the question of whether we need Wall Street in the mortgage business.

The answer seems to be yes. There are not enough deposits in the banks to cover all of the outstanding US home mortgage debt.

Celebrate Valentine’s Day with a Regulatory Twist

As someone who stares at a lot of regulations, this Valentine’s Day message caught my eye. If you are a fan of NPR, they have several other ways to share Valentine’s Day with an NPR flavor.

And don’t forget about the compliance issues you can run into. Dan Schwartz compiled a bunch of bungled romance issues in Employers: Think Your Competition is Tough? Watch Out for the Valentine’s Day Card.

UPDATE: The obscene and indecent material restriction is 47 C.F.R. 73.3999.

Blogoversary and Why I Blog

Instead of substantive information, today’s post focuses on me and this website.

Compliance Building went public on February 12, 2009. Since then, I have managed to publish a blog post every business day. Sometimes, more than one. I hope at least some of those 1250 posts were useful to you, whether you are a subscriber or one of the other 200,000 or so visitors to Compliance Building over the past two years.

Thanks for reading.

If you haven’t done so already, you can subscribe and have my posts sent to you. It’s free, except on the Kindle. (I can’t convince Amazon to change the price.)

I started my first blog, KM Space, on this day in 2007. I set up Real Estate Space a few months later. Now I’m moving into my fourth fifth year blogging.

Why do I do this?

Mostly, I publish because the information is useful to me. This blog is a personal knowledge management tool. It’s all about trying to capture information that interest me and has relevance to my day-to-day work. I find that writing my thoughts adds some clarity to my thinking. By putting all of that information into the blog, it’s in a place where it is easy to find.

The secondary reason is that it’s good for the industry to be focused on compliance and ethics. If it’s good for the industry then it’s good for my company and good for me personally. If a fellow private equity real estate company gets into compliance or ethical trouble that will reflect poorly on the industry as a whole. Inevitably, that will make my job harder. It will likely make it harder to raise capital and to get deals done. That’s bad. So I try to share information that will benefit the industry because that benefits me.

I admit this blogging experiment is self-centered, but I’m happy to have you along for the ride.  If you want more detail on this you can read my Why I Blog page.

For those of you who know me from KM Space, I will continue to publish a subset of my Compliance Building posts to the KMspace feed. No need to say goodbye. Unless I’m boring you.

Image is from Cake Wrecks: Close Enough.

How to Find Answers Within Your Company – Would Quora Work?

Making sure that people get the right answer to questions is vital to the success of a business. From a compliance perspective, it’s important that questions in the compliance domain get answered correctly. It’s just as important that compliance professionals can find the correct answers to their questions.

On one side you have GRC, trying to answer questions related to governance, risk and compliance  in an integrated platform. But lots of questions will still be ad hoc and outside the information in the GRC systems.

One of the latest Web 2.0 darlings is Quora. It’s a continually improving collection of questions and answers created, edited, and organized by the community.

Quora

I found Quora mildly interesting, but a compliance nightmare.

From the perspective of a lawyer, answering legal questions in a public platform is fraught with peril. I found most of the legal questions to be vague and incomplete. It’s an easy trap for a less-careful lawyer to inadvertently create an attorney-client relationship or legal liability. For financial professionals, you can easily trip over the requirements for record-keeping and preapproval if the answer related to financial advice. (I have only answered questions about snowboarding.)

I view Quora as another knowledge management platform placed in the public web. It’s interesting to see it work, but I’m skeptical of its viability. I’ve seen many question and answer platforms come and go. Quora adds the improvements of requiring registration, community run organization and rating of answers.

Quora seems to still be at the stage of altruism. People are asking questions and answering them out of curiosity and the willingness to share. The marketers and self-serving, underemployed consultants will come eventually and fill it full of inane answers and ads.

Once the shiny newness wears off, what will keep someone coming back to contribute content? That has always been the problem of knowledge management. It’s hard to get the experts who really know the answer to contribute their response. A recent article in the MIT Sloan Management Review drove home this point: How to Find Answers Within Your Company.

Knowledge Markets

Altruism will only last so long and a person’s willingness to contribute will wane as the next fad comes along the web. The challenges and the needs are different when you bring a knowledge market, like Quora, inside your company.

The first generation of knowledge management was all about centralized systems. They produced mixed results. They ignored the market for knowledge and just imposed a top-down centralized structure to try capturing work product.

How to Find Answers Within Your Company points out that the system failed to place a value on contributed material or, if it did, the value was fixed. The failure to gain contribution was largely a failure to understand the economics of contribution. Bebya and Van Alstyne point to three forms of incentives: spendable currency, recognition for expertise and the opportunity to have a positive impact.

You can’t fix the price. Information that is more valuable than the price is less likely to be created. Experts won’t waste their time. When information is less valuable than the price, less-expert workers will volunteer just to get compensated. This is the classic knowledge management problem, getting the experts to contribute and highlighting the best content. The paper offers examples of knowledge systems that added a marketplace to better value and price contributions.

It’s not just about cash. Take FourSquare as an example. They use gameplay to encourage people to check-in to locations. Earn a badge or try to become mayor. They also offer the cash reward of specials offered by merchants.

For anyone interested in improving their ability to capture knowledge, the article provides lots of other great insights in what works and does not work in knowledge markets.

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