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Government shutdown taking its toll on Wall Street

The ongoing government shutdown has major consequences for the U.S. economy, namely the potential for a breach of the debt cap and a federal default that could toss the country right back into a recession. In smaller, less-known ways, the shutdown is affecting Wall Street’s day-to-day operations.

Ironically, some Wall Streeters may not mind the shutdown in the short-term as the biggest impact is being felt by regulators. The Commodity Futures Trading Commission has been forced to send much of its staff home, meaning it is no longer working on completing Wall Street’s new bible: Dodd-Frank. It’s also likely that its enforcement agency, working on high-profile cases against J.P. Morgan and others, has been equally stymied.

Meanwhile, the CFTC is in the heart of implementing new regulations for derivatives markets. Gary Gensler, the head of the derivatives regulator, had to call around Wall Street himself last week to make sure the systems were actually working.

Prosecutors overseeing criminal cases against individual bankers have also run into roadblocks. The insider trading suit against Rengan Rajaratnam, the younger brother of the now imprisoned hedge funder Raj Rajaratnam, has been delayed because prosecutors can’t access digital information held by the U.S. Department of Justice. The SEC is still operating, but its surplus of cash will run out eventually. Put simply, Big Brother is hurting.

Elsewhere, bankers and traders are being hampered. Federal job reports, typically key movers of markets, are not being published. Hedge funds that rely on freedom of information requests from the EPA and the FDA have been blinded. Come this week, oil traders will no longer have access to the Weekly Petroleum Status Report that is key to many of their decisions.

All told, market volume will likely slump eventually; volatility could increase significantly. Let’s go Washington.

MBA Ranks (eFinancialCareers)

The latest MBA rankings are out, and they tell two very different stories. U.S. business schools hold eight of the top 10 spots, but European and Asian schools appear to provide a much greater return on the investment.

‘Painful’ Quarter (eFinancialCareers)

J.P. Morgan booked a $380 million third-quarter loss due to massive litigation charges. Wells Fargo, meanwhile, booked a better-than-expected Q3.

Europe Coming to NYC (Bloomberg)

European hedge fund giant Brevan Howard has reportedly launched an investment fund in New York led by former Deutsche Bank advisor Vinay Pande. Brevan Howard has increased its U.S. staff from two to 28 over the last year-plus. Meanwhile, London’s Odey Asset Management also announced it will open an office in New York.

Libor 2.0 (WSJ)

The FBI is the latest authority to launch a criminal investigation into the possible rigging of foreign exchange markets. It sounds like we may have another Libor-like scandal on our hands.

Conflicts of Interest (DealBook)

A former examiner at the Federal Reserve Bank of New York is contending in a lawsuit that she was fired after refusing to change negative findings concerning Goldman Sachs and its lack of procedures to guard against potential conflicts of interest.

No More Favors (WSJ)

Some trading platforms "have tried to set up a two-tiered process" that gives big banks an advantage over other traders when it comes to derivatives transactions, according to Commodity Futures Trading Commission Chairman Gary Gensler, who said he plans to call the platforms and issue a warning.

Babson Attacks Emerging Markets (Bloomberg)

Debt manager Babson Capital Management has hired Brigitte Posch and Ricardo Adrogue to lead its new emerging markets investment team.

Massive Client Redemptions (CNBC)

Common Sense Investment Management founder Jim Bisenius was arrested for soliciting a prostitute in August. It’s cost him more than just bail money. More than 90 percent of the $3.2 billion under management is walking out the door.

Buzz Around the Office

Hangover Cure (NYDN)

If you find yourself with a pounding headache caused by too much fun the night before, crack open a Sprite. Researchers claim that the lemon-lime soda is the best-available cure for a hangover.

List of the Day: Ready to Go Solo

Mulling quitting your job and starting your own firm or practice? Here’s how you know it’s time.

  1. You are ready to scale but don’t have the time.
  2. You have saved enough to support yourself.
  3. You are prepared to sacrifice to make it happen.

(Source: The Daily Muse)

AUTHORBeecher Tuttle US Editor

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