Introduction
Bill Hambrecht believes that Obama should steer clear of knee-jerk regulatory responses and instead restore transparency, fairness, and trust into the capital markets through solutions including forcing all derivatives trading onto regulated exchanges. Hambrecht, 73, has been in the securities business since 1958. He co-founded the San Francisco-based investment bank Hambrecht & Quist in 1968. Noted for its focus on the technology sector, H&Q was one of the pioneers of Silicon Valley’s venture capital industry. Hambrecht resigned from H&Q in December 1997 to form WR Hambrecht + Co., which has introduced a new “Dutch auction” technique that has increased the amount that companies can raise through flotations. Hambrecht is currently a director of Motorola, Inc., and on the advisery council to The J. David Gladstone Institutes. He is also in the wine business, owning several hundred acres of vineyards in Sonoma County and a winery in Healsburg, California. Hambrecht graduated from Princeton University in 1957. He was inducted to the American Academy of Arts and Sciences in October 2006.
Principles, Not Rules, Will Sort Out This Mess
Warren Buffett once famously described derivatives as “financial weapons of mass destruction” that were in danger of exploding at any time, taking with them the institutions that traded in them and perhaps also the entire economic system. Made in the 2002 Berkshire Hathaway annual report, it has proved a remarkably accurate prediction.
So what lay behind the great disruption of September and October 2008, when a number of leading banks nearly followed Lehman Brothers into oblivion and the world came perilously close to systemic financial meltdown—and what can be done to ensure it doesn’t happen again?
The view that finance was most likely to flourish in a regulatory vacuum, held by the administration of George W. Bush throughout its period in office, certainly played a major part. In the absence of regulation, questionable practices came to be seen as the norm.
In a regulatory vacuum, the investment banks were able to shift their emphasis away from being agency-based, service-oriented businesses towards being proprietary traders, and in the process they were able to leverage up their balance sheets to a previously unimaginable extent.
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