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Regulating Derivatives
The Wall Street Journal reports that big banks aren't happy with the Obama administration's plans to make trading of credit derivatives more transparent by putting them on a public exchange:
Wall Street banks with large derivative-trading businesses have
been outwardly supportive of greater regulatory oversight of the $684 trillion market. But behind the scenes, there has been hand-wringing over the details of certain proposals and discussions about how the industry can help shape the rules.
Potentially billions of dollars in revenue is at stake. An effort earlier this decade to improve transparency in the corporate-bond market ended up cutting bank fees by more than $1 billion in a year, according to some studies.
....For credit-default swaps, information about intraday trades and prices has long been controlled by a handful of large banks that handle most trades and earn bigger profits from every transaction they facilitate if prices aren't easily accessible.
For example, credit-default swaps tied to bonds of companies such as General Electric Capital and Goldman Sachs typically have a pricing gap of 0.1 percentage point between the bid and offer price. That translates into a $40,000 margin for every $10 million in debt insured for five years. Greater price transparency could narrow that gap, lowering costs for buyers and sellers but reducing fees for banks.
That's a sad story, isn't it? When you make trades public, suddenly banks find that they can't rob their clients blind anymore. Break out your violins, boys and girls.
Wait a minute
$684 trillion? How can that be? The entire output of the global economy is what, $35 trillion? What does that number actually stand for?
that's exactly the point
tagged as:- solution
This economy can never recover from bailouts. Everyone at the top knows it. Derivatives are valued at 10x the global GDP. See this article quoting Warren Buffett.
http://www.marketwatch.com/story/derivatives-are-the-new-ticking-time-bomb?print=true&dist=printTop
We'll see . . .
what the final regs look like. Obama and Congress will waffle, if previous attempts are any indicator.
Is the Money Party opting
Is the Money Party opting for this new round of regulation? I didn't think so. It will never happen. Neither will any of the other self evident necessary changes to our American way of life (single payer health care, green energy or K-street shut down). It's Business As Usual until our last metaphorical tree is cut down.
What a great system, what a great country!
Yep, $684 trillion
in Ponzy bucks, money that's leveraged, multiplied, and leveraged again. It's not real money, if there ever was such a thing. So tell me again, why are we throwing "real" money at it?
"You signed the papers. You wanted to be here!" -Drill Sgt. Leach, 1971
If we ever succeed in turning on the lights . . .
If we ever succeed in turning on the lights, it will be fun to watch the cockroaches run for cover.
Prohibit Derivatives
Derivatives should not be regulated -- they should simply be prohibited. They were always money for, quite literally, nothing. Wall Street should be for investing not gambling, but that is a lesson we forgot decades ago. Until we learn it again, we will have to endure bubble after bubble . . .
Derivatives, the wrong war
Clearly we had misuses and abuses of the various OTC products in the last 20 years (just as firms and individuals time and time again got decimated by trading exchange listed derivatives). Clearly dealers made massive amounts of money on OTC derivatives sometimes ripping off clients (similar to the way insurance firms profited from writing insurance). The knee-jerk reaction regulation is however not the answer. Clearing platform solutions, standardization, and disclosure to regulators are sometimes helpful but represent only a fraction of the answer. The key is sound margining procedures (such as the ones used by exchanges) and proper bank capitalization. Most banks already have such procedures in place and the Fed (as well as the OCC) should review and push for strengthening of these practices. The industry is already moving in this direction. Destroying or restricting various risk management tools provided by dealers is unsound, even if it makes for great press coverage. If you wish to understand instead of just reacting (the way many people who have posted here are doing), please read the blog posting called "Derivatives, the wrong war" on www.SoberLook.com
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