H.R. 977 (The Derivatives Markets Transparency and Accountability Act of 2009), from the brilliant mind of Rep. Collin Peterson (D-MN), puts restrictions on OTC contracts and would "deny the Federal Reserve the authority to establish regulations or rules with regard to clearing OTC transactions."
Instead, OTC contracts must either be cleared centrally or reported to the CFTC. Ouch. This would pretty much end the custom options and swap business, making it very difficult to tailor specific instruments for specific risk.
The bill also gives "the CFTC the authority to suspend credit default swap trading, with the concurrence of the president."
Uh oh.
House bill calls for OTC trading restrictions [Pensions & Investments Online]
Posted by guest , Feb 12, 2009 2:58PM
I think he is on drugs
Posted by guest , Feb 12, 2009 2:59PM
anyone just see Rusty the pres of the missouri bancorp.. what a tool comparing himself to the big 8 and how great the community bank is..his top 25th employee makes 65k.. no kiddin he probably still uses an outhouse as well...apples and oranges
Posted by guest , Feb 12, 2009 3:00PM
after the amount of damage the short selling ban did to various market participants while having no effect on the tape, nice to see these clowns getting set up to disrupt the swap markets as well and share the pain out to any hedge funds not already given a smackdown. trying to factor in the risk of government bans on trading will make pricing CDS's pretty chancy.
Posted by guest , Feb 12, 2009 3:00PM
"Don't synthetically short me, Bro"
Posted by guest , Feb 12, 2009 3:01PM
get me a grass skirt.
If I'm going to live in a banana republic, I want to dress for it.
Posted by guest , Feb 12, 2009 3:02PM
Well if people like him are going to have to clean the broken responsibilities of people like you, I don't see why he wouldn't want them regulated.
-Charlotte
Posted by guest , Feb 12, 2009 3:02PM
after the amount of damage the short selling ban did to various market participants while having no effect on the tape, nice to see these clowns getting set up to disrupt the swap markets as well and share the pain out to any hedge funds not already given a smackdown. trying to factor in the risk of government bans on trading will make pricing CDS's pretty chancy.
Posted by guest , Feb 12, 2009 3:03PM
Peterson was a double major in BSAD and Accounting in 1966, it couldn't be more clear that he should be making policy decisions on this issue.
-The Guy who just realized that the people who govern have no effing clue what they are doing.
Posted by guest , Feb 12, 2009 3:06PM
Charlotte,
Since government is forcing us to pony up for its gross negligence, who is going to regulate the government?
Posted by guest , Feb 12, 2009 3:09PM
There's no need to hedge risk in a socialist country...
Posted by guest , Feb 12, 2009 3:09PM
Well if people like him are going to have to clean the broken responsibilities of people like you, I don't see why he wouldn't want them regulated.
-Charlotte
Posted by guest , Feb 12, 2009 3:12PM
"This would pretty much end the custom options and swap business, making it very difficult to tailor specific instruments for specific risk........"
Uh...ain't that what got us here in the first place?
~Hillbilly Banker
Posted by guest , Feb 12, 2009 3:13PM
Good. Garbage product.
*writes CDS on Buffet to pay for Valentine's Day*
Posted by Equity Private , Feb 12, 2009 3:16PM
"Uh...ain't that what got us here in the first place?"
Nope. Study better.
Posted by venturedouch , Feb 12, 2009 3:16PM
@5 OK Charlie Gasparino
Posted by guest , Feb 12, 2009 3:19PM
If you don't want the "inquisition" don't lose your entire position.
Who is dumber? The dumbass risk modeler you've all become or the elected official who has to deal with your shitstorm? Elected officials TRUSTED YOU. You fucked up.
Accept that you were stupid, accept that you screwed the country, and then you'll feel better and move on.
Posted by guest , Feb 12, 2009 3:21PM
Don't worry, I have it on good authority that Colombian drug cartels stand ready to serve the OTC derivatives market. Leveraging their proven track record of evading US law, they feel this would be a natural expansion of their operations.
Posted by guest , Feb 12, 2009 3:21PM
Good riddance!
Posted by guest , Feb 12, 2009 3:22PM
SPENGLER
(excited)
He wants to shut down the storage grid.
VENKMAN
If you turn that thing off we won't be
responsible for the consequences.
PECK
On the contrary! You will be held
completely responsible.
(to the Con-Ed Man)
Turn it off.
Posted by guest , Feb 12, 2009 3:24PM
Well played, #17, well played....
Posted by Lowly Assistant , Feb 12, 2009 3:24PM
Ohmyfuckinggod shut the fuck up, 16.
Ever since someone wrote "Charlotte" and "Hillbilly," I'm reading all this populist garbage with a twang-ed(?) accent in my head.
Posted by guest , Feb 12, 2009 3:25PM
Government:
If youthink the problems we create are bad, just wait until you see our solutions.
I will now light myself on fire.
Posted by guest , Feb 12, 2009 3:27PM
It is scary to think Maxine Waters is now a CDS specialist.
I am sure Maxine would have been nicer to the bankers table had they donated monies to her election campaign, or bought a Mercedes from her husband.....
Posted by Anal_yst , Feb 12, 2009 3:28PM
F*ck this, let theme at cake. Only thing they'll accomplish by regulating the piss out of CDS is forcing innovation to skirt the rules, idiots and the law of unintended consequences, sigh...
Posted by guest , Feb 12, 2009 3:30PM
@17 is good. @19 better played.
We are screwed.
Posted by guest , Feb 12, 2009 3:30PM
Nice picture.
Posted by guest , Feb 12, 2009 3:33PM
@17 is good. @19 better played.
We are screwed.
Posted by guest , Feb 12, 2009 3:36PM
@12, CDS are a zero-sum instrument, meaning if somebody loses $50 million, somebody else is collecting $50 million. Our banks are not insolvent because they are paying each other on CDS; they are insolvent because the bottom fell out of the housing market. When people walk away from their homes on a $300,000 mortgage, the banks foreclose on the place that's now valued at $130,000 and get $100,000 back after fees and expenses. That $200,000 the bank lost on the transaction is why the banks are insolvent.
Posted by guest , Feb 12, 2009 3:36PM
No regulation to over regulation in one signature. No knowledge required.
Posted by guest , Feb 12, 2009 3:38PM
C'mon market fight back! Another hundo and we are positive for the day!
Posted by guest , Feb 12, 2009 3:38PM
Blind leading the blind.
Posted by BlackSwan06 , Feb 12, 2009 3:39PM
My gut feeling: Grandstanding. It'll get hung up with amendments upon amendments upon amendments, and more amendments, debated until it becomes undebateable and gets put on the calendar to die.
Posted by guest , Feb 12, 2009 3:40PM
Why attack CDS? Open debtor prisons and put foreclosed families in there to lying on their applications and not paying on time.
Posted by guest , Feb 12, 2009 3:40PM
It's not the sole reason, but it's a damn big part of it. If you can't back the paper you are writing you should be sent to jail for fraud - especially if you know at the time you issue it that you can't back it up.
This area totally deserves to be regulated. It didn't shut down the insurance industry when we regulated it.
Time to put the cigars out banksters, you're going to have to actually work for a living and stop screwing the american public.
Posted by guest , Feb 12, 2009 3:41PM
Why attack CDS? Open debtor prisons and put foreclosed families in there to lying on their applications and not paying on time.
Posted by guest , Feb 12, 2009 3:42PM
"Instead, OTC contracts must either be cleared centrally or reported to the CFTC. Ouch. This would pretty much end the custom options and swap business, making it very difficult to tailor specific instruments for specific risk."
As if it wasn't very difficult before?
Posted by guest , Feb 12, 2009 3:42PM
Speechless.
Posted by Novice , Feb 12, 2009 3:43PM
@2 Having lived in Missouri I can say that the "probably" is unnecessary.
Posted by guest , Feb 12, 2009 3:43PM
Fitting- on Darwin Day
Posted by guest , Feb 12, 2009 3:45PM
Poor people should just pay their bills and we will all be ok.
Posted by guest , Feb 12, 2009 3:46PM
Yes but the reason we can't let the banks burn is the "counter-party risk" and the "government" being "ladled" with "Goldman" "people." Obviously not all related to CDS, but still it doesn't hurt to start to solve some problem areas...
-Bobcats > Knicks
Posted by guest , Feb 12, 2009 3:46PM
This bill is DOA.
Posted by guest , Feb 12, 2009 3:48PM
I don't think ANYONE knows how to price CDS from what they are saying at Tenjune. Just sayin'....
Posted by guest , Feb 12, 2009 3:48PM
@23
Rep. Maxine Waters: The report cites a December 2004 Los Angeles Times investigation disclosing how members of the congresswoman's family have made more than $1 million in the last eight years by doing business with companies, candidates and causes that Waters has helped. Before publication of the Times investigation last year, Waters declined to be interviewed, but said of her family members: "They do their business, and I do mine."
Posted by guest , Feb 12, 2009 3:50PM
Can I just say, thank god Obama is increasing spending on education. Maybe future generations will not be as stupid as the current one.
Posted by guest , Feb 12, 2009 3:54PM
While the proposal is knee-jerk and off-kilter, I dont think that more oversight of the markets is a bad idea.
How about a 1/10th bip. charge to establish a new office of government appointed auditors/investigators. If you want any sort of government guarantee EVER then you agree to both the fee as well as allowing your firm to be audited whenever, unannounced.
These investigators would be reasonably well compensated and their findings open to peer review. Previous industry knowledge and experience is the hiring criteria hopefully weeding out career being bureaucrats or junior accountants that dont know the difference between notional and national.
Think of them as the FBI vs. local cops. They wouldnt waste time looking for a tax lot that wasn't traded pari pasu in 1982 but rather deeper into the P/L numbers for material discrepencies.
Instead of ignorant ideas like banning short selling [which is as effective as banning natural selection], or killing liquidity by undue regulation, identifying trouble BEFORE it occurs seems to make more sense.
OK I'm off my high horse...
-C
Posted by guest , Feb 12, 2009 3:55PM
It's funny to see bank cocksuckers bitch about Joe 6 pack walk away from his mortgage, while defending banks that walk away from their CDS obligations.
Posted by guest , Feb 12, 2009 3:56PM
28 Its a zero sum game only when there's a default and only if you then avoid taking into consideration how much was lost on the defaulted bonds. And that's the problem - its like 100 people buying an insurance policy on the same house. Try as you may to make it sound like playing black or red on a roulette table, its just not.
Imagine a dual market: one where the aggregate value of the protection being sold is equal to the outstanding notional and any claims need to be accompanied by a defaulted bond. And a second market like the one that is currently in operation. Basically, the sky is the limit. Do you think the prices will be the same?
Posted by Anal_yst , Feb 12, 2009 3:56PM
@45
I'm short the intelligence of future generations (and its derivative, "ability to learn from the past/not repeat it"), in serious size.
Posted by Equity Private , Feb 12, 2009 3:58PM
"It's funny to see bank cocksuckers bitch about Joe 6 pack walk away from his mortgage, while defending banks that walk away from their CDS obligations."
Name three banks that have walked away from their CDS obligations along with the size of the abandoned liabilities.
Otherwise, back to Yahoo.
Posted by guest , Feb 12, 2009 4:01PM
So what happens to those that are currently holding CDSs if you suspend trading in them? Here's looking at you John Paulson.
Posted by guest , Feb 12, 2009 4:01PM
@45 money isn't the problem with the education system - it's the stupid fucks that teach.
Posted by Novice , Feb 12, 2009 4:12PM
@52 They're attracted by both uaw-style rules and their comparative advantage over non-morons who have better-paying opportunities elsewhere.
Posted by guest , Feb 12, 2009 4:14PM
@8....your late
Posted by guest , Feb 12, 2009 4:16PM
The only bank thus far to "walk away" (if thats what u want to call it) from CDS obligations is Lehman Brothers because it defaulted and thus all of its CDS contracts were terminated as a result.
FYI-GFY
Posted by guest , Feb 12, 2009 4:18PM
The only bank thus far to "walk away" (if thats what u want to call it) from CDS obligations is Lehman Brothers because it defaulted and thus all of its CDS contracts were terminated as a result. WaMu defaulted, but i dont believe it was a broker/dealer of CDS.
FYI.......GFY
Posted by guest , Feb 12, 2009 4:26PM
bess,
how much more do you need a month to upgrade your media temple account. can you just post an article with a paypal link and we will all donate?
I mean its bad enough the yahoo/cnn crowd is here now, its even worse that I have to read there same tired drivel 3 times in a row because they don't understand how long it takes to comment on db.
seriously just make an article with the paypal link, we will make it rain
Posted by guest , Feb 12, 2009 4:32PM
@8
Wow. That came pretty late.
I guess you missed ordering your skirt. The last shipment we expect to receive just came in from China and was already sold out. Hopefully cottage industry springs up soon to get you one.
Posted by guest , Feb 12, 2009 4:38PM
@8
Wow. That came pretty late.
I guess you missed ordering your skirt. The last shipment we expect to receive just came in from China and was already sold out. Hopefully cottage industry springs up soon to get you one.
Posted by guest , Feb 12, 2009 4:45PM
@14, EP, what's the purpose of a customized swap other than to hedge an illiquid marke-to-model position? If you can't delta hedge a position simply then you really have no idea what it's worth, no?
Posted by guest , Feb 12, 2009 4:45PM
i love it.
the financial community will resist this like hell, and not because it is impossible, or because it is the wrong thing to do, but because were it to be enacted it'd end up costing them a few bp per contract to cover the costs.
of course, all they'll say is that it's impossible, that it'll crush the market, and that congress is stupid.
Posted by guest , Feb 12, 2009 4:50PM
do stop being so reactionary. Go review the process:
http://www.youtube.com/watch?v=mEJL2Uuv-oQ
Posted by guest , Feb 12, 2009 4:51PM
but....congress IS stupid
Posted by guest , Feb 12, 2009 4:59PM
@ 60. Think customized in terms of size, tenor, underlying and settlement (american, european, asian), etc.
Recall the clowns are proposing clearing for all asset classes (ir, fx, energy, metals, ags, buttons, etc.) which clearly creates some complexity that Washington doesn't understand.
Posted by guest , Feb 12, 2009 5:13PM
It will just move overseas...
Posted by guest , Feb 12, 2009 5:35PM
What this is about is internal politics to the House of Reps. This guy is Chair of the Agriculture committee which ostensibly has authority over derivatives through its oversight of the CFTC. What he is worried about is losing a big chunck of his power to Barney Frank in the coming fight over how to restructure financial regulation. Peterson is making the first move and trying to establish a strong position to give him some leverage down the road in a fight with Frank. The key element of this bill is stripping oversight from the Fed which falls under Frank's committee.
Posted by guest , Feb 12, 2009 5:38PM
What this about is internal politics in the House of Reps. The Ag committee which Peterson chairs has jurisdiction over the CFTC and Peterson is worried he is going to lose control of the CFTC to Frank in an upcoming rewrite of financial regs. He is making the first move in a fight over whose commmittee gets to do derivatives.
Posted by guest , Feb 12, 2009 5:46PM
66 - thank you.
Posted by guest , Feb 12, 2009 5:48PM
wel,l, my desk closes down if this shitty legislation is passed, and we dont even trade CDS. this will not happen.
Posted by guest , Feb 12, 2009 5:56PM
69 Then I hope your PAC is on it and writing checks as we speak.
Posted by guest , Feb 12, 2009 5:58PM
66 thx. for reminding us that our universe doesnt revolve around Wallstreet anymore.
I guess I'll grow more accustomed to the Acela.
-C
Posted by guest , Feb 12, 2009 6:41PM
A bunch of stupid comments.
AIG was bailed out because it wrote CDS's that it could not handle. Everyone who held those shitty CDS's was bailed out when the zombie AIG wasn't liquidated.
Dumb bankers created stupid CDO's because they though they were perfectly hedged by the CDS's written by the stupid insurance companies. They were prefectly hedged if you don't consider counterparty risk because you are too lazy or you just plug the numbers into some fucking moronic quanit's model without using your actual brain.
Blaming this on joe sixpac is moronic.
The big differences between Credit Default Swaps and insurance is you can't buy insurance on someone else's house & you can't buy insurance for more than the assets are worth.
The only reason this is not allowed is because some currupt fuck will burn down his neighbor's house after he insured it 10 times over.
Posted by guest , Feb 12, 2009 7:09PM
@72 exactly - AIG, plus a shit ton of hedge funds, plus Lehman, and there's probably more that have blood on their hands too.
Posted by NotNasser , Feb 12, 2009 8:27PM
#24,
"let theme at cake"
I was trying for 15 minutes to puzzle out what regional accent you were trying to mimic there, before it hit me that I should just mentally slide that second "e" over a notch toward the "at" and we have a perfectly good Queen's English sentence (though translated from the original Queen's French with an Austrian accent).
Posted by guest , Feb 12, 2009 8:29PM
@72: AIG wrote obscure CDS on CDO tranches. Those contracts should be restricted and limited since they truly are insurance on mark-to-model/madness instruments.
The vast majority of CDS is single-name (ie. bond w/o interest rate risk, kinda like treasury futures) or CDX index trades (to achieve broad market exposure/hedge, similar to ETFs in use).
No reason this market can't be regulated or cleared centrally.
It will piss off the dealers because they enjoy price opaqueness, and this will reduce that and compress their spreads. But it was only a matter of time until that happened as the market matured.
So stop whining.
Posted by guest , Feb 13, 2009 12:05AM
@72,73, & 75
Eat a fat stack of donkey dicks....
Posted by guest , Feb 24, 2009 5:52PM
This is an incredibly important piece of legislation. There is absolutely no reason why OTC derivatives have escaped any oversight other than a gift to ISDA from former CFTC Wendy Gramm who left CFTC to be a director at now defunct Enron, a power user of OTC derivatives.
Posted by NotNasser , Feb 26, 2009 10:56AM
There is absolutely no reason why OTC derivatives have escaped any oversight other than a gift to ISDA from former CFTC Wendy Gramm who left CFTC to be a director at now defunct Enron, a power user of OTC derivatives.
---
That was part of the Clinton-era dereg movement, right? The new Secretary of state's husband's signature in on the bill, isn't it?
But nobody paid much attention at the time because the issue of where he was getting his BJs was of course much more important.