Now, you can think what you want about the Obama proposals, but there is something I find more than strange. What is happening about what caused the crisis in the first place and why is there no mention of it anywhere anymore in none on of the proposals?
Maybe I missed something here, and maybe someone can help me understand, but as far as I can remember, what was at the root of the problem, were OTC derivatives and securitized products based on bad loans. Oh wait, we did have a program to solve that and relieve banks from those “toxic assets” off their balance sheets: the Troubled Asset Relief Program, our beloved TARP. We kinda strayed away from its original intent, no?
Now, when did prop trading come into play? I don’t remember any of the firms that massively failed, failing because of their prop desks. AIG? Not prop trading. And the firms that were bailed out didn’t use money to prop up their prop desks. (yeah, bad pun)
Might prop trading cause problems in the future? Maybe. But why isn’t the government dealing with problems, one by one?
The Volcker rule -again, think what you want of it – doesn’t address the issues of lax underwriting, poor (yeah ok, deceptive) ratings, lack of disclosure and lack of understanding along the chain, of the structured products.
Hell, people are still- almost two years and a gazillion hearings later- trying to make sense of WTF AIG was holding and who the counterparties were.
Peter Morici, a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the US International Trade Commission puts it this way: “Many smaller banks invested in risky securities-commercial mortgage backed securities. They did that and could do it again without a proprietary trading arm.”
Why the government is not addressing these issues more than two years after the crisis started is a mystery. Some industry sources say that it’s because they have no clue about what they are talking about and they don’t understand how the derivatives/securitization markets work.
Yes, swaps, CDS and CDOs squared are difficult to understand. But can’t they find someone, anyone, to explain? There are lots of out of work people out there.
Yeah, that shit proved insoluble, you can go back to Paulson explaining why they decided to inject capital into the banks instead of buying the toxic assets as "things changed."
But stones must be cast. So just like when we let OBL off the hook in Tora Bora, we decided to jump Saddam's shit. Now, we're jumping the bank's shit.
Feeling better?
LOUD NOISES!
Today is the one-year anniversary of Obama's executive order closing Guantanamo within one year of the order's issuance. Guantanamo is still opne. No one is talking about it thanks to this proposal. Mission accomplished.
King Kong ain't got nuthin on me!
CHANGE WE CAN BUHLEEEEEVE IN
Yeah–AIG Financial Products was blasting out CDS to facilitate order flow…
This is nonsense.
a. The OTC derivs you are talking about were assumed by the Fed well before TARP came into play (and was far larger, and far more important, than a mere $700 bil). Naturally those are still a tiny minority of the outstanding OTCs.
b. "Yes, swaps, CDS and CDOs squared are difficult to understand. But can’t they find someone, anyone, to explain? There are lots of out of work people out there. " Actually, given that most of those who do this for a living already admitted years ago they didn't understand the contracts they were dealing with, I doubt they can. The complexity of these contracts is exactly the issue being addressed here.
You have to have a lot of balls to be a finance professional and blame others, who aren't even in your industry, for the same ignorance you hold.
So, the Volcker rule means that Bear Stearns, if it existed, couldn't have Cioffi and Tannin doing what they were doing, right?
Not related, but we're going to have to cheer a certain someone up now that it is official….
http://money.cnn.com/galleries/2009/real_estate/0…
Not related, but John Edwards is one sick fcku
Grammar fail on first para
@11 = Greg Michaels
@7 (b) Buy low, sell high.
What is there to understand?
@11…grammar is precise. Did you mean "paratrooper" or "paraglider"?
OK, lookit, lookit, you're nice girl and all but I have to be going, OK..hey, why are the lights on…Hey?? Huh?/ Look, I gotta go I gotta go, OK….huh? Gotta go now alright? Thanks. Enjoyed it. You're so nice. Yes . Uh…what time is it? I gotta go. Ok, then. Bye.
~P.V.
@7,
"a. The OTC derivs you are talking about were assumed by the Fed well before TARP came into play (and was far larger, and far more important, than a mere $700 bil). Naturally those are still a tiny minority of the outstanding OTCs."
I've read this 5 times and cannot make heads or tails as to what it means. Are you referring to the Fed taking MBS as collateral from Bear? If so, what is the relevance to what was stated in the post?
Am I hearing things correctly? Is Bawney Fwank actually making some sense?
Keep soap-boxing to a minimum.
kthxbye,
Your suffering readers
@11 – with ya. Grammar fail, syntax fail, sentence construction fail. If any of us had turned in such writing in the 8th grade, it would have been a fail.
I have been putting a lot of thought into the Voelker plan. Here is the big flaw: Making loans is very risky. Banks shouild also be prohibited from making loans with deposits. Agree?
Yeah, I really wish we'd elected John McCain and Sarah Palin instead. They'd be able to explain the intricacies of derivatives to us.
It isn't all that difficult. The simple problem is "too many lottery tickets": financial institutions like AIG took too many risks without being prepared to pay for them. The simple solution is higher capital requirements. I would be interested to see what the size of the CDS market would look like if insitutions without an insurable risk (e.g., holding the actual bonds) were requireed to post 25% collateral against their CDS positions.
@19 … good point!
"Now, when did prop trading come into play? I don’t remember any of the firms that massively failed, failing because of their prop desks."
Because that shit is hid under two hundred different accounts, SIVs and Off the book holdings! Did you ever see a bank give out we made x amount on prop trading on any FS?
If Bawney Fwank ever asks you to inspect his salad shooter, just say no.
-A mole
@22 Agree in principal but here's the problem. Scumbags at some future AIG will say the securities are worth 90 cents on the dollar minimum and put 10 cents of capital up. In reality they're worth 8 cents and the company winds up craps creek on the next downturn.
yael bouzawati: WTF?
Populist politics making a comeback.
These new banking regulations are (depending on final draft of course) potentially horrendous for the market.
Overall they may not be silly, we're seen it done before after all, but forcing a massive break up of all banks of significant size, not to mention the asset managers they own etc, is very dangerous, even in good times.
If commercial banks aren't allowed to take risk, can they have market makers? If not will the investment banks be big enough and well enough supported to provide all the liquidty to the market?
Prop desk and bank risk taking is generally a shorter term investment horizon and thus very helpful in providing liquidty in over extended moves etc.
Governments are trying to issue record levels of debt, the backstop for these auctions, and one absolutely critical support for debt auctions and issuance is and always will be, banks.
US government regularly issues 50million USD a bp of debt in a week. Good job taking that down every time if the banks can't or won't support it!
I would also add that once again either Obama and co are stupid or deliberately misleading the public/ pandering to their ignorance.
Either is terrible (though yeah what else is new)
Last year the banks lost a fortune on commercial banking activities, traditional consumer and corporate lending (mainly consumer). A lot of these losses were actually offset by gains in risk taking trading activities. (In 2008 both sides generally lost)
You are forcing the commerical banks to be purely old school commercial banks, that will lead to them being MORE cyclical. When the consumer is strong they'll do great, when weak terrible. There is zero diversification in this model. Meaning an increasing cyclical nature.
This RAISES the chances they will need governmental support.
Meanwhile the cause of this crisis was loans to people who couldn't afford it, the governments of the world are pushing for banks to lend more and lower to these kinds of people.
This is the government trying to run banking, they SUCK at this kind of thing.
The biggest risks to recovery in order are / were
Over regulation
A huge shift from private to publically run companies
A significant fiscal drag on the economy for years, in the form of higher taxes or lower government spending (the latter seems unlikely coupled with the increase in public company ownership or oversight).
Why go off half cocked? Without specific details and creating uncertainty.
Oh yeah you lost the super majority.
Shame on you Mr Obama. Consumer banking caused this crisis, stop creating a scape-goat.
Also if you both split up and regulate to extremes bankign activity ON TOP OF a large fee fro supporting them. You are saying you won't support them AND requiring a fee for when you do.
This is like saying the bank sector caused the auto sector crisis. Utterly stupid, inaccurate and foolish.
I am significantly starting to lose faith with democracy where constant vote hunting creates bad policy.
Finally if you wanted to do all this why on earth did you not doing it when you owned chunks of the banks due to the TARP money.
Why let them pay you back, then ask them to do crazy shit?
P.S. The cause of the crisis was primarily the borrow and spend nature of the modern economy. It is not sustainable and this needs to be understood. To get off this credit habit the world and the US will need to see a significant period of slower growth. That is political suicide. As a result the government will reflate the same bubble, but this time with no room to provide a fiscal stimulus (as debt levels and deficits ahve already exploded) and rates already at very low levels.
IE to win the next election the governments of the world and the US especially will cause a bounce which has a good shot of causing a great depression down the line, instead of allowing slower growth and steady improvement of the household balance sheet over years.
The current model requires ever increasing lending to the consumer, and every increasing borrowing by everyone.
needs alot of work here, Yael, but generally, I think you're on the right track: this plan is BS hot-air populist pandering, S.O.P for the Obama Administration.
@21 you betcha
wink wink
how come there is no mention of the ratings companies that stamped AAA on these products
the phrase "That whole Yael thing" is starting to make a lot more sense…
@30, Right? Here's the way I see it: A ratings agency puts a fancy AAA on the product because they want you to feel all warm and toasty inside. But how do you know the product wasn't structured by cows?
@27
too long, but still read
ExtraordinaryPopularDelusions, I'm going to hazard a very rough guess and assume you're not in finance and so I have to wonder why you're even here. I'm sure there are plenty of blogs that share your point of view but this is not one of them and so how about you just leave mmmmkaayyyy.
who cares
never gonna happen
@15 When Harry Met Sally, am I right? Am I right??
O:K, my turn
Carol the waitress, Simon the fag.
Clearly, thousands of prop traders and market makers in Chicago are going to see a much deserved windfall from this.
Th principal investment guys will slither over to new offices in town
And life will go on.
This is pretty much a GS rule since so much of their business is prop and principal investments. But it won't hurt prop traders etc. only folks who are young and dumb fail to understand that only matters to shareholders.
And this is a basically and admission that they will always bailout big banks. However, putting restrictions on firms who get money 50bps cheaper than everyone else is not going to make anyone lose sleep.
@26: Related to Sheik Yerbouti.
This whole banking 'scandal' began at IndyMac. Mr Schumer kicked it over to defeat the Repubs. It got out of hand and continues to this day. Now they can't put Humpty together again. Hoewever, the IndyMac saga continues, WSJ article from Dec 28, 2009, outlines the buying of IndyMac last Dec. by a conglomerate of Paulson, Soros and J.C.Flowers, hmmmm… how convenient!!
@40 Ultimately, who is pulling the strings, though? Freemasons or Illuminati?
@41 I'd say Bess, for her daily entertainment.
@40
Ditto, the, grammar, comments. Good points, though
Yael,
Bess often participates in the Posts. I think you need to defend yourself here. You bring the tent stakes. I'll provide a hammer.
The original symptoms were low liquidity and high leverage. Well generally speaking….PE has low liquidity and prop desks have high leverage. Therefore they must be the source of all this.
Problem solved. See? it's that easy!
Vote for me in 2012.
Actually, CDS in particular is being dealt with as we speak. There are four bills working their way through congress. On Dec 11, a particular one was passed by the House (Wall Street Reform and Consumer Protection Act of 2009) and is now waiting to be ratified by the Senate. The proposal provides for federal regulation of major swap dealers and major participants, enforcement of minimal capital requirements, and reporting and documenting regulatory disclosures. It also would require cleared transactions to be executed either on exchanges or on alternative swap facilities like, which will cause spreads to shrink and make using such instruments more expensive and less profitable.
It's likely Volcker's and President Obama's plans will be tacked on to the senate version and the two will be reconciled by the second quarter of 2010.
ExtraordinaryPopularDelusions, I’m going to hazard a very rough guess and assume you’re not in finance and so I have to wonder why you’re even here. I’m sure there are plenty of blogs that share your point of view but this is not one of them and so how about you just leave mmmmkaayyyy.
i can think of 6 or 7 regulars, guest included, who could've written a more concise, wittier, and paticularly less rambling critique.
for all my dislike of EP, she could paint a target with considerably more style. even with greg at least the comments railing him were funny.
and yael, that polar bear weighs enough- enough to break the ice.
To the folks at JPMorgan,
Just out of curiosity, are you guys worried about how this proposed "Volcker Rule" may affect your planned purchase of RBS Sempra?
Personally, I think there is zero chance of this proposal gets passed. I think a better and simpler alternative is to cap the overall leverage ratio at 10 times for all banks and non-banks at the bank holding company level (inclusive of all subsidiaries) and no off-balance sheet funny businesses.
I think you need to do a little more reading Yael. There is a bigger picture.
The world just worked fine for 50 years after WWII, just up until 1995 or so without CDS, prop and other such shite. This rule is going to hurt only assholes trying to line their pockets at the detriment of society.
We should just be glad that the administration did not put out a proposal to outlaw hedge funds all together to secure other congressional seats .
The ignorance of our politicians are deafening, ever since 9/11.
I think the terrorists won, a long time ago.