credit default swaps

Presumably, out there in the universe exists at least a handful of people for whom words and phrases like “Which tranche of this collateralized debt obligation would be the fulcrum security in a liquidation scenario?” constitute foreplay, or, at the very least, interest them in the slightest/don’t cause them to nod off like they just got shot with a tranquilizer gun. You may not have found them yet, but if you’ve got the will, there’s surely a way to locate these CDO nymphos. Put out a personal ad, maybe start a website. Walk up and down Park Avenue wearing a sandwich board that reads “My lawyer’s going to help me make an end run around your CDO’s indentures.” Post fliers in Penn Station. Inquire at your neighborhood coffee shop. One place you can save time by skipping over is the jury room where Fabulous Fab’s fate is being decided. Read more »

Elizabeth Warren introduced a bill today to split nice old-timey banking (taking deposits, making loans to people and corporates) from investment banking and other assorted eeeeevil activities (trading, derivatives, etc.) and it comes with a poster. It also comes with a throwback name, “The 21st Century Glass-Steagall Act of 2013,” after the guys who last split commercial and investment banking from 1933 until their Act’s repeal in 1999ish. Some people are calling the new proposal the Warren-McCain bill, because John McCain is a co-sponsor of this/every bill. I will compromise and refer to it as “The Warren-McCain 21st Century Glass-Steagall Act of 1933 of 2013.”

That’s roughly all I have to say about it? It probably won’t happen, and the goal of keeping depositors safe by limiting depository institutions to boring regular banking is mostly a silly one.1 Mortgages! Mooooooooooooooooortgages! The boring, take-deposits-and-make-real-estate-loans banks in Spain and Ireland and Cyprus and Bedford Falls and 1989 managed to blow themselves up just fine without any help from investment banking.

But you knew all that, gah. This bill is not really about depositor safety in any sort of empirical way. It’s a more ancient and anthropological theory of the dangers posed by banking: there are pure activities and impure activities, and the danger comes from mingling the pure and the impure. You build two buckets and you keep them apart, not because one bucket is riskier than the other but because things just belong in their own buckets: Read more »

  • 08 Jul 2011 at 10:17 AM

David Einhorn Has A Question

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