tag:blogger.com,1999:blog-602664611343971452.comments2024-01-06T08:57:16.475-05:00Trust Your InstinctsAnonymoushttp://www.blogger.com/profile/11316888485290662469noreply@blogger.comBlogger177125tag:blogger.com,1999:blog-602664611343971452.post-26219410981745106432013-09-11T10:09:26.557-04:002013-09-11T10:09:26.557-04:00From the point of view of an ordinary customer, it...From the point of view of an ordinary customer, it's difficult to see that the FCA will achieve anything worthwhile. The banks remain a law unto themselvesAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-89122898881038402732013-08-21T22:47:20.480-04:002013-08-21T22:47:20.480-04:00Gorgeous!Gorgeous!Tobiashttp://bestrowingmachinereviews.us/noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-54281741086247136782013-08-16T15:30:40.225-04:002013-08-16T15:30:40.225-04:00If the Euro banks are like the American, they don&...If the Euro banks are like the American, they don't have to put their derivatives exposure on the their balance sheets; so, yes, "stress tests" are ridiculously incomplete.Benignhttp://animalspiritspage.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-6025306901297640202013-08-10T20:08:15.866-04:002013-08-10T20:08:15.866-04:00I think the transfer of wealth from taxpayers to b...I think the transfer of wealth from taxpayers to bankers is much clearer. The bankers are getting bonuses that should be used to rebuild capital levels at the banks.<br /><br />The investor class is still exposed to considerable risk. Risk that an unexpected economic shock hits. With the Fed fully committed, the economic consequences could be devastating for investors.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-26058684852327866592013-08-10T19:34:47.252-04:002013-08-10T19:34:47.252-04:00The carrying of insolvent banks by the Fed has ano...The carrying of insolvent banks by the Fed has another effect: the misallocation of capital resources.<br /><br />Bank investors would also be hurt by a write down. But they deserve to be.<br /><br />The real tragedy of the recent crisis was that it caused the largest transfer of wealth from working people, that is, taxpayers, to the investor class.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-14442719166404131612013-07-25T07:02:28.684-04:002013-07-25T07:02:28.684-04:00The driver for improvement is the lynch mob anger....The driver for improvement is the lynch mob anger.<br /><br />Ultimately, neither regulators or politicians want the anger turned on them (please note that a majority in the US would vote everyone out of office in a recent survey).<br /><br />As a result, they will enforce the regulations already on the books.<br /><br />For the SEC, which was ground zero for the financial crisis as it wouldn't have occurred without its failure to ensure transparency throughout the financial system, the clock has already run out on prosecuting Wall Street. So the only way it can escape the lynch mob glare is to enforce transparency.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-27100861854942191582013-07-24T23:03:04.019-04:002013-07-24T23:03:04.019-04:00Why should things get better? No rationale given....Why should things get better? No rationale given. If will is exhausted, the SEC and bank regulators remain as captive as ever and we just wait for the next crisis.Benignnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-2329996741769449792013-07-15T15:25:54.623-04:002013-07-15T15:25:54.623-04:00Great Article!Great Article!Proprietary Tradinghttp://www.prop-trading.comnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-47551371264527452392013-06-10T09:03:39.096-04:002013-06-10T09:03:39.096-04:00Dear Mr. Musgrave, thanks for your comment.
Wheth...Dear Mr. Musgrave, thanks for your comment.<br /><br />Whether ultra transparency solves the problem or not is a question of what you think the problem you are trying to solve is.<br /><br />There are a number of problems that ultra transparency solves including the failure by financial regulators to properly assess "risk" in the financial system.<br /><br />Ultra transparency makes it each investors problem to independently assess the risk they are taking through their investment exposures and limit this risk to what they can afford to lose.<br /><br />This way, even if the financial regulators didn't see a credit bubble, when it bursts, the financial system's stability isn't threatened as each participant can absorb the losses tied to their investment exposures.<br /><br />The act of investors limiting their exposures to what they can afford to lose also reduces the amplitude of the boom/bust credit cycle. However, it does not eliminate it like 100% reserve banking would do.<br /><br />So if the problem is defined solely as eliminating the boom bust cycle, ultra transparency is not the most effective solution.<br /><br />You might not be aware of it, but we already have "full reserve banking". It is called a mutual fund.<br /><br />Ironically, look how much more transparency a mutual fund provides than a bank. Mutual funds disclose their exposure details once per quarter, more frequently once per month and some even daily.<br /><br />Having said that, please note how financial regulators are trying to bring an end to the money market mutual fund. Apparently, the regulators don't like 100% reserve banking.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-12587016355701695042013-06-10T03:58:10.813-04:002013-06-10T03:58:10.813-04:00I don't see your "ultra transparency"...I don't see your "ultra transparency" solving the problem, though of course the more transparency the better. In the run up to the credit crunch, the Bank of England had all the figures about what private banks were doing: total loans extended, etc. But the BoE, along with other regulators completely failed to see anything was wrong. I doubt they'd be any more clued up even when given the additional information that comes from more transparency.<br /><br />Full reserve banking would cut down on the boom bust cycle since it outlaws money creation by commercial banks.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-44405158610601912992013-06-09T13:55:27.637-04:002013-06-09T13:55:27.637-04:00Benchmarker, thank you for the excellent comment! ...Benchmarker, thank you for the excellent comment! I always appreciate when a reader takes the time to challenge a solution I propose and explains why it might not work.<br /><br />I happen to agree with you that we need to divide the problem into "legacy dependencies on the historic question" and "getting the benchmarks right for the future".<br /><br />Furthermore, I happen to agree with you that we need to continue to produce the "legacy" benchmarks while there are still transactions outstanding that are based on them.<br /><br />My solution is directed at solving the problem of "getting the benchmarks right for the future". This solution just happens to have implications for the "legacy" benchmarks.<br /><br />Historically, Libor is suppose to answer the question of what is the "cost" of borrowing on an unsecured basis by the banks on the panel.<br /><br />Asking this question made sense as the cost of borrowing on an unsecured basis is a proxy for a bank's cost of funds. This proxy is then used as the starting point for pricing a loan.<br /><br />Requiring the banks to disclose their exposure details addresses the problems we have found with "legacy" Libor without having to change the historical question or usage of Libor.<br /><br />I address freezing in the unsecured debt market by providing the disclosure necessary so that banks with deposits to lend can always assess the risk of the banks looking to borrow. The unsecured debt market is currently frozen because banks don't provide this disclosure and banks with deposits to lend cannot assess the risk/solvency of the borrowing banks.<br /><br />I also address misreporting of what it actually costs a bank to borrow by making the actual trades available to the market (so reported trades can be confirmed).<br /><br />In the case of legacy Libor, implementing "new" Libor has real implications. Specifically, there shouldn't be any divergence between the two rates.<br /><br />Finally, with regards to Libor, my proposed solution keeps the rate as based on a bank's unsecured borrowing rate. Repo or OIS-curve related rates reflect a bank's cost to borrow on a secured basis. I don't think there is any reason to change from unsecured to secured rates as this would cause a major disruption.<br /><br />As for Euribor, you are absolutely right that even IOSCO's modest solution that transaction data be used in support of expert judgment could and most likely would have a major impact.<br /><br />Finally, I happen to agree with you that we need to get the replacements right for the benchmark interest rates. I happen to think that the right benchmark interest rates are constructed based on actual transactions disclosed as part of each bank being required to disclose its current exposure details.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-31930959779620145332013-06-09T10:08:50.014-04:002013-06-09T10:08:50.014-04:00Richard,
I'm not really talking about the mar...Richard,<br /><br />I'm not really talking about the market's ability to assess the credit risk of potential counterparties, although I believe they report as you suggest, quarterly, but I suspect that assessment may not be totally straightforward from those disclosures (credit risk is obviously not my area of expertise).<br /><br />My comment is aimed at the IOSCO opinion that transaction data should be used, where it exists, in supporting expert judgement in submissions to benchmark creation.<br /><br />If Euribor was to adopt this methodology, the benchmarks would be set by (how many prime banks are there - two?) an extremely small sample of the market.<br /><br />Euribor is, I believe, intended to be the level at which it is 'fair' for banks to lend to their customers - if the rates achievable by a tiny, unrepresentative sample of the market were applied to the balance sheets of the whole European industry - that is the rates at the extreme of one end of the bell-curve - then this would severely penalise most national financial markets to the point where all but the Dutch/German markets were lending at a substantial loss. Euribor is already causing this effect but the use of trade evidence would, I suspect, compound the issue further.<br /><br />The issues in Euribor and Libor should, to my mind, be divided into two; legacy dependencies on the historic questions and getting the benchmarks right for the future.<br /><br />If the Euribor question were changed to the Libor version, it would cause a hike in rates by, what, 3%, 4% for the current topped/tailed panel? The lawyers would be all over this as a fundamental change in all existing contracts, from residential mortgages to exchange-traded contracts.<br /><br />Libor is not in a vastly better place, but at least the question makes allowance for the varying creditworthiness of the individual panel members.<br /><br />So, to my mind, to maintain the publication of both sets of benchmarks for legacy purposes ad infinitum, the same questions must continue to be answered. It is not practical to use transaction evidence in the case of Euribor (even if it existed in substantial enough quantities) and Libor, given the evidence of expert judgement being falsified, but conversely given that there is better transaction evidence available, the method should be applied to the London benchmarks.<br /><br />Looking forward, there is little likelihood of the EUR banks continuing with the Euribor benchmark for new business; as soon as an alternative is agreed and available - (national IBORs based on each nation's GC Repo rates? OIS-curve related? who knows?) it will be adopted as a replacement - Mr Gensler has been extremely vocal on this one in the USD context.<br /><br />The solutions to the two issues, ongoing publication for legacy purposes and alternatives for new business, are not easy to solve, but knee-jerk fixes, without considering the full implication of the change in method, will most likely introduce unintended consequences which are at least as problematic as the status quo.<br /><br />Yes, almost all IBORs need to be repaired or, most probably, replaced, but let's get the repairs/replacements right.benchmarkernoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-75863940928838837492013-06-09T09:25:45.586-04:002013-06-09T09:25:45.586-04:00Benchmarker, thanks for the comment. Let me see i...Benchmarker, thanks for the comment. Let me see if I can answer your questions.<br /><br />Prime banks: At http://www.euribor-rates.eu/panelbanks.asp there is a list of the prime banks that were on the Euribor panel as of 1/8/2013. I am aware that several of these banks have withdrawn or are in the process of withdrawing.<br /><br />Disclosure: In the 1930s, it was the banking industry standard to disclose their current global asset, liability and off-balance sheet exposure details. Disclosure of these details was seen as a sign of a bank that could stand on its own two feet as market participants could assess its risk.<br /><br />Today, exposure details are seen as confidential information. Why is it confidential? For example, GE reports that it borrows. Do you think GE cares if banks it borrows from disclose that fact?<br /><br />Next, why are the securities a bank invests in confidential? Only reason is because bank is engaged in proprietary trading. Otherwise, why would a bank want to hide the information?<br /><br />The irony of banks is that there is no reason for their on and off balance sheet exposures to be confidential.<br /><br />But what about confidential data of individuals or private companies that haven't issued any public securities? No reason that their anonymity cannot be protected at the same time as bank discloses exposure detail. Disclosure and anonymity are not mutually exclusive.<br /><br />One might carve out an exception to this anonymity when it comes to hedge funds ....<br /><br />Finally, I agree that Euribor and Libor are asking different questions in rate setting process.<br /><br />I am simply saying why ask a question when we could use what is a knowable fact. <br /><br />Based on actual trades, it is knowable where Prime Banks are dealing. Based on actual trades, it is knowable where banks can borrow in the market.<br /><br />Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-86826058502491379632013-06-09T04:43:08.037-04:002013-06-09T04:43:08.037-04:00Euribor = "Where do you think Prime Banks are...Euribor = "Where do you think Prime Banks are dealing in the market?"<br /><br />1) Name the Prime Banks<br />2) Would any bank you could define as "prime" wish to support the whole market by disclosing confidential data? Would you, had you dealt with a "prime" bank, be happy with your confidential data being disclosed?<br /><br />Libor = "where could you borrow in the market?"<br /><br />Completely different issuebenchmarkernoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-78720201160801800142013-04-24T07:56:36.687-04:002013-04-24T07:56:36.687-04:00I hope not.
As I have maintained since before t...I hope not. <br /><br />As I have maintained since before the financial crisis started, we know how to address the twin problems of opacity and excess debt in the financial system so as to protect the real economy and society. <br /><br />The question is when will policymakers and financial regulators put society and the social contract ahead of bankers.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-30876058788924258322013-04-24T07:46:36.323-04:002013-04-24T07:46:36.323-04:00The next Keynes is Marx. The excessive concentrat...The next Keynes is Marx. The excessive concentration of capital seems likely to destroy not only capitalism, but democracy and lots of people's lives.Benignhttp://animalspiritspage.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-50025597871451979242013-04-22T22:11:19.941-04:002013-04-22T22:11:19.941-04:00Both the Cypriot government and the Germans have a...Both the Cypriot government and the Germans have a reason for not providing transaction level transparency.<br /><br />For the Cypriot government, this transparency will expose any crony capitalism. So if the President of Cyprus did in fact warn close friends, this would be revealed.<br /><br />From my perspective, one of the benefits of transparency is that going forward it ends crony capitalism. Sunlight is the best disinfectant.<br /><br />For the Germans, transparency would show the exposure of their banks at the beginning of the year and at the time when the EU insisted that the banks be recapitalized by seizing uninsured depositor funds. A significant decline would suggest the German banks knew something.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-25993606545111916732013-04-22T21:47:21.659-04:002013-04-22T21:47:21.659-04:00The Cypriots think that the Germans are running th...The Cypriots think that the Germans are running the EU for their own benefit. Do you think they will allow or provide transparency on all of their transactions? There are some rumors spreading out that the President of Cyprus actually warned close friends about what was going to happen and told them to get their money out Cyprus<br />Astanahttp://www.astanaforum.orgnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-59552477734392992522013-04-22T15:11:34.324-04:002013-04-22T15:11:34.324-04:00
Brilliant post and I could not agree more.
<br />Brilliant post and I could not agree more.<br /><br />Jessehttps://www.blogger.com/profile/10098169118867085623noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-948917482857985572013-04-10T06:48:49.674-04:002013-04-10T06:48:49.674-04:00You have written a great blog it has every thing r...You have written a great blog it has every thing related to business and business loan.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-43626517362640102212013-03-26T07:33:06.213-04:002013-03-26T07:33:06.213-04:00Loan officers are not the only recipient of bonuse...Loan officers are not the only recipient of bonuses at banks. In fact, they represent at best the tip of the iceberg when it comes to bonuses.<br /><br />Please understand that bonuses back them were dramatically lower across the board for all employees than they are now. The point was that bonuses were still being paid to most employees at a time when there should have been no pay out and maximum retention of earnings to rebuild bank capital.<br /><br />Pettis misses the mark because everyone knew about the Less Developed Country loans. The market had already reacted and factored them into the valuation of the banks.<br /><br />There was no "surprise" when Citi led the formal write-down parade. The reason the market went up was that the banks finally acknowledged the losses and the losses were consistent with what the market expected.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-6818020085374649602013-03-26T04:23:35.933-04:002013-03-26T04:23:35.933-04:00I am not sure toy know what you are talking about....I am not sure toy know what you are talking about. Commerical banks paid little to no bonuses to loan officers in the 1980s and none at all in the Latin American divisions. Pettis has. Got it exactly right.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-73923936934904089202013-03-24T12:35:09.109-04:002013-03-24T12:35:09.109-04:00Market participants knew by early 1983 that the ba...Market participants knew by early 1983 that the banks were in trouble with LDC debt. Volcker began flooding the market with liquidity (M2) in early 1982 because of the effect of high interest rates on Mexico and LDCs, with the resulting exposure to money center banks.<br /><br />When the Plaza V accords were announced in September 1985, it became an open secret that banks were advised to build massive Treasury portfolios to derive significant capital gains, such that those gains could be used to write down LDC debt. History shows that indeed happened.<br /><br />A similar exercise occurred in the early 1990s. Thank Ross Perot for announcing it to the country ... along with the silly denials of a money center bank solvency issue that appeared in the financial press.<br /><br />With interest rates so low and bond vigilantes having such enormous power, the one-way bet isn't available any longer to generate those needed capital gains. But, my colleagues are not really fooled by claims of "fortress balance sheets" in the banking system. Not with the continued policies of "extend and pretend" and the asset valuation games as well as off balance sheet sleight of hand.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-31412619021116198622013-03-16T13:36:36.167-04:002013-03-16T13:36:36.167-04:00It would be really nice if rather than confiscatin...It would be really nice if rather than confiscating depositor funds, policy makers actually allowed the banking system to absorb losses as it is designed to do.<br /><br />i realize that this would mean putting society ahead of banker bonuses, but sometimes sacrifices have to be made.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-85489732322212818972013-03-16T13:31:51.727-04:002013-03-16T13:31:51.727-04:00Hands up! Europe.Hands up! Europe.Anonymousnoreply@blogger.com