tag:blogger.com,1999:blog-34323687.post8033414226759247657..comments2024-03-28T12:22:11.704+00:00Comments on Macro Man: How Do You Spell W?Macro Manhttp://www.blogger.com/profile/12324967552369915949noreply@blogger.comBlogger87125tag:blogger.com,1999:blog-34323687.post-72331172951759049672010-01-24T21:33:33.216+00:002010-01-24T21:33:33.216+00:00Separating through Glass Steagall or any other for...Separating through Glass Steagall or any other forms that reduces systemic risk is not the problem, if it could be done in all of the G20 countries. This will be fair to any large size bank that wants to remain global.Ritanoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-55518223597195016792010-01-24T17:25:01.387+00:002010-01-24T17:25:01.387+00:00@harupsex, in a lower leverage world deposits can...@harupsex, in a lower leverage world deposits can be guaranteed the old fashioned way, via the FDIC insurance fund, whereas other liabilities need not be guaranteed given that systemic risk would not be as widespread in a 12-15x max leverage world.<br /><br />I have zero problems with a new Glass Steagall. But if that's what they want, then that's what they should enact!Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-82376082428273820082010-01-24T15:23:52.914+00:002010-01-24T15:23:52.914+00:00@ Gary:
several interesting posts. Your experienc...@ Gary: <br />several interesting posts. Your experiences remind me of mine, in a similarly large US bank.<br /><br />@ Macro Man:<br />I am confused by your point of not guaranteeing banks. Surely we know that the basic banking functions (deposit taking, payment systems and similar) are fundamental to the running of the economy, and hence must be guaranteed? <br />That is why we new a new, better Glass Steagall. <br />We cannot afford to be 20 minutes away from ATM machines being switched off (see UK last year) ever again, but on the other hand we do want financial institutions that take risks, punt, and when necessary fail: so we need to keep them separate.<br /><br />Of course, just separation is not enough. Several other measures are needed (e.g. a serious revision of so called mark-to-market rules) but won't bore you here with that.haruspexhttps://www.blogger.com/profile/03558328563435639031noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-76414541778955758272010-01-24T12:32:22.784+00:002010-01-24T12:32:22.784+00:00It sure feels like W but some how I have a feeling...It sure feels like W but some how I have a feeling the Bernanke Put is going to come to the rescue. What do you guys think?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-21119657222496118272010-01-24T09:20:22.444+00:002010-01-24T09:20:22.444+00:00Sort of agree we haven't seen the big one yet....Sort of agree we haven't seen the big one yet...with the short end not exactly going banzai.<br /><br />I am wondering whether margin calls this week on the back of the significant uptick in vols (rather than mtm losses) creates quite a need for $$$$$.Rossconoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-75484494314929243062010-01-24T07:31:19.217+00:002010-01-24T07:31:19.217+00:00"As an aside, I've not read very much at ..."As an aside, I've not read very much at all about the Supreme Court decision allowing corporatations, unions, etc to go crazy in donating to politicians' campaigns."<br /><br />That's not right. The decision allows corportations to spend their money advocating candidates. The ban on donations TO candidates still exists (maybe a larger distinction in theory than in practice).<br /><br />"And even if it was true, central bankers have insulated bad banks from all market pressure."<br /><br />How true. Great observation.<br /><br />"It sounds bad in 20/20 hindsight, but you can't prove anything beyond a reasonable doubt (i.e. in a court of law)."<br /><br />That ("beyond a reasonable doubt") is for criminal convictions. Most civil cases only require a "preponderance of evidence." See http://en.wikipedia.org/wiki/Burden_of_proof#Standards_for_conviction<br /><br />"The Sun and the Earth both orbit the center of mass of the pair, which is a point somewhere inside the Sun."<br /><br />Good one. :) My favorite question to ask applicants was "how long does it take for the earth to rotate 360 degrees about it's own axis?" I expected people "good with numbers" to be able to compute the answer in their heads (to an accuracy of five seconds). Of course some people familiar with astronomy already knew the answer. :)<br /><br /><br />I don't know how the "financial reform" gets resolved, but I do know a lot of people at small trading firms who are quite pissed off (rightly so, in my opinion) about having to compete with firms who have access to government guaranteed deposits. Borrowing at the Fed Funds rate to fund a "heads, I win - tails, the taxpayer loses" business model just isn't going to fly any more.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-11584743884544077832010-01-24T06:36:09.725+00:002010-01-24T06:36:09.725+00:00MM - What a load of BS. The highest level of incom...MM - What a load of BS. The highest level of income taxes kick in at about the level of doctors and engineers -- people who actually do something useful and productive for a living.<br /><br />There is something deeply broken with a financial system that does not care whether or not the loans it makes get paid back. There is something deeply broken with a financial system where prop trading is backed by public money. There is something deeply wrong with an individual who cannot see this. Bankers are a product of their environment. The environment has to change.zanonnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-83362823189132377022010-01-23T20:18:48.089+00:002010-01-23T20:18:48.089+00:00Greg - you forgot to mention that the bankers get ...Greg - you forgot to mention that the bankers get paid (indirectly) an underwriting fee for issuing the debt / sticking our kids with the bill... the primary dealers and the banks are one and the sameAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-71858853969112133652010-01-23T18:42:50.365+00:002010-01-23T18:42:50.365+00:00MM - given the fiscal structure of the US governme...MM - given the fiscal structure of the US government, it would be a lot more honest to say that neither the "poor" nor the "rich" are paying to bail out banks<br /><br />Our children will get the bill. Its all being paid for with debt. Trillions in debt, and neither political party has a credible plan to run even balanced spending, much less a surplus needed to pay the debt back.<br /><br />So lets be honest here. We are sending the bill for our mistakes to our children and their children.Gregnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-20802309509536100312010-01-23T18:15:27.226+00:002010-01-23T18:15:27.226+00:00Given the progressive nature of the US income tax ...Given the progressive nature of the US income tax system, the "ordinary, hard-working" American has contributed very little to the bailouts. Certainly less than the overconsumption and irresponsible real estate choices of the same "hard-working, ordinary" American contributed to the crisis. <br /><br />While banks are also culpable, uninformed rants of "they're all a buncha crooks!!!" really belong on another site. Feel free to go there now.Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-54913463864623787652010-01-23T17:54:17.335+00:002010-01-23T17:54:17.335+00:00Banks and airlines have a lot in common:
-Both ha...Banks and airlines have a lot in common:<br /><br />-Both have massive overcapacity<br />-Both cannot function without massive taxpayer subsidies<br />-Both FOCUS on all sorts of deputy police work (TSA assistance or credit bureau assistance) while ignoring their actual business<br />-Both regularly display disregard if not open hostility toward their customersAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-9777481624348812802010-01-23T17:30:47.987+00:002010-01-23T17:30:47.987+00:00Stop the whining you poor prop traders.
Every rea...Stop the whining you poor prop traders.<br /><br />Every reasonable human being that still has a conscience should admit that all the criminal organizations (aka banks) are only still around cause ordinary hard working people bailed them out with their money. And much to my dismay, we do not publicly (and physically) punish such criminals any more these days because obviously this is the only way they would learn their lesson.<br /><br />So, honestly, I don't give a crap if it was the fault of the prop trading branch, the underwriting guys or whoever. You guys in general do NOT REMOTELY deserve bonuses the size you actually get, cause there is not a fraction of this money created in REAL values by your actions. Or as Volcker put it correctly: the only meaningful innovation by the banks was the ATM. <br /><br />So, I am totally favouring Glass Steagall II and then you guys can sink your ship as you see fit...<br /><br />Best regardsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-8429078180916969642010-01-23T15:57:31.682+00:002010-01-23T15:57:31.682+00:00the banks suffered massive losses from their propr...the banks suffered massive losses from their proprietary trading of subprime mortgage debt. <br /><br />Often the subordinated tranches of deals (the riskiest stuff) could not be sold so it had to be kept on the banks books (where it should have been hedged). The banks didn't have proper risk systems to do this hedging, which eventually forced them to use accounting tricks like SIVs and bank operated hedge funds to create the illusion that the risk was no longer on the bank's books even though it was.<br /><br />The regulators simply don't have the insider knowledge needed to evaluate and understand these risks. The shareholders have far less information, and most have less expertise.<br /><br />Only the senior management inside the bank has (theoretically) both the access and the expertise to understand the risk.<br /><br />That is why a partnership (or whatever structure where senior management keeps tabs on each other out of self interest) is the only way to avoid regular crisis and taxpayer bailoutsGregnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-51798244703401563512010-01-23T15:45:03.799+00:002010-01-23T15:45:03.799+00:00Investing in hedgefunds and private equity firms h...Investing in hedgefunds and private equity firms had almost nothing to do with the subrime mortgage lending recession that has spilled over and lasted those 3 years. In fact, it through these very avenues that they were able to generate capital during the recession. I mean lets take a look at what caused these banks and firms to go out of business or become troubled. It was not completely investing in hedgfunds or private equity firms.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-15862030762424589612010-01-23T15:04:30.097+00:002010-01-23T15:04:30.097+00:00MM - too bad the banks don't make use of the &...MM - too bad the banks don't make use of the "information" they supposedly have to manage their risk. That would actually have some value.<br /><br />Also, while you claim not to support TBTF policies -- you haven't said how prop trading could occur within a bank while still allowing deposits to be taxpayer insured. Even if the prop desk / hedge fund was in a bankruptcy remote entity (like the SIVs were) -- there is absolutely no credibility to the idea that the parent company wouldn't be dragged in to the problems of its subsidiary prop desk / HF.<br /><br />The only way to make the prop desk / HF truly separate from the taxpayer protected bank is to make it actually be a separate entity, preferably a partnership or some legal structure that forces senior management to look after the risk as though it is their own.Gregnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-49389450094712842102010-01-23T13:35:26.179+00:002010-01-23T13:35:26.179+00:00MM,
The probis it's lot more comfortable for s...MM,<br />The probis it's lot more comfortable for self interest for many involved parties to just take the blame aim at banks.The fact that the line up of twats behind GFC is virtually inclusive of everyone not living in a cave is conveniently overlooked.<br />Leaverage,leaverage and leaverage is the source of angst ,too much ,too available,too unregulated.Capping that is the first step to financial sanity.If the powers then want to go further and tie ribbons around the activites that merit govt support then go ahead ,but make sure those activities encompass the full line of twatish behaviour and there's lots that have nothing to do with prop trading.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-33159056880270552652010-01-23T12:20:48.680+00:002010-01-23T12:20:48.680+00:00Sigh. So many straw men, so little time. Nowhere...Sigh. So many straw men, so little time. <b>Nowhere</b> have I argued that TBTF banks should be allowed to carry on taxpayer-guaranteed prop trading.<br /><br />I have argued that banks should be neither TBTF nor government guaranteed. Beyond that, they should be allowed to conduct business as they see fit. Why can they own/invest in mutual funds but not HF or PE? The investment performance of the latter trounce the former, and it's not exactly like asset-farmers are pure as the driven snow, is it....or have we forgotten Janus already?<br /><br />Prop trading is an activity that allows banks to make use of one its primary intangible assets: information. I am not talking about front-running equity clients, I am talking about legal trading done by a variety of other organizations. Central banks prop trade. Automakers prop trade (Porsche is basically a hedge fund that makes fast cars). Telecoms companies prop trade. It seems a bit odd to ban banks from doing so if they are outside the aegis of public support, which, again, is what I suggest.<br /><br />Finally, bear in mind that while banks are certain culpable for the financial crisis, they are far from the only ones to blame. The Agencies (both GSE and ratings) are to blame. Insurance companies are to blame. And the public, who bought houses they couldn't afford (and KNEW they couldn't afford) with non-recourse loans that they swiftly stopped servicing are also to blame. If we're going to ban banks from prop trading, shall we also ban the public from buying houses, since they, too have received public support?Macro Manhttps://www.blogger.com/profile/12324967552369915949noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-46869458756835504732010-01-23T03:07:18.940+00:002010-01-23T03:07:18.940+00:00"Banning prop trading and ownership of invest..."Banning prop trading and ownership of investment management businesses is not the solution to the problem. Restricting leverage to systemically safe levels is."<br /><br />MM, that is the core of the problem, Central Bankers, regulators and rating agencies have proven inept at determining what leverage level is systemically safe for a given asset class / financial instrument. The main reason for this is that these leverage limits are buried hard into technical details like de-consolidation criteria, counter party risk add-on, VaR multiples, cross asset class correlations etc..., only understood by a few technical guys whose only wish is to work for an investment bank to show where the loopholes are and join the gravy train. Essentially, regulators and Central Banks play with the ultimate other people's money which is the taxpayer's money.<br /><br />Alan Greenspan knew this, and counted on the "self interest of organizations" to make sure that the equity layer was sufficient and thus, leverage levels appropriate. He was badly mistaken and recognized it, because he kept a blind eye on agency problems. To show the extent of how he was wrong, even GS, who has a first-class risk management culture (not coincidentally because they were the last to switch from a private partnership structure), would have gone belly up in 2008 without the Government intervention.<br /><br />So, no, there shouldn't be ANY involvement of public money, actual or contingent, at whatever level of capital structure (equity, mezzanine or senior) for prop trading and market-making activities. As the Federal Reserve refinancing mechanism and the FDIC structure are ultimately public money, banks should get out of this business. That will go a long way to restore sanity in leverage levels.Charleshttps://www.blogger.com/profile/15664983104693516908noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-20977322774131996542010-01-23T02:31:07.969+00:002010-01-23T02:31:07.969+00:00The Sun and the Earth both orbit the center of mas...The Sun and the Earth both orbit the center of mass of the pair, which is a point somewhere inside the Sun.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-37423510882807348682010-01-23T02:10:55.651+00:002010-01-23T02:10:55.651+00:00Macro Man - your blog is superb, one of the best m...Macro Man - your blog is superb, one of the best market blogs out there. You do a great service to traders everywhere, so please keep cool as you read this! Respectfully I agree with much of what Gary says in this debate. The public has turned against what they perceive as 'capitalism', but that is not the system that we have in place any more, it is a very dangerous path that has been trodden down. What we do have is taxayer-insured prop trading. Except for the most risk averse deposit taking institutions all private companies should be allowed to fail. What is this business with investment banks borrowing from the Fed at 0%? Why should they be subsidized by the taxpayer? Goldman Sachs is the best of the subsidized investment banks, but they have even been bestowed further privileges beyond this, such as having an ex-GS man running the Treasury, infiltrating the Fed, aquiring 'bank holding status' during the peak of the crisis when their application was 'fast-tracked'...there is nothing wrong with with record profits and bonuses but provided it has absolutely nothing to do with the taxpayer, and the firms making these profits are borrowing at commercial rates, just as GS did when they wanted Buffet's cash. I admire your courage and honesty here in tackling this subject, but as an outsider (prop trader, ex bank) the view is a lot different. The Fed should be the lender of last resort not the lender of first resort to the selected few.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-55001085201087985072010-01-23T01:37:18.534+00:002010-01-23T01:37:18.534+00:00Welcome to the Banana Republic Casino! I am your ...Welcome to the Banana Republic Casino! I am your host, Mr Banker.<br /><br />Place your Bets! If you win, you in; if you lose, you lose. But in no case are you allowed to bet more chips than you actually have in your possession.<br /><br />I, on the other hand, will not put any of my own chips at risk. I will borrow chips from my stooges, Geithner and Bernanke. If I win, I pay back the loan and pocket the winnings. If I lose, my stooges will charge the bets to your accounts. You get no say in this at all! Screw you little people. If you run out of money, you can always get a job cleaning my $35,000 toilet.<br /><br />At some point tonight, you might see an octogenarian about six foot seven inches show up and suggest that I, MR BANKER, should play by the same rules as the rest of you wretched filth.<br /><br />If this happens, I will whine and cry and bitch and smash glasses and stamp my feet and generally throw the mother of all temper tantrums.Mr Bankernoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-22935645287384147652010-01-23T01:36:19.097+00:002010-01-23T01:36:19.097+00:00@Ian
Treasuries are not a free market. Those pr...@Ian <br /><br />Treasuries are not a free market. Those prices are controlled by the Fed.<br /><br />Politics move markets, no matter how distasteful the debates might beAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-50528800363858977422010-01-23T00:10:53.913+00:002010-01-23T00:10:53.913+00:00So now that politicians secured unlimited stream o...So now that politicians secured unlimited stream of funding from every other corporation than banking industry will we get some justice?<br />Is the Supreme Court decision and Volcker Reform announcement a coincidence?<br /><br />By the way Macro Man I think this is is the single most classy financial blog one on the net, but I really don't understand your pro prop trading by TBTF bank arguments, this time you are talking your book and you lost your cool.<br /><br />Are these banks such a retards that they HAVE to pay this enormous bonuses "in your face", when they owe so much money to the taxpayer (Tarp, Talf, MBS buyback, mark-to-fantasy etc.) and possibly never pay it back?<br />It looks like they know their world is ending and they need to grab as much as possible.<br /><br />Populism or not populism this people are really sick and bonuses made them crazy.<br />It's like having a high score at some moronic computer game and bragging about that to your friends when you were in high school. "Hey i made seven point five this year, how about you? Five? Oh, you must try harder next year..."<br /><br />That's the main motivation for their work, except for Goldman employees who live in a sect so they have to obey the Grand Wizard and nothing more matters, money is just a score card.<br /><br />The whole world will pay for this feckless behaviour for years... every little kid... for somebody's bonus...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-20632665269877154232010-01-22T23:34:48.841+00:002010-01-22T23:34:48.841+00:00@zanon -
It was a surprise for everyone who wasn...@zanon - <br /><br />It was a surprise for everyone who wasn't listening.Willynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-34982876727941527892010-01-22T23:13:25.800+00:002010-01-22T23:13:25.800+00:00Jesus Willy. If you're going to claim that Bro...Jesus Willy. If you're going to claim that Brown's victory wasn't a big surprise two weeks ago, then I'm leaving. I'll see Ian at the bar.<br /><br />You can continue waving whatever political flag you want. I'm really not interested.zanonnoreply@blogger.com