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“Similarly, Mr.Geithner called for oversight of unregulated derivatives celebrex pharmacy, like the credit default swaps at the heart of the debacle at American International Group.But he made a troubling distinction between “standardized” derivatives and “non-standardized” ones celebrex pharmacy, and proposed different regulation for each.That looks like a loophole disguised as a new rule – celebrex pharmacy.Derivatives celebrex pharmacy, now swapped one-on-one, ad infinitum across the financial system, need to be traded on a fully regulated exchange, period.” Click for EDITORIAL
- Questions for Reform
- New York Times Editorial
- March 28, 2009
We blogged on the Geithner Plan last week. The New York Times is saying many of the exact same things we did.
Here is something else they said:
“Without the answers, which we do not yet have, Congress and the administration cannot be confident that they are coming up with the right reforms.
It is clear, however, that there is bipartisan resistance to a thorough investigation of what caused the collapse.There have been hearings galore.But they are often little more than hazings of corporate executives and government officials.Even the illuminating hearings have not been connected in a meaningful way that will help us all understand what went wrong.
Without an investigation, the reform effort will be at best, hit or miss, and at worst, a charade; celebrex pharmacy.Congress should start now to gear up for an investigation, using as its model the 1930s Pecora inquiry into the stock market crash, or the Watergate hearings of the 1970s. Celebrex pharmacy: the investigation should not be performed by outside experts, like the 9/11 commission, whose report Congress is free to accept or reject.It should be part of the Congressional process and include an investigator with subpoena power and the right to participate in the questioning of witnesses, as well as to prep lawmakers for the hearings.”
The American People ought to demand answers as to what went wrong and why we as a government are spending more money bailing out Wall Street than we’ve had to spend fighting all the wars in our nation’s history – combined!
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“Reflation and How to Exploit It: Some Bet Commodities Will Boom as Stimulus Restarts Global Economy
The most talked-about investing strategy these days isn’t stuffing money in a mattress celecoxib, it’s the reflation trade — the bet that the world economy will rebound, driving up interest rates and commodities prices.
Even though the economy continues to struggle, investors are looking ahead to time when the massive rescue efforts by central banks and governments gain traction.
They are focused on raw materials and commodity-related stocks that would benefit from the surge in infrastructure spending.They are looking to exploit potential bottlenecks in production that could lift prices and corporate earnings.Some are layering on insurance against a spike in inflation should central banks lose control of their stimulus efforts.
“Between the bailouts and the stimulus celecoxib, it’s pretty clear that we’re going to have some inflation when we get out of this mess,” says Roger Ibbotson, founder of Ibbotson Associates and chairman of hedge-fund manager Zebra Capital Management.It may not show up for another two years, he says, “but after that I think it’s quite likely and I think you should be positioning a portfolio against that.” Click for ARTICLE (subscription required)
- Reflation and How to Exploit It
- Tom Lauricella & Carolyn Cui
- Wall Street Journal
- March 30, 2009
Last week we posted Summer of RAGE where we invited readers to consider what the national psyche would be like this summer if speculators drive up the price of gas to $3+ per gallon. Lo and behold, today, the Wall Street Journal is running a story laying out the “investment” rationale for buying commodities now in anticipation of shortages two years in the future.
And who is promoting this view? None other than Roger Ibbotson. Ibbotson Associates is a well-known and well-respected investment consultant to pension funds and other institutional investors. They appear to be one of the pension fund consultants that are peddling commodity index investments to institutional investors.
Morningstar / Ibbotson recently had an investors conference in Orlando and who showed up but Gary Gorton, who we’ve written about HERE as being at the center of the AIG Credit Default Swap debacle. He was also at the center of the AIG Commodity Index debacle which we are still living through.
Here is the conference agenda:
Commodity Futures-What’s the Source of Value?
- Gary Gorton, Ph.D., Professor of Finance,
- Yale School of Management
Gorton will discuss the characteristics of commodity futures as an asset class, the economics of the fundamentals of commodity futures
Ibbotson and Gorton are fellow professors at Yale. Yale University (along with Harvard) have been big investors in commodities. Apparently New Haven, CT is the epicenter for the spurious nonsense that “Commodities Are An Asset Class.”
People are incensed that AIG took government money and then paid out bonuses to the people in AIG Financial Products. What the American public does not realize is that AIG Financial Products also created the AIG Commodity Index and (along with Goldman Sachs, Barclays and other Wall Street Banks) lured institutional investors to pour hundreds of billions of dollars into food and energy futures as an “investment” with the siren song of “equity like returns and negative correlation.” All of it was pure bunk.
The pension funds and university endowments that put money into these commodity index investments got creamed losing more than 50% of their value in 6 months. But the real tragedy was the hand these investors played in doubling and tripling food and energy prices in 2008 at a time that Americans and the world could least afford it.
Now all these characters are back at it again. This summer foreclosures and joblessness will be peaking. If “invesculators” drive gas prices back above $3 per gallon the rage on the part of the American public will be the stuff revolutions are made of – celecoxib.
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“When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla; order celebrex.It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto.Its short positions amounted to the equivalent of 20% of the nation’s crude oil inventories.With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.
But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing; order celebrex.There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts….
Some answers may emerge in late March when former FBI director Louis Freeh releases a report on the trading surrounding Semgroup’s demise. Order celebrex: he was hired by Semgroup and given subpoena power by the bankruptcy court judge in Delaware. Order celebrex: meanwhile the Securities & Exchange Commission is investigating, and lawyers involved in the bankruptcy say that Manhattan District Attorney Robert Morgenthau’s office is looking into the actions of New York firms in the collapse.His office declines to comment.” Click for ARTICLE
- Did Goldman Goose Oil?
- Christopher Helman and Liz Moyer
- Forbes Magazine
- April 13, 2009
We have never alleged manipulation in any of our reports or Congressional testimony because we never had any firsthand knowledge. But there has always been a sneaking suspicion that where there’s smoke, there’s fire. Seems like somebody with firsthand knowledge is now coming forward and just might blow the lid off what the Stock Jockey calls “The Other Crime of the Century.”
By the way, when the ivory tower academics talk about how futures prices must reflect physical market suppy and demand (not realizing that the futures price IS the spot price) they assume that physical market players that think prices are too high will sell futures and drive the price back down. But here we see that SemGroup a physical player who believed prices were too high (and was right!) actually got squeezed out of their short positions (which were 20% of U.S; order celebrex.physical inventories) by speculators which made oil prices spike even higher.
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If you think that people are incensed over AIG bonuses, wait until Gas hits $3 per gallon this summer. Two nearly identical reports have been issued by McKinsey Consulting and Cambridge Energy Research saying that an oil price spike is likely.
“The recession has curbed demand for oil, pushing prices down sharply from their peak last summer – effects of celebrex.But without aggressive steps to improve energy efficiency, the world is “risking a second spike in oil prices” in the near future, according to a new study by consulting firm McKinsey & Co.”
Click for ARTICLE 1, Click for ARTICLE 2
- Sky high oil prices may be just around the corner
- Tim Catts
- Daily Finance
- March 24, 2009
“Sharp reductions in investments and low oil prices could curb future supplies by almost eight million barrels a day within the next five years, according to a study scheduled for release Friday, the latest warning that the world could face a new energy shock when the economy picks up.
The report by Cambridge Energy Research Associates, an oil consulting firm, said that the potential drop in production capacity is a “powerful and long-lasting aftershock following the oil price collapse.”
Click for ARTICLE 1, Click for ARTICLE 2
- Rising Fear of a Future Oil Shock
- Jad Mouawad
- New York Times
- March 26, 2009
Now the economy is still getting worse, unemployment is still rising, people are still losing their jobs and yet we’ve seen the stock market start to go up. Why? Because the stock market is forward looking and traders think they see some light at the end of the tunnel (let’s hope it’s not an oncoming train).
The oil bubble has burst but Congress has done ZERO in terms of any regulation that would prevent the large Wall Street traders from coming right back into the oil markets with a vengeance. The henhouse door is still wide open and the foxes are still hungry. Oil is still completely financialized (see it rising with the stock market?)!
Fears of inflation or a weak dollar combined with a pick up in economic activity might be all that is necessary to send billions upon billions of “investment” pouring into oil and driving up the price to $70, $80 or $90 per barrel. It does not take actual demand by oil consumers to drive the price up. Speculators that see a hint of demand on the horizon can gun the price long before actual demand arrives.
So imagine in the heat of the summer when people can’t run their A/C because it’s too expensive and they’ve lost their jobs and possibly their house. What will be their attitude then toward Wall Street!?
UPDATE: Here is an Appetizer from the G-20 Summit
And please remember that pension fund allocations happen quarterly on the 5th – 10th trading days of the month. So if oil starts climbing April 7-14th you’ll know why.
Information Celebrex
“Within that small, self-contained world, it’s no big deal to make $1,000,000 a year.It’s simply assumed that $850,000 of that may be in the form of a bonus, and that of course you’re entitled to some kind of a bonus every year.
It’s accepted that sacrificing for your company’s sake or for your fellow employee’s sake is a sucker’s game, because you’ll be sold and laid off in a New York minute if it puts another dollar in someone else’s pocket.
Decades ago at Lehman Brothers, I often heard the mantra, “You have to do what’s right for you and your family.” I quickly learned that this was really code for, “I’m going to stab you in the back if it helps me and my family one iota.”
Is it any wonder that the rest of America is appalled by this culture?” Click for ARTICLE
- Memo to Wall Street: America Hates You
- Jeffrey D.Korzenik
- Marketwatch
- March 27, 2009
As many of our regular readers know, Jeff Korzenik is a friend who has his own blog at www.inefficientfrontiers.com. I encourage you to read his whole post on Marketwatch.
We commented on the topic of compensation here: The Ultimate Cause Of Financial Armageddon.
With that said it is horrific to think that Barney Frank and others are going to set the pay scale for Wall Street. If Federal Regulators had simply enforced the rules on the books and exercised the powers they already have then they could have prevented this crisis. Instead their fondness for Wall Street was only eclipsed by the love that Congressmen had for Wall Street cash! It was Congress that changed the rules on Wall Street’s behalf and effectively pimped the American people for a few million dollars in campaign contributions.
Who is to blame for the fire? Is it the match, the oxygen or the wood?
The answer is all three are FULLY to blame!
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184 Social Justice Organizations From 29 Countries Sent the Following Letter:
The Honorable Barack Obama
President of the United States
The White House
Washington, D.C; celebrex information.20500
March 24, 2009
Dear Mr; celebrex information.President:
In 2008, the price of basic food staples rose by incredible proportions – celebrex information.Between May 2007
and March 2008, hard red winter wheat rose 137 percent, from July 2007 to June 2008
corn prices rose 98 percent; celebrex information.Other food commodities rose in a similar fashion putting daily
sustenance out of reach for 200 million more people in the developing world.Families
used to buying kilos of food were only able to buy cups of the same food items.People
went hungry.Children stopped growing for months at a time, others perished; celebrex information.The steep
price run-up was followed by a sudden slide in commodity prices; celebrex information.Currently, some food
commodity prices have decreased to levels that have forced farmers in the developing
world and the United States from their farms.The world’s food commodities’ markets
have become dangerously and unacceptably volatile.
A significant part of last year’s price fluctuations were the result of excessive speculation
in the commodities markets by the very hedge funds and investment banks that helped
create the current economic meltdown.The surging prices were undeniably impacted by
increasing demand for agrofuels and a lack of grain reserves.And the current global
economic crisis has brought down overall demand leading to falling prices.Nonetheless, it
is clear that excessive speculation in the U.S; celebrex information.commodity futures markets dramatically
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demand issues that led to the 2008 food crisis.
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Dear Chairman Peterson and Ranking Member Lucas:
We are writing to thank you and your colleagues for your work on the Derivatives Markets Transparency and Accountability Act of 2009 (H.R – order cialis online.977).This legislation is urgently needed to restore confidence in our nation’s futures markets order cialis online, while protecting consumers, farmers, energy retailers, users and transporters, business operators and others that these markets were established to serve.
The events of 2008 that roiled the futures markets demonstrated the need for reform of on-exchange futures and over-the-counter derivative markets.H.R.977 provides sensible, balanced and common-sense reforms that will help all derivative markets work more effectively and with increased transparency.
We appreciate the committee’s work to hold a series of in-depth hearings that clearly demonstrated the need for reform.From the testimony of dozens of witnesses, it is clear that non-traditional speculators played a significant role in the swift and volatile commodity price run-up through last summer, and also in the subsequent price collapse; order cialis online.The activities of passively managed index funds, actively managed hedge funds and swap dealers all served to exaggerate price movements in energy, agricultural and other markets.
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“In our proposed regulatory system, the government will regulate the markets for credit default swaps and over-the-counter derivatives for the first time.
We will subject all dealers in OTC derivative markets and any other firms whose activities in those markets pose a systemic threat to a strong regulatory and supervisory regime as systemically important firms.
We will force all standardized OTC derivative contracts to be cleared through appropriately designed central counterparties (CCPs) – cialis 30mg. Cialis 30mg: we will also encourage greater use of exchange-traded instruments.
The CCPs will be subject to comprehensive settlement systems supervision and oversight, consistent with the authority outlined above.
We will require that all non-standardized derivatives contracts be reported to trade repositories and be subject to robust standards for documentation and confirmation of trades, netting, collateral and margin practices, and close-out practices.” Click for TESTIMONY
- Statement by Timothy F. Cialis 30mg: geithner
- U.S. Cialis 30mg: secretary of the Treasury
- Committee on Financial Services – U.S.House of Representatives
- March 26 cialis 30mg, 2009
Eliminate vs. Cialis 30mg: regulate
We need to ELIMINATE Systemic Risk, we do NOT need to REGULATE Systemic Risk. The most fundamental tenet of Finance is that returns are a function of risk taken. Why should a Wall Street Bank be able to earn a return by putting the system at risk? Wall Street takes the profits and Main Street eats the losses.
Geithner’s Plan right now is so light on details that it could be a simple whitewash, changing nothing, or it could be a dramatic step toward eliminating systemic risk. The devil is squarely in the details.
It is concerning that Congress, the Administration and Wall Street themselves are trumpeting the idea of regulating Systemic Risk. Regulators fail (they clearly failed in our current crisis). When Systemic Risk Regulators fail then the system will fail again.
Standardized vs. Cialis 30mg: non-Standardized
The biggest question begged by his outline is “where do you draw the line between standardized and non-standardized?” The exchanges have said that 99% of OTC derivatives can clear through an exchange. Gary Gensler said in his testimony that “everything that can clear should clear.” If in fact 99% of OTC derivatives are forced to clear through a central counterparty WITH DAILY MARGIN REQUIREMENTS then this plan will make the financial system invulnerable.
OTC derivatives by their nature are individually negotiated on terms that are different than futures (if they were identical to futures why would anyone trade OTC?). Customization in terms of timing of payments or the basis of the underlying does NOT prevent clearing of these derivatives. So a different blend of jet fuel delivered to ATL (rather than a NYMEX delivery point) can still clear through an exchange even though it is a customized contract.
It is quite conceivable that a regulator intent on exempting OTC derivatives from clearing could look at any contract wih the slightest amount of customization and declare it non-standard. Adopting this measure would result in 99% of OTC derivatives not clearing through an exchange. In this case the regulator becomes a shill for Wall Street, conning the American people into believing that something has been done to protect the system when in fact nothing but whitewashing has occurred.
Exchange Clearing vs.Central Counterparty
The cause of every systemic financial crisis in history has been excessive leverage. A crashing stock market or housing market does not cause bankruptcies if there is no borrowed money. This financial system meltdown was clearly fomented by 30x leverage at most of the major Wall Street firms. With that amount of leverage when assets drop by 3% or more capital is wiped out. That is what happened in 1929 and that is what happened today.
Forcing 99% of OTC derivatives to clear through an exchange where DAILY MARGIN is required to be posted would dramatically cut the leverage that swaps dealers can take. Cutting leverage cuts profitability. Swaps dealers want to continue to take outsized risks (putting the system at risk) so that they can reap outsized profits for their firms and more importantly for themselves.
The use of the term Central Counterparties (CCPs) rather than saying Exchanges is concerning because it sounds like there is a push on to either not require margin or require substantially less margin than an exchange would require. Exchanges (in competiton) have the incentive to require adequate margin to make sure that the counterparty is able to make good on that individual trade, while not requiring onerous amounts of margin. They can set margin requirements better than any politically appointed regulators.
Additionally you cannot set an initial margin or capital requirement and then walk away. You have got to require daily maintenance margin where if a trade is going against you then you’ve got to come up with more cash to keep it on. If AIG had been required to post daily margin for all their credit default swaps then they never would have gotten into the position where the U.S.had to save them or they’d bring downt the entire system.
If 99% of OTC derivatives clear through an exchange that requires daily posting of margin then systemic risk is virtually eliminated and a systemic risk regulator is just adding a belt to suspenders. But if the systemic risk regulator is a ruse to let 99% of OTC derivatives go uncleared with weak initial capital requirements and no daily maintenance margin then the genie is not back in the bottle and will destroy us again in less than a generation – cialis 30mg.
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“The growing role and weight of large-scale financial investors on commodities futures markets have affected commodity prices and their volatility. Speculative bubbles have emerged for some commodities during the boom and have burst after the sub-prime shock.”
- The global economic crisis: systemic failures and multilateral remedies
- United Nations Conference on Trade and Development
- March 19, 2009
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“Some of the billions of dollars that the U.S; cialis buy online.government paid to bail out American International Group Inc; cialis buy online.stand to benefit hedge funds that bet on a falling housing market, according to people familiar with the matter and documents reviewed by The Wall Street Journal.
The documents show how Wall Street banks were middlemen in trades with hedge funds and AIG that left the giant insurer holding the bag on billions of dollars of assets tied to souring mortgages.” Click for ARTICLE
- Hedge Funds May Get AIG Cash
- Serena Ng
- Wall Street Journal
- March 18, 2009
Henry Paulson, Treasury Secretary under Bush and former Chairman of Goldman Sachs, let Lehman fail and then panicked and bailed out AIG when it became known that AIG’s failure would imperil Goldman Sachs to whom AIG owed billions of dollars. In the case of Deutsche Bank (and probably Goldman) there were hedge funds on the other side of the trade and the Wall Street Banks were just middlemen.
One of the clear winners in bets against the subprime housing market has been John Paulson whose Paulson & Co; cialis buy online.has made tens of billions of dollars and now is one of cialis buy online, if not the largest, hedge funds today. No doubt he had bets on with Deutsche Bank and Goldman Sachs and others.
So this article implies if we follow the money trail: Henry Paulson takes U.S.taxpayer money and gives it to Cialis buy online: aig who in turn gives it to banks like Deutsche and Goldman who in turn give it to John Paulson and hedge fund managers like him. So the millions of people who have lost their jobs, lost their homes, or both are all asked to cough up thousands of dollars to pay the hedge fund managers that bet that they would lose their jobs and/or their homes.
I don’t have anything against John Paulson, I think he is brilliant and deserves to make billions. What I have a problem with is the fact that the taxpayers have been blackmailed into paying off the bets of very sophisticated and smart financial gamblers. And it is Washington DC extorting money under the auspices of “we have to save the system or we’ll have riots and martial law.” Like almost everything coming out of DC these days that is bull.
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“Agriculture Committee members gathered for the vote at a room in the Capitol after voting on other legislation on the Senate floor – cialis 5. Cialis 5: kate Cyrul, a Committee spokeswoman, couldn’t provide the final tally for the vote today.She said there were “no negative votes” on Gensler’s nomination.
Senator Tom Harkin, an Iowa Democrat and chairman of the committee, has previously expressed concerns about Gensler’s “deregulatory orientation.” Harkin voted in support of the nomination today; cialis 5….
Cialis 5: gensler’s nomination still requires approval from the full Senate.Harkin said he didn’t know when a Senate vote would be scheduled. Cialis 5: gensler was nominated to the position by Obama on Dec.18.” Click for ARTICLE
- CFTC Chairman Nominee Gensler Wins Committee Approval
- Tina Seeley
- Bloomberg
- March 16, 2009
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“Without nightly margin supervision on CDS short positions these vehicles have turned into the means to launch monstrous focused attacks on specific companies; the buyer has limited risk and virtually unlimited reward.
This is exactly like me buying fire insurance on your house, and in addition I can name the amount of insurance I want to buy, even exceeding the house’s value!
How nervous will you get if I buy $10 million in “fire insurance” against your $100,000 bungalow and then start stacking up gasoline cans in my driveway?
As a direct and proximate cause of this ability to distort the market it becomes possible to create self-fulfilling prophecies almost on demand, with the people doing it profiting handsomely – at the expense of American workers and otherwise-sound companies.
This form of exploitation of the market must stop.” Click for BLOG POST.
- Stop OTC CDS Abuse NOW
- Karl Denninger
- The Market Ticker
- March 4, 2009
This blog post gives a detailed insider’s look at how CDS are used to attack a company. Because they involve infinite leverage, just a few milliion dollars can push CDS spreads around to the point where a company looks like it is in serious financial trouble.
As always the solution is daily posting of margin which in order to be effective must involve mandatory exchange clearing. It also makes sense to ban “naked” CDS because that is a risk taking rather than a risk reducing activity; cheap impotence drug generic cialis delivery.
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“Speaking out for the first time, Born says she takes no pleasure from the turn of events.She says she was just doing her job based on the evidence in front of her; cialis.Looking back, she laments what she says was the outsized influence of Wall Street lobbyists on the process, and the refusal of her fellow regulators, especially Greenspan, to discuss even modest reforms.” Cialis: recognizing the dangers …was not rocket science cialis, but it was contrary to the conventional wisdom and certainly contrary to the economic interests of Wall Street at the moment,” she says.
“I certainly am not pleased with the results,” she adds.”I think the market grew so enormously cialis, with so little oversight and regulation, that it made the financial crisis much deeper and more pervasive than it otherwise would have been.” Click for ARTICLE
- Prophet and Loss
- Rick Schmitt
- Stanford Magazine
- March / April 2009
Very interesting and inspiring article. I would call it a must read.
Wall Street was pulling the strings then and they are still pulling the strings today. Wall Street says jump and Congress and regulators say “how high.” What is amazing to me is that Wall Street still has credibility even after they have blown themselves up and the American people along with them. I suppose it was never about credibility and it’s always been about the money. Since they just got trillions of dollars I guess there remains millions of dollars to buy the regulation they are after. Our government has failed us repeatedly.
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” Buy cialis generic online: to merge or not to merge? That’s the question facing Congress and the Obama administration as they seek to sort out the future of the Securities and Exchange Commission and the Commodities Futures Trading Commission.Multiple trade groups and others have recommended merging the agencies, an idea that picked up steam after unregulated financial instruments emerged as a culprit in the financial crisis.
But Rep; buy cialis generic online.Barney Frank, chairman of the House Financial Services Committee, suggested Thursday that a merger might not be in the works; buy cialis generic online.The Massachusetts Democrat said the Securities and Exchange Commission and Commodity Futures Trading Commission “will be strengthened” to carry out their responsibilities of ensuring market integrity and protecting investors – buy cialis generic online.They would be separate from a regulator that would focus on systemic risk protection, he said.” Click for ARTICLE (subscription required)
- Rep.Frank Suggests SEC buy cialis generic online, CFTC Merger Isn’t in the Works
- Kara Scannell
- Wall Street Journal
- March 5, 2009
“Mr.Bernanke said that policy makers also needed to examine the problem of institutions deemed “too big to fail” because of the role they played in the broader system – buy cialis generic online.Huge institutions like Citigroup and the insurer American International Group have received billions in bailout aid as the government seeks to ward off a collapse in the financial system….
Mr; buy cialis generic online.Bernanke also called for the creation of an authority to monitor and oversee broad buy cialis generic online, systemic risks, and said that policy makers needed to add muscle to the rules governing payment and trading so that financial markets performed better under stress.” Click for ARTICLE (registration required)
- Bernanke Says Financial Rules Need an Overhaul
- Jack Healy
- New York Times
- March 10, 2009
Wall Street is actively working harder than ever before to shape new legislation that seeks to regulate them. It is no coincidence when Barney Frank and Ben Bernanke start to say the same exact things.
A couple months ago Wall Street wanted the CFTC rolled up into the SEC but they were thwarted by the Agriculture Committees in both houses as well as by the public statements of Gary Gensler the designated CFTC Chairman. Now rather than reducing the alphabet soup of regulators we’re going to expand it so that we add another regulator on top of: Federal Reserve, SEC, CFTC, OCC, OTS, FDIC, FHA, OFHEO, ad nauseum. A new Systemic Risk Regulator (SRR?).
The whole point of this systemic risk regulator will be to convince the American public that the government is really doing something to reign in Wall Street. In other words they will be a shill for swaps dealers. Convincing everyone that things have changed when they really have not.
The CFMA in 2000 opened Pandora’s box for over-the-counter OTC derivatives. It was the interlocking web of swaps and other derivatives that blew up the financial system and the American economy costing millions of jobs, costing taxpayers trillions of dollars in bailouts and causing the loss of trillions of dollars of savings. But rather than stuffing the evils back in the box and nailing the box shut the swaps dealers simply want to assign a regulator to convince the American people that somebody is watching what they’re doing so that they can continue making billions trading derivatives.
While defending themselves against criticism, our current crop of regulators have said “well the CEOs of these firms didn’t even know what was happening!” So why now do Frank and Bernanke think that a new crop of regulators will be able to accomplish what the CEOs at these companies (with armies of PhDs and millions of dollars to spend on financial modeling software) failed to do, namely preventing a financial system collapse.
The simple solution to systemic risk can be summarized in three words: MANDATORY EXCHANGE CLEARING.
This will protect our financial system and ensure that it never again melts down.
Please view Mike Masters presentation:
How To Eliminate Systemic Risk Forever
Update: Jamie Dimon the CEO of J.P.Morgan said today that we need a Systemic Risk Regulator. Click for ARTICLE. I expect that you’ll hear a lot more about this since this is the direction that ISDA / Wall Street and everybody have decided to take in order to protect their OTC derivatives business from Mandatory Exchange Clearing.
Just to clarify, a Systemic Risk Regulator is wonderful IF there also is Mandatory Exchange Clearing. And by the way, if all OTC must clear through an exchange then the regulator will actually have something to look at because Mandatory Exchange Clearing is the only solution that brings complete real-time transparency – buy cialis generic online.
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” Cialis 5mg tablets: the Task Force did not attempt to conduct original research on cash and futures market data or to evaluate comprehensively the large volume of studies and reports that have been conducted on this issue. Instead, the Task Force relied primarily on recent reviews that have been conducted by the International Monetary Fund (IMF) staff, the European Commission (EC), Her Majesty´s Treasury (HMT) and the United States Inter-Agency Task Force chaired by staff of the CFTC, as they provide a broad sampling of available evidence.” Click for REPORT.
- Commodity Futures Markets
- Final Report of the Technical Committee of IOSCO
- March 2009
If you have even the slightest notion that regulators can peform scientific studies to prove or disprove anything please read our post: Shocking News! Academics and Bureaucrats Can Not Build Model To Predict Commodity Prices
The job of regulators the last 25 years has been to give the public the impression that the markets are “fair,” “efficient” et cetera. They function basically like the Wall Street Chamber of Commerce. They go and bust small time con artists while the Madoffs of the world that are well connected get a pass. It goes back to Stigler’s Theory of Regulation (it’s more than just a theory!) Like my old professor Merton Miller used to say “regulation goes to the highest bidder.”
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” Cialis 5mg cheap: myron Scholes, the Nobel prize-winning economist who helped invent a model for pricing options, said regulators need to “blow up or burn” over-the-counterderivative trading markets to help solve the financial crisis. The markets have stopped functioning and are failing to provide pricing signals, Scholes, 67, said today at a panel discussion at New York University’s Stern School of Business. Participants need a way to exit transactions and get a “fresh start,” he said….
Cialis 5mg cheap: scholes also recommended moving the trading of credit-default swaps, asset-backed securities and mortgage-backed securities to exchanges to allow for “a correct repricing” of the assets.The securities are currently traded between banks and investors, without any price disclosure on exchanges.” Click for ARTICLE.
- Scholes Advises ‘Blow Up’ Over-the-Counter Contracts
- Christine Harper
- Bloomberg
- March 6, 2009
Wow! The man who won a Nobel Prize for the Black-Scholes model which underpins all the pricing formulas in the derivatives world, says that over-the-counter derivatives should be blown up or burned to the ground. He seems like the ultimate whistle-blower.
Note that Scholes is arguing for mandatory exchange trading for all derivatives (in other words eliminate OTC). We have argued for mandatory exchange clearing which is slightly different that the trade can be consummated off the exchange but then it must be brought onto the exchange to clear.
Read Michael Masters presentation:
Preventing (Another) Financial System Meltdown
Update: Out come the knives from ISDA (International Swaps and Derivatives Association) a consortium of OTC swaps dealers: Robert Pickel, chief executive officer of ISDA said “I don’t know what people are thinking when they say those kinds of things.” Boy it didn’t take long for the attack dogs to find the scent. Having the grandfather of all derivatives attack OTC derivatives is a heresy that they cannot leave unchallenged. After all they’re making too much money; cialis 5mg cheap
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“The solution is to enforce position limits more vigorously and restrict exemptions to genuine hedgers rather than dealers running commodity indices and exchange-traded funds.
Dealers would still be free to run indices and exchange-traded funds, drumming up business from pension funds and other investors wanting exposure to commodity prices.But only a relatively small part of this extra investment business could be “dumped” onto the public exchanges, creating an upward price spiral.
The rest would have to be warehoused in the dealers’ own books.Unless dealers wanted to be net short, it would give them a sharp incentive to go out and find willing sellers to match the number of new buyers they are bringing to the market.
Tougher position limits would force them to become two-way dealers again, rather than simply commodity-investment promoters; buy cheap generic cialis.It would also help ensure the influx of investment money does not overwhelm the regular price-setting and hedging needs of physical users.” Click for ARTICLE.
- Should there be limits on commodity investment?
- John Kemp
- Reuters
- March 9, 2009
John Kemp is not a journalist fresh out of school he is a former oil analyst for RBS Sempra one of the largest oil trading houses. So his reporting is from the front lines.
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“Regulators are investigating the giant U.S.Oil Fund LP exchange-traded fund and others in the market over price moves that coincided with its trades in and out of crude-oil contracts earlier this month.
The Commodity Futures Trading Commission confirmed late Thursday that its enforcement staff is investigating USO concerning its so-called “roll” into a new contract on Feb.6.The scrutiny is part of a broader probe into the oil market.” Click for ARTICLE (subscription required)
- CFTC Probes U.S.Oil Fund Over Price Moves
- Sarah Lynch & Brian Baskin
- Wall Street Journal
- February 26, 2009
USO (the crude oil ETF) has a 50,000 contract position on NYMEX and a 30,000 contract position on ICE. That is a total of 80 million barrels or about 18% of the open interest for that futures contract. They held the closest to maturity futures contract outside of the delivery month and then they were rolling their position forward into the next month. Basically they operated like a commodity index (GSG, DJP are ETFs for the S&P-GSCI and DJ-AIG respectively) but with only one commodity in it – crude oil.
Now, why would the CFTC be all over USO when the commodity indexers had over 600 million barrels (the equivalent of 600,000 contracts at the peak)? So 80 million can move the market but 600 million cannot? One can only hope that the CFTC has gotten religion and realized that big players can cause big problems in the marketplace. If that is the case then they ought to go after the really big players: the commodity index swaps dealers!; cheap cialis online
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“Amid recent unusual price moves of a leading crude-oil benchmark, an energy data provider sees an opportunity for a new gauge.
Platts, a division of McGraw-Hill Cos., said Tuesday it plans to launch a new physical oil marker that it believes will better reflect the oil fundamentals in the U.S.
Recent moves of the West Texas Intermediate, a widely watched benchmark quoted on the New York Mercantile Exchange, have revived debates on whether its price still captures the supply-and-demand balance in the U.S.” Click for ARTICLE (subscription required)
- Platts to Launch New Oil Benchmark
- Carolyn Cui
- Wall Street Journal
- March 3, 2009
NYMEX is unwilling to police their own markets against excessive speculation letting commodity index funds and ETFs like U.S; buy cheap cialis without a prescription.Oil Fund take enormous positions that distort the markets and causes price bubbles. Now they are reaping what they’ve sown because physical hedgers are abandoning the NYMEX WTI contract because it no longer reflects supply and demand reality.
See our earlier post: What CME Does Not Understand
Update: CME wants to explain to you why there are no problems with WTI and you should continue to use it as your benchmark. Click Here for PRESENTATION.
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Cheapest generic cialis: click the above image to view a PDF of Michael Masters presentation entitled “Preventing (Another) Financial System Meltdown.”