Cialis 30mg
“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.