the finance industry / wall street

oh fine u hate yeglesias but u like frum *rolls eyes*

thats a p good piece actually but it kinda dances around how insane things would get if spain left the euro

like this is all spanish banks failing simultaneously: Financial institutions that have bought Spanish credit-card debt (or Spanish mortgages or whatever) may discover equally shockingly late that their bonds also will not and cannot pay off in full.

His explanation of what leaving the euro would do to local commodities like housing and labor vs. "tradable" stuff was helpful

it's kind of overstating the case when it says "shockingly late that their bonds ..." because the surprise isn't there anymore. out of that 130 billion euro bailout, 100 billion of it is from investors writing down the greek bond debt. so when they talk about building an additional 700 billion euro firewall around europe what they're talking about is preparing to write down other big chunks of debt.

I'd be very surprised if anyone owns bonds backed by Spanish credit-card debt and is not extremely aware of the risks at this point.

I wonder who was smart enought to buy up Credit Default Swaps on all this debt early on.

This is a decent article about European bank exposure to a Greek exit:

http://www.bloomberg.com/news/2012-05-22/european-banks-unprepared-for-pandora-s-box-of-greek-exit.html

a fair amount of CDS on European debt is euro-denominated, so there's that too... (wrong-way risk, they call it)

http://av.r.ftdata.co.uk/files/2012/05/Estimated-cost-of-Grexit-Nomura-1024x612.png

huh so these gargantuan cds contracts don't contain some kind of exchange risk provisions?

http://news.firedoglake.com/2012/05/25/sec-ends-probe-into-lehman-brothers-without-taking-action/

I think Hurting 2 led the investigation. Just joking (and yea its the SEC and not Justice ...)

The officials have weighed issuing a public report on their findings that would stop short of an enforcement action while highlighting the firm’s questionable conduct.

hurting: i don't know the numbers. most european cds is USD, but for a time, a fair amount was euro.

A passage that struck me in The Big Short this morning:

"One of the reasons that Wall Street had cooked up this new industry called structured finance was that its old-fashioned business was every day less profitable. The profits in stockbroking, along with those in the more conventional sorts of bond broking, had been squashed by internet competition."

Sort of set off a light bulb for me. Wall Street would rather have the predictable profits from its old-fashioned businesses -- the old "make other people's money work for you" adage. Profits whether the market goes up or down. Profits from transaction costs. It's when that model is put at risk that Wall Street starts thrashing around and doing crazier, more risky things. It's almost like a gambler doubling down.

Can you give me a timeline here? Does old-fashioned mean when Glass-Stegall still existed?

alphaville iama on reddit. good reading: http://www.reddit.com/r/IAmA/comments/uflwl/iama_reporter_on_the_financial_times_alphaville/

When E-trade (or Scotttrade, Ameritrade, Fidelity, Schwab, etc.) advertise $9.99 for unlimited share amount transaction fees, its worth noting that Merrill Lynch et. al. in the 70s used to make around $150 for the first 100 shares traded and a sliding percentage of total dollar amount thereafter. Trading was expensive, investors had to buy and hold, and brokers went out of their way to seek new clients and sometimes even keep them happy to ensure future commissions.

Additionally, stock prices used to be quoted in 1/4th, 1/8th and sometimes 1/16th of a dollar, ensuring that the spread between bid and ask that the brokerage could pocket if they were doing a interclient trade was at least $0.06 and usually more like $0.25, per share. With decimalization of share prices, the spread on liquid securities has dropped to fractions of a penny.

The disintermediation of discount, and later, internet trading totally destroyed the business model of the brokerage industry.

But to detail what went wrong in the CIO, Dimon has repeatedly promised to be an “open kimono” — a phrase that we hope he will wean himself off.

http://ftalphaville.ft.com/blog/2012/06/22/1056901/jpm-to-host-face-to-face-analyst-meeting-after-q2-earnings/

oh lord

sooo what do we think of the LIBOR SCANDAL?

huge deal in the UK, not a blip stateside

yeah super big deal here, which seems fair enough?? affects a lot of things (it seems)

Barclays apparently planning to strip Bob Diamond of most of his stock options and such that generally soften the blow of being run out of town.

The LIBOR scandal hasn't taken off here (USA) as a story, but it is getting some play. It's this kind of casual manipulation of the market that destroys trust in banks and bankers, and someone needs to point out that without a certain amount of trust to grease the wheels the whole financial system would freeze up as solid as a rock. The punishments for such abuses should be commensurate with the damage they do to the whole system.

It's this kind of casual manipulation of the market that destroys trust in banks and bankersIt's this kind of casual manipulation of the market that destroys trust in banks and bankers

destroys what now?

er, didn't mean to paste that twice

cheap joek. if people really had no trust in banks, bank assets would evaporate so fast you could hardly blink twice.

Libor should really be getting more play in the US. There's $500trn based on it in one way or another, and a lot of public money (via states and cities) made or lost via it. Be surprised if there aren't fraud investigations and a shit-ton of lawsuits from the US over this.

i think people assume everybody holding their money is a blood-drinking bandit, probably gives them a lot of room to maneuver in shit like this, perversely enough.

if the fdic didnt exist banks assets might dry up over night

Libor getting virtually no coverage on US cable news outlets. Nor on the PBS Newshour yesterday.

At least that I've seen.

Didn't realise that half of all US floating mortgage rates are directly based on Libor http://www.lrb.co.uk/v30/n18/donald-mackenzie/whats-in-a-number

this, and the economist article it links are pretty good: http://blogs.reuters.com/felix-salmon/2012/07/06/barclays-first-mover-disadvantage/

my sense is that libor basically was always a big lie packaged up as an actual number, and everyone who actually interacted with it and knew how it was generated must have pretty much known that.

basically, bankers are not stupid when it comes to considering how people might attempt to break the rules to screw them over. and so when you have a rate that everyone knows is the average of people just saying whatever numbers they want to, every trader and banker must have understood that this never was something at all meaningful or reliable, or only was to the extent that it was an average of what different people wanted it to be in the first place.

Ah, yes, another incarnation of the she-was-asking-for-it defense.

http://www.ritholtz.com/blog/2012/07/lie-bor-we-knew-this-years-ago/

ritholtz blog runs down stories questioning libor as a sound number as far back as 07

not exactly. not a defense even.

just that libor never made sense, and everyone was always cynical about it and i mean yes go ahead fine the banks, they deserve it, but don't pretend that libor ever was or could be (or can be if we fine enough banks) anything but a mechanism for big banks to "vote" on short-term rates.

libor, remember, is a number that a bunch of banks got together and colluded to make up to begin with!

this is more of a gambling in rick's cafe sort of situation.

(xpost)

http://online.wsj.com/article/SB10000872396390443524904577649830558256586.html

about time.

bold prediction: there won't be a lot of jobs where untrained 21 y/os make 150k in 10 years

WASHINGTON (Reuters) - The New York Stock Exchange will pay $5 million to resolve U.S. civil charges that it gave certain customers "an improper head start" on trading information, marking the first time a U.S. exchange has faced a financial penalty from market regulators.

http://www.nytimes.com/reuters/2012/09/14/business/14reuters-nyse-sec.html?hp

Good that they are being charged. However, it's probably a slap on the wrist compared to how much money was made in the 2 years they did this.

Ok, so since QE and monetary policy is being discussed on the Taibbi thread, and since I also just heard Galbraith Jr. on NPR talking about related issues, I have these nagging doubts/questions about the standard line that "we're not at risk of inflation."

It seems to me that the reason we're not seeing inflation is that the economic recovery is so paltry. But the point of QE and other uses of monetary policy is to jumpstart the economy, right? And also, we keep hearing about how a lot of the liquidity the government is attempting to inject is not making its way into the system because banks aren't lending enough, correct? I mean maybe this is no longer true, but I thought so. Well what happens if the economy really does start to pick up, and all that extra liquidity starts to make its way into the economy again -- then aren't we finally going to start seeing some inflation? And then isn't the Fed faced with a problematic choice of either allowing inflation or putting the brakes on the recovery?

i think a lot of the recent stuff amounts to the fed saying that it is willing to have a period of higher inflation in once the economy starts to recover. paul krugman had a blog post recently noting the increased spread between inflation-protected and regular govt bonds and bascially saying that this is a feature, not a bug, even if they prefer not to explain it that way.

hah, i basically just reworded http://krugman.blogs.nytimes.com/2012/09/18/inflation-expectations-a-feature-not-a-bug/

One thing that is true about bubbles is that you can't reinflate them. Investors generally stay shy of whatever it was that went bust until the memory of it fades somewhat. That means that pumping banks full of reserves to loan to investors will probably result in that money flowing elsewhere than detached single-family housing.

Because this is not a housing-led recovery as is often the case in the past, it has not been a recovery led by strong gains in employment. So, there is a pretty good chance that some of those banks loans will flow toward speculation. A good candidate would be commodities, especially oil and food. That certainly does bring some risk of inflation with it, but not the hyper-inflation bugbear that the far right keeps waving around. That is also why government infrastructure projects would have been a far better vehicle for jump-starting the recovery. Such projects do employ people and also increase demand for industrial production, such as steel or concrete.

Again, it was our idiot, ideologue Congress that failed to understand basic economics, blinded by their stupid free-market fundamentalism.

also were perfectly happy w/ a shitty economy under obama

I certainly get that we're not at immediate risk of hyperinflation, and the paultard myopic focus on hyperinflation is lulzy. But I am also wondering if the left mantra of "a little inflation never hurt anyone" is myopic in this scenario too. I mean maybe higher oil and food prices are not hyper-inflation, but maybe they are exerting pressure against meaningful recovery, or inflicting additional pain on the hardest hit.

It seems to me like a competent, stable government would never allow hyperinflation. But they might be faced with a sophie's choice of doing serious harm to the economy to prevent it.

Since you can't "reinflate a bubble" I also wonder if the aim of current economic policy is really not to help the economy "recover" (to a state that it can't naturally return to), but to kind of give us a slow, soft landing into a new poorer existence.

the hardest hit don't have jobs right now

otm

right, and they have a hard time affording food and gas. But is there reason to think our recent uses of monetary policy are stimulating job creation?