I want to thank readers for all the support and contributions and ideas you provided in response to my query yesterday. I’m still working through them, and I owe some of you replies, which may take a few days (I was traveling yesterday, some meetings today, and a full day conference Thursday, so this is a rough week).
Spa treatment leaves man with eel in his… urethra Daily Edge. Needless to say, hat tip Richard Smith.
Spill ‘worst NZ marine disaster’ BBC
UN finds ‘systematic’ torture in Afghanistan Aljazeera
The ECB’s ‘QE Lite’ and New Downgrades of Euro Area Sovereigns and Banks Acting Man (hat tip reader furzy mouse)
Call for News Corp vote against Murdochs Financial Times (hat tip Buzz Potamkin)
Does Locking Young Offenders up Longer, Make us Safer? Real News Network
Secret panel can put Americans on “kill list’ Reuters (hat tip reader furzy mouse)
Freedom Plaza Is Now Ours David Swanson
Downtown protesters march against groups ‘that wrecked the economy’ Chicago Sun Times (hat tip Joe Costello)
Occupy Wall Street’s Misconconceptions According to Obama’s Job Czar freeman, FireDogLake. This would be funny if it weren’t so appalling. It reminds me of the history book my mother showed me that she had to use when teaching in the South Carolina schools in the 1950s. It was a favorite show and tell item of mine when I was in elementary school in north the 1960s. Honest to God, it had a page where it discussed how blacks and whites got on fine (it actually used the word “darkies” at points) until the Civil War and its aftermath ruined their “fellow feeling”. I’m sure that’s accurate from the whites’ point of view.
Huge Employment Chart Roundup Barry Ritholtz (hat tip reader Mark P)
Let’s #Occupy to Block the Colombia Trade Deal Daily Kos. I’m not sure I’m keen about this (not about opposing the trade deal, but having OWS flex its muscle now. Building sound and scalable processes and participation seem much more important now, even if playing the best long term game means missing some short-term opportunities.
NYPD costs rise as Wall Street protests continue Wall Street Journal
This Time, It Really Is Different Joe Nocera, New York Times. The problem with this “The Way Forward” document is it relies pretty much entirely on infrastructure for economic stimulus. The lead times on an individual infrastructure project are long (concept development and assessment, design, bidding, contracting) and if you are talking some kind of mega program, you probably have yet another assessment layer (of various concepts relative to each other).
On the Leaked Volcker Rule Economics of Contempt (hat tip Richard Smith)
Beau Bides on Chris Hayes MSNBC (hat tip April Charney). Biden starts at 11:56 and given his view of the mortgage mess.
The lump of unfairness fallacy Steve Waldman. This is, as usual very good, and the usually indefatigably polite Waldman shows some annoyance. He’s completely justified in the face of a Kleining.
Antidote du jour:
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Outstanding antidote! I’m stunned.
Pallid kitty, stage right: “Oh you are just such a big lovable, cross my heart and hope to die, I _promise_ not to eat you when I grow up. I’ll only eat your children.”
Pallid kitty, stage left: “Cause it’s in our nature—*tee-hee* that t-i-c-k-l-e-ssss!”
Cynics pride themselves on being realistic. Actually, they are not realistic except insofar as they blight their own reality.
I now see what Yves antidotes are for – cynicism.
Aw, grow up, Beard. Your views tend toward pollyannaish. And by the way, “they are not realistic except insofar as they blight their own reality”, makes no sense at all to me.
I think that’s a Park Ranger in an ape suit. And those are two stuffed animal tigers. The photo was shot in a Milwaukee photo studio — in February. Can’t believe you guys are arguing among yourselves. Divide and conquer, I guess.
@ Occupy & Job Zar — I don’t think Jeff Immelt belong in jail but he sure is a wacko. I guess the reality distorition field is so thick around his head that he’s in his own space/time warp like a funny house mirror, He look at a job that pays 12 dollars an hour part-time and it stretches in the curvy mirror up and down into a job that pays 200 dollars an hour with vacation, and he look at a job that pays 2000000000000 an hour and it shrinks to 200 dollars an hour in the warp-head-mirror, and it’s one big happy family like the apostoles in the upper rooms breaking bread and drinking the wine and glorying together in the Lord of Lords.
I think he need to take a year off from his job and get out of the mind warp and go put on a pair of Dockers and a Wal-mart collared shirt and shave and go try to find a job and make a living — just Jeff with a GED and a hopeful tired smile — and see how far he get before he laying down on the ground with a stomach ache and crying for his momma to hug him like a baby. I’d give him 5 months.
“I’d give him 5 months.”
That’s a lot longer than I’d give him.
Your views tend toward pollyannaish. Rex
Thanks! I think I’ll rent the movie:
The title character is named Pollyanna Whittier, a young orphan who goes to live in Beldingsville, Vermont, with her wealthy but stern Aunt Polly. Pollyanna’s philosophy of life centers on what she calls “The Glad Game”, an optimistic attitude she learned from her father. The game consists of finding something to be glad about in every situation. It originated in an incident one Christmas when Pollyanna, who was hoping for a doll in the missionary barrel, found only a pair of crutches inside. Making the game up on the spot, Pollyanna’s father taught her to look at the good side of things—in this case, to be glad about the crutches because “we don’t need ’em!”
With this philosophy, and her own sunny personality and sincere, sympathetic soul, Pollyanna brings so much gladness to her aunt’s dispirited New England town that she transforms it into a pleasant place to live. ‘The Glad Game’ shields her from her aunt’s stern attitude: when Aunt Polly puts her in a stuffy attic room without carpets or pictures, she exults at the beautiful view from the high window; when she tries to “punish” her niece for being late to dinner by sentencing her to a meal of bread and milk in the kitchen with the servant, Nancy, Pollyanna thanks her rapturously because she likes bread and milk, and she likes Nancy. from http://en.wikipedia.org/wiki/Pollyanna [bold added]
And by the way, “they are not realistic except insofar as they blight their own reality”, makes no sense at all to me. Rex
I thought it was rather poetic. It’s not everyday I get to use “insofar”. :)
But another way to say it is “Cynicism may be a self-fulfilling prophecy”.
Fbeard is right. The cynics fulfill their own cynicism.
I prefer to have an over-informed by reality opinion first; then I enjoy the disappointment of disaster not quite having struck.
But seriously, kitties are predators and they like to chase and kill things and eat them.
So is the primate whose back does not face Heaven.
Cat babysits chicks
Sometimes cuteness is purely a matter of scale. I am reminded of one of my favorite antidotes for a couple of years ago (type “polar bear attack” into NC site search to see it). It’s adorable, but only because the cub is so tiny. The exact same behavior from a fully grown bear would be quite terrifying.
Is there a way to find out in which sector of the economy the (e.g. 100’000) richest people have made their fortune over the past 15 years? I think it would be helpful to give a face to those looters.
those are the 2 most liquid derivatives in europe, dax and stoxx, the bid ask size is always the same
one single player one single software
http://www.youtube.com/watch?v=QBPK4FP3G8U
More Klein-ing:
http://www.nytimes.com/2011/10/11/us/politics/wall-street-protests-gain-support-from-leading-democrats.html?_r=1&nl=todaysheadlines&emc=tha2&pagewanted=all
Get ready for that nauseous queasy feeling.
The lump of unfairness fallacy Steve Waldman
“TARP was deeply stupid not because it meant socializing risks and costs created by bankers. TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior. It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem.”
I’m a big fan of Waldman – you just can’t say it any better than that.
Decent writeup of Clarence Thomas’s history
Thanks I enjoyed that Foppe
Maam;
With all due respect, most whites in the ante and post bellum South were poor and treated pretty much the same as black slaves. The big difference many will cry out in rage was SLAVERY! Well, let’s just sit back a moment and consider what slavery consists of. The Online Dictionary calls it; “A civil relationship in which one person has absolute power over the life, fortune and liberty of another.” Hence, when Ol Massa told his trusty darkies to go clear those miserable white trash out of their bottomland farms because he needed access to the river to water his new cattle herd, who were the masters, and who the slaves? It’s not race, it’s class that defines the social and economic relationships. As an example, Confederate soldiers, an almost all white group, used to refer to Robert E. Lee as “Marse Robert.”
That ‘quaint’ history book you so gleefully wielded is just another manifestation of a story as old as human culture. Find a scapegoat, the concept itself conflates secular and religious motives, and people will suffer any indignity in the sure knowledge that they are ‘better than those so and sos.’ The fact that such lies and distortions were taught in public schools comes as no surprise; just look at the Texas Board of Education school book standards imbroglio for a modern telling of this ‘old as the hills’ story.
For the political class to belittle and demonize the #OWS crowd is standard practice. It’s their way of saying; “We’re better than those so and sos!” Somewhere, Ol Massa is laughing.
Yeah, like the KKK made a habit out of terrorizing and lynching white people. Was there such a thing as the “White Codes”??? Did White People have Jim Crow laws directed at them? Where poor whites discouraged from reading or writing on the threat of flogging???
Man oh man those poor white people suffered.
This reads a little like something that should be on stormfront or red state.
Dear Neo-Realist;
Ah hah! Political Correctness, or it’s degenerate offspring, rears its ugly head.
Yes, the Klan did indeed threaten and abuse white people. I personally knew one family who had crosses burned on their front lawn in the ’60’s because they were Catholics. I knew a Jewish man who participated in the 1963 desegregation movement in Mississippi, and took his lumps, literally, for it.
Poll taxes and literacy tests weren’t just for black folk you know. Those pesky white trash had to be kept in their place too. Southern ‘leaders’ remembered all too well how popular and effective Huey Long had been in thwarting the designs of the rich and powerful in Louisianna. His political base had been poor whites and, gasp, liberals. The Long family is still remembered fondly down in the bayou state as the champions of the working folks.
So, dear Neo-Realist, poor white folks did indeed suffer. They suffer still from the long term effects of Southern Paternalism. Look to the modern South and you see what the elites want all of America to look like in some future ‘Return to Traditional Values.’ To accomplish this, the elites need to prevent the joining up of the working classes into a unified political force. Racialism and other unsavoury ideologies fit that bill.
As for my fittness for inclusion on Stormfront or Red State; I don’t think the Furhers accolytes would agree with my basic world view.
I think you misunderstood the analogy being made?
And if not the analogy, the larger point: There are other ways to oppress people and keep society stratified, that do not rely on racial “theory”. Identity politics is a wonderful way to divide and conquer. Much of the US population lives below the poverty line, yet white poverty is just as ignored as black poverty; both are (by now) a consequence of “desert” once more (since the ‘blacks’ have had 40 years to change, if they haven’t by now, it’s because they don’t want to).
I did some research on the KKK Testimony before Congress that was done in 1871 and I can say that a lot of whites did fall victim to KKK violence. Some whites were even castrated.
Ouch … Much, much confusion above.
Dear Fifi;
How so confusion? The ‘ouch’ I can accept. As Mr Foppe clarified for my edification, ‘Identity Politics’ is indeed a powerful tool to influence social relations. We all suffer from it, no one is perfect, I least of all.
Great interview with Harry Markopolos about Bank of NY…
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/10/8_Harry_M._Markopolos_files/Harry%20Markopolos%2010%3A8%3A2011.mp3
I read that one too. How blatant can you get? And do it for decades! BNYM closed up every day by double booking, giving investors the least, and pocketing the difference. My god. If BNYM did it, they all did it.
But of course. When I was a banker 10-15 years ago, I like to refer to BONY as “The World’s Laundromat”.
“The lead times on an individual infrastructure project are long (concept development and assessment, design, bidding, contracting) and if you are talking some kind of mega program, you probably have yet another assessment layer (of various concepts relative to each other).”
If you assume that we are in a long-lasting contraction – esp. if you assume that it is structural, e.g. Plateau Oil or the rise of global competitors – that timescale would be a feature, not a bug. National power grid, fiber optic, large scale concentrated solar power, national rail followed by national high speed rail – if it takes a decade or two to survive this mess, it might well take all of the above and more to survive it.
Of course, as long as permanent primary horse race election perpetuity can serve as an excuse to avoid any planning beyond the next fiscal quarter, and as long as we have an technocratic “elite” that prides themselves in having a blank slate as national industrial policy, that’s a hypothetical. The survival aspect, however, might well not be. 40% of The People might not believe in Reality At Large, but reality has a tendency to reciprocate. It shares that predisposition with evolution.
I seem to recall the “problem” with long lead times didn’t seem to deter the folks back in 1933. Lots of guvmint buildings and schools got built then and are still in use.
There’s a little fish in the Amazon river system which is supposed to display this same behavior. Gerald Durrell wrote about it in one of his books. But its choice of orifice doubles the number of its potential victims. It has two spines on its side that lay flat until you grab it by the tail and try to pull it out. Then the spines erect.
This was sorta noteworthy from John Hussman, PhD of the Hussman Funds: Talking Points for the “Occupy Wall Street” Protesters
From the link:
As long-time readers know, I’ve been an adamant critic of the bailouts of mismanaged financial institutions, as well as various illegal policy actions that have been pursued by the Fed since the financial crisis began in 2008…
Unfortunately, over the past 15 years or so, the basic function of the financial markets has been corrupted into what I’ve grown to view as a self-serving carnival of speculation, where many participants are interested in nothing except getting the next rally going at public expense, regardless of how badly market signals are distorted, how recklessly capital is misallocated, or even whether what they do has any positive effect on the economy or the country …
1) “Failure” only means that corporate bondholders don’t get every penny
Background: When Wall Street talks about the “failure” of a bank or other financial institution it means the failure of the company to pay off its own bondholders. It does not mean that depositors, counterparties or other bank customers lose money …
2) The Federal Reserve’s purchases of Fannie Mae’s and Freddie Mac’s debt obligations were illegal
Beginning in 2009, the Federal Reserve began buying nearly $1.5 trillion in obligations of Fannie Mae and Freddie Mac, both which were insolvent and in government receivership … Section 14.2 of the Federal Reserve Act, which allows the Fed to purchase securities which are a “direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.”
At best, the obligations of these GSEs have implicit and informal backing, as any member of Congres will tell you, and simply taking a failing institution into conservatorship doesn’t confer government backing to its debt. In fact, the stop-gap measure enacted by Congress during the crisis only provides temporary backing for the obligations of Fannie and Freddie maturing by the end of 2012.
3) Creating shell companies to buy Wall Street’s bad assets is not “discounting,” and was therefore also illegal
Background: In 2008, the Federal Reserve created a set of off-balance sheet shell companies called “Maiden Lane” to buy undesirable long-term assets of Bear Stearns and other financial companies, justifying the purchases by appealing to Section 13.3 of the Federal Reserve Act.
4) The skewed distribution of wealth in the U.S. is worsened by policies that misallocate capital and divert public funds to bail out investments that have already gone bad.
[After a long explanation] Despite inflicting massive damage on the economy, they are afforded a protected status that allows them to extract “rents” that don’t reflect the cost they have imposed. From that standpoint, the Occupy Wall Street protests are a welcome reflection of public frustration over Washington’s slavish coddling of reckless financial institutions.
Policy Responses
The proper way to address the present economic imbalances is pursue policies that encourage the restructuring of bad debt, the allocation of public funds and private savings to productive investment and new research, the accumulation of education and labor skills (“human capital”) to allow workers to capture a greater share of their own productivity, and the continuation of social safety nets to ease the economic adjustments that are necessary in a deleveraging economy. In my view (which not everyone will like), this requires: [Click link above to see the list]
[Conclusion]
Again, long-term improvements in living standards require improvements in productivity, through the accumulation of capital, inventions, education and labor skills. The reason that wages are lower in developing countries is primarily because Americans are blessed to have an economy that has a legacy of accumulating productive investment and educating its workers. If we allow those advantages to slide, by misallocating investments, and diverting public funds from research, development, education and infrastructure in order to bail out reckless speculations gone bad, there is no inherent reason why other countries cannot rise to economic dominance. It’s our choice. We have far too great a need for productive investment than to use our scarce resources to bail out poor stewards of capital who gambled the nation’s savings and look to the government to make them whole.
Nice link. Thanks, jackrabbit.
I’d like to leave a few links, all on the same topic but since tax havens are one of the Mothers of All Externalities, there’s some big news today:
“98 of the FTSE 100 companies are in tax havens”, Nick Shaxson’s blog
http://treasureislands.org/98-of-the-ftse-100-companies-are-in-tax-havens/
links to: “Addicted to tax havens: The secret life of the FTSE 100”
http://taxjustice.blogspot.com/2011/10/addicted-to-tax-havens-secret-life-of.html
Guardian also has an article:
http://www.guardian.co.uk/business/2011/oct/11/ftse-100-subsidiaries-tax-havens
and just in the last few days they have been talking about repatriating 1.4T in corporate “foreign” profits, or some other kind of corporate stash…
The financial journals often fail to point out that the UK., specific the City of London, is an offshore tax haven for many non domiciled citizens and funds . Tax away the off-shore tax havens and the big daddy of all “off-shore” financial services, the City, will loose plenty of business.
Awesome, awesome debunking of David Brooks’ defense of the 1% by Dean Baker:
http://www.cepr.net/index.php/blogs/beat-the-press/david-brooks-bard-of-the-1-percent
The Beau Biden interview with Chris surprised me. I thought Biden would not be convincing. But he was. Actually I thought he was very convincing. He didn’t mince words about bank greed and incompetence. So another question: If Beau Biden, son of Joe who is nothing if not pro bank who himself has said similar things about how the banks screwed up, if those two can say it so matter-of-factly, why don’t the bank CEOs say it? We need to hear it from the banks. But a word of caution – it must be sincere, because everyone is just so angry. I suspect they don’t dare make any public mea culpas because they know if they hedge their guilt everyone will see right through them.
Suicide at Occupy San Diego:
http://occupysd.org/2011/10/10/a-day-of-tragedy/
Convergence, Space Travel, & a Living God
So, everything you need for charge is embedded in the dc system, and you have learned that you must go backward (consumer retardation) before travelling forward, to load the spring. You are not going to be exploiting oil, planet to planet. You don’t know what you are going to find out there, but physics is physics. Learn to adapt accordingly.
Always challenge root assumptions, from the horizon edge back, with algebraic reduction, improving your understanding of physics as you go. What is your speed relative to a particular event horizon? What is your speed relative to the universe? Don’t fight gravity; employ it, by swimming in and out the black hole, doping it as you go, to get the required propulsion off the horizon.
You NEVER have a resource problem. You have already proven that the scarcity economy, largely prevailing in the eyes of the masses over thousands of years, with its closed system, win-lose mentality controlling corporate “thinking” is false. The problem is psychology, which is a system, not an individual, phenomenon. Individuals fall into the distribution (thrown in).
The majority, gravity, act on historical voices in their heads, reinforcing past behaviors in present applications. Separate those voices to reveal their bipolar nature, which replaces productivity with make-work reduction, ultimately resulting in fear of the unknown, anxiety, which feeds consumption in a positive feedback loop. The voice required to quiet the social mind, so it can think, springs from the eye, dramatically increasing productivity, in equilibrium.
The problem/solution is providing children (adult behavior is derivative) with the space / freedom / opportunity to pursue democracy within reason, at equilibrium. Those presenting a false façade will not get their way until they give up control, to reveal their true selves. Currency inventory is a measure of anxiety, lack of adaptive skill. What is the relationship between domestic and foreign-held money supply, aggregate monies, and inventory levers?
Boys are suspended from school for not being as passive as girls, the process is magnified by socio-economic circumstance, and the outcome is drop-outs, unplanned pregnancies, and prison – government demand. Systematically aggregating passive aggressive individual behavior results in State physical aggression, and breaking up homes to build government subsidized McMansions bankrupts the economy. Surprise, surprise.
In a real marriage, participants learn to cede control/ adapt to God / the unknown, to remove anxiety (algebraic reduction of the positive feedback meter effect – the dc boys always miss that one), and selectively become part of the wave.
In a civil marriage contract, the parties compete within for control, under rigid terms and conditions, to acquire property, and each will feel out of control when not in control themselves, until one enslaves the other and both are locked in prisoners’ dilemma without a key, to be consumed by gravity from the queue. Corporate “thinks” it is exploiting the latter by transferring wealth from their future generations to the present, enslaving all the participating entities to History. No trust, no flexibility, no ability to adapt and re-sync gears.
Current runs in opposition to currency. The snapshot nature of the wave depends upon participation. Do not trade your children’s independence for the false promise of security notes. Expand your mind beyond the double-minded behavior surrounding it. Adjust your rents and pay to hide individual productivity (e) and expose central planning (p) to grow your middle class (-,N,+).
Control is an illusion of perception propagated by the willfully ignorant. The intelligent investor is always free to effectively transform the economy (it’s a question of price discovery). The ignorant consumer sees the product as something-for-nothing, and the bullies fight for chairs on the Titanic, attempting to control it. In the consumption half-cycle, the cure is the disease. There is no plan; there is 7 billion people making decisions, on a planet of relatively enumerable organisms, which is but a tiny dot in the universe.
You could do nothing but study God, the unknown, and barely scratch the surface of time. Don’t worry about the unintended consequences of leveraging the speed of light. Life is much more complicated and there is much more out there than you can possibly imagine. You are limited only by your assumptions. Never allow the false assumptions of others to stand between you and God.
Money as free speech; what moron thought that one up? Count on the herd to sell you out. Pray though your works and let the talkers talk. Gravity is nothing but a false assumption surrounded by rigid behavior.
http://www.guardian.co.uk/business/2011/oct/11/goldman-sachs-interest-tax-avoidance
It reminds me of the history book my mother showed me that she had to use when teaching in the South Carolina schools in the 1950s. It was a favorite show and tell item of mine when I was in elementary school in north the 1960s. Honest to God, it had a page where it discussed how blacks and whites got on fine (it actually used the word “darkies” at points) until the Civil War and its aftermath ruined their “fellow feeling”. I’m sure that’s accurate from the whites’ point of view.
Crude propaganda indeed! And no longer to be found.
But the victors’ history books, painting Lincoln as a great leader for massacring half a million Americans to ‘preserve the union,’ promote unquestioning worship of the U.S. welfare-warfare state to this day.
Prolly no coincidence that Emperor Obama, who now assassinates his own citizens on a whim, hails from the Land of the Great Emancipator, as does war-pragmatist Democrat Hillary Clinton. Same yankee values, same bloody results.
Mr Haygood;
re. “And no longer to be found.” You haven’t been keeping up with the Texas Board of Educations Standards Committee lately, have you. Some of the plain outright lies and exceptionalist dogma put into the Texas school books by the Reactionary Comittee would make Goebbels proud. And coming to a school near you, too! Because Texas is the most influentual buyer of school texts, their version of reality infiltrates many otherwise sane states school systems too. God help those poor school children.
RE EoCs ‘Liquidity Desk will be the new Prop desk” post:
At first blush his truck route sounds clever till you realize the regulators aren’t nearly as stupid as he hopes, nor are the banks in a position to follow this lead unless the upside is guaranteed to be outsized enough to cover the costs to spin it as ‘liquidity management’. The 99%s are more skeptical today than last year so I imagine those costs have increased.
EoC concedes an intensive (and expensive) infrastructure will be required to circumvent the rules and the metrics.
Per EoC:
‘The regulators recognize the importance of both market-making and hedging, but they also recognize (most of) the places where market-making and hedging can bleed into proprietary trading. And in those situations, the regulators realize that any effort to distinguish impermissible prop trading from permissible market-making or hedging will — quite appropriately — require a very fact-intensive inquiry.’
(See below for what the regulators DO realize, which is that this is not the insurmountable obstacle the 1%s would have us believe.)
Then there’s this utter nonsense which kills the entire piece for me:
‘Basis risk evidently doesn’t need to be hedged under the proposed Volcker Rule, regardless of how significant the exposure is. So if you want to profit from the price movement in a certain risk, then just partially hedge the risk with another transaction and call the residual risk “basis risk.”
(It’s an idiotic idea. Basis risk would show up like a flare in the proposed metrics)
I had a similar reaction to the FTAlphaville piece about the potential Delta One desk risk aggregation non-problem. In the UBS and Soc Gen cases Delta one was a problem because it was out of control and huge TRADING positions were put on, ostensibly hedging other Trading Positions. It was not a problem of managing firmwide risk aggregation. In the post Volcker world with few trading positions to hedge, we’d be dealing with a different and incomparable universe, resulting in less risk at an institution hedging its non-allowable prop position. (to say nothing about the reduced incentive for clever wannabes to take their firms down with them)
On to some comments regarding the Rules issued today:
It looks like they got the metrics section pretty much right which is the key to the entire effort. It’s defined imperfectly enough to allow better positioning measurements over time and it brings risk based profitability metrics into the mix.
It will be onerous to defend outsized gains as market making or client serving (especially measured against comparable peer stats). Failure to make a compelling case would be an admission that the spirit and the letter of the law were violated. Outsized LOSSES will be indefensible. That should give one pause.
That’s the trap the clever loopholer’s haven’t been able to spin away.
The key bit is:
The proposal requires that the market making-related activities be designed to generate
revenues primarily from fees, commissions, bid/ask spreads or other income not attributable to
appreciation in the value of covered financial positions a banking entity holds in trading accounts
or the hedging of such positions. This proposed requirement should promote investor confidence by helping to ensure that market making serves customer needs. The proposed requirement
should also help prevent evasion of the statutory prohibition on proprietary trading, as trading
activity designed to generate revenues from appreciation in the value of positions held by the
banking entity would be indicative of prohibited proprietary trading, not market making-related
activity.
P177 p13
That sums thing up nicely. This principal pervades the rules.
You can find the long form version of the principles here: pg 92-95
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20111011a1.pdf
(Don’t take my word on it, it’s a good (and sobering, (and comprehensible to interested laymen) read.)
At the risk of boring readers who can’t stomach the full Monty, please read the bolded items that follow.
The proposal does an elegant job of refuting the IBs raison d’etre:
The five sets of quantitative measurements which are routinely collected already, (MC here: and which are the backbone of the proposed rules) include:
1. Risk-management measurements;
These measurements are widely used by banking entities to measure and manage trading risks and activities (On a daily basis)
2. Source-of-revenue measurements – Comprehensive Profit and Loss, Portfolio
Profit and Loss, Fee Income and Expense, Spread Profit and Loss, and Comprehensive Profit and Loss Attribution;
Banking entities already routinely calculate and analyze the extent and source of revenues derived from their trading activities.
3. Revenues-relative-to-risk measurements – Volatility of Comprehensive Profit and
Loss, Volatility of Portfolio Profit and Loss, Comprehensive Profit and Loss to Volatility Ratio,Portfolio Profit and Loss to Volatility Ratio, Unprofitable Trading Days based on
Comprehensive Profit and Loss, Unprofitable Trading Days based on Portfolio Profit and Loss,
The Agencies note that each of the proposed measurements relating to realized risks and revenues relative to realized risks are generally consistent with existing revenue, risk, and volatility data routinely collected by banking entities with large trading operations or are simple, standardized functions of such data.
4. (MC here: this bit is intimidating but it’s not rocket science to bankers, skewness and kutosis Uggh)
Skewness of Portfolio Profit and Loss, and Kurtosis of Portfolio Profit and Loss; Customer-facing activity measurements – Inventory Turnover, Inventory Aging,
and Customer-facing Trade Ratio;
The Agencies expect that these measurements will be useful in assessing whether permitted market making-related activities are focused on servicing customer demands. (mc here: very useful indeed.)
5.Payment of fees, commissions, and spreads measurements – Pay-to-Receive
Spread Ratio.
Of the measurements proposed, the Agencies expect that a large majority of measurements proposed are either (i) already routinely calculated by banking entities or (ii) based solely on underlying data that are already routinely calculated by banking entities.
Bottom line: None of this is too difficult for ordinary folk to understand.
It looks to me like game over for prop trading at the banks, unless the metrics section is gutted.