Derivatives: The Unregulated Global Casino for Banks

Quote from sle:

...i definitely feel that a switch to a centralized clearing house or (even better) a transparent exchange-style model is the right way to go.
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It won't work. Money is made in the cracks. If you paper over these cracks, new classes of assets will be invented to create new cracks.

It's what markets do.

The only defense is to get rid of TBTF (implied/explicit taxpayer backstops), so when problems occur, the rest of civilization has a firewall in place to protect it while we "let the mother burn".

But that isn't a regulatory solution, that's a political solution. Which Martin has correctly pointed out is...difficult.
 
well we could start for again punishing wrongdoing. Currently pretty much anyone gets off the hook. If we start to again reward honesty and punish wrongdoing then this would be a worthwhile start. One of my analysis was that it could all have to do with the huge disparity between the middle class and the ultra high net worth individuals. It literally pays EXTREMELY WELL to commit corporate crimes in exchange for green, at the very least the probabilistic payoff to ignore law and order at times justifies for many to overstep boundaries. On the other end, the middle class struggles and in jobs whats your upside really at the SEC other than watching porn. Do you get a reward for catching the bad guys? Even whistle blowers get paid handsomely these days but law enforcement goes empty handed? Great motivation.


Quote from Martinghoul:

No, that's not my point... My point is that "fixing" is, first and foremost, about each one of us individually. Institutions and society as a whole will inevitably follow when/if most of us "fix" ourselves. To me, there's no other way, really, in the very grand scheme of things.
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Quote from amazingIndustry:
well we could start for again punishing wrongdoing. Currently pretty much anyone gets off the hook. If we start to again reward honesty and punish wrongdoing then this would be a worthwhile start. One of my analysis was that it could all have to do with the huge disparity between the middle class and the ultra high net worth individuals. It literally pays EXTREMELY WELL to commit corporate crimes in exchange for green, at the very least the probabilistic payoff to ignore law and order at times justifies for many to overstep boundaries. On the other end, the middle class struggles and in jobs whats your upside really at the SEC other than watching porn. Do you get a reward for catching the bad guys? Even whistle blowers get paid handsomely these days but law enforcement goes empty handed? Great motivation.
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Well, I understand the rhetoric and, in principle, it sounds great. However, what do you propose in practice? Death penalty for people like Dick Fuld? Issue more govt debt to increase the SEC budget to $1T? I mean all these issues (principal-agent, public goods, negative externalities, monopoly, etc) are the costs of having a free mkt economy. I don't know of any good solutions other than obvious stuff like a tax/cap on assets to control TBTF and Glass-Steagall to prevent taxpayer subsidy. Even these things are impossible to implement politically at the moment, so I don't know what the point is in trying to come up with more creative "solutions".
 
Not quite, but has anyone been jailed for obvious market abuses, lies to shareholders, law makers, regulators, the public? Anyone? A single one? Or does it take several years to go through the email trails and correspondence to prove wrongdoing? Yes, how about we start actually holding people accountable for their wrongdoing? Or is there a single reason while the "buffet rule" is so vehemently opposed by republicans, lol, I mean other than that the suggestion originated from the democratic camp. Hell, even some of the richest are in favor of paying fairer taxes. And why are some obviously unfair practices still allowed in hft? Why are banks asked whether they like the Volker rules, why not just putting it into place and get rid of prop trading withing banks? Why is commercial and private banking still not segregated from investment banking? Why are the biggest banks that cost the tax payers billions in bail outs allowed to now come to the table to bid for the same toxic garbage that almost bankrupted them 4 years ago? Martinghoul, come on there are thousands of very practical ideas to implement, that nothing has been done is not because there are no ideas out there. Its because those in power are feeding off each other and abuse their power to the fullest.


Quote from Martinghoul:

Well, I understand the rhetoric and, in principle, it sounds great. However, what do you propose in practice? Death penalty for people like Dick Fuld? Issue more govt debt to increase the SEC budget to $1T? I mean all these issues (principal-agent, public goods, negative externalities, monopoly, etc) are the costs of having a free mkt economy. I don't know of any good solutions other than obvious stuff like a tax/cap on assets to control TBTF and Glass-Steagall to prevent taxpayer subsidy. Even these things are impossible to implement politically at the moment, so I don't know what the point is in trying to come up with more creative "solutions".
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but it has never been so generously overlooked as now nor has it been as easy as nowadays to commit corporate crimes and get away with it. Gee, I am not a Goldman hater (in fact I vehemently defended them some time ago) but that firm cannot even count the suits against them anymore nor their market abuses and out comes the CEO saying that "everyone has to deal with conflict of interests". The guy who resigned and published his resignation letter made a lot of very true points, we currently are on the best way to mint the next generation of total crooks.

Quote from Random.Capital:

It has always been that way.
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Quote from Random.Capital:
The only defense is to get rid of TBTF (implied/explicit taxpayer backstops), so when problems occur, the rest of civilization has a firewall in place to protect it while we "let the mother burn".
More...
In the end, it's the incentive that drives all of the stupid decisions in finance. Personally, I think a fairly straight forward solution would be to pay all senior bank employees in a special class of preferred shares that only pay divs when the firm is profitable and make sure that these are not transeferrable. You would be surprised how much focus there would be on risk management and due dilligence...
 
Quote from amazingIndustry:

but it has never been so generously overlooked as now nor has it been as easy as nowadays to commit corporate crimes and get away with it.
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Completely disagree. I can understand why it might feel that way - the most vivid details are the ones we see happening in our time - but it has never been meaningfully different than it is now.
 
I have to agree with ghoulish Marty here, it's a philosophical problem at the root. All the rest are deriviatives of the base philosophy.:D

Predators and prey, welcome to the world of the human animus.
Nature simply looks for the survivor.
 
Quote from sle:

In the end, it's the incentive that drives all of the stupid decisions in finance. Personally, I think a fairly straight forward solution would be to pay all senior bank employees in a special class of preferred shares that only pay divs when the firm is profitable and make sure that these are not transeferrable. You would be surprised how much focus there would be on risk management and due dilligence...
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I'm not all that smart, and even I can think of half a dozen ways around this, right off the top of my head.

The only way to ameliorate - not get rid of, but ameliorate - is to get drastically shrink the size of the honey pots of money. But we are not willing to do that, politically or socially.
 
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