SEC Democrats voted in favor of suing Goldman, Republicans against it

[Ivanovich]

Quote from Gabfly1:

And what better way to appear to want it than by instituting it, wouldn't you say?

If they put in a bill that works, isn't watered down, and doesn't give more power to the obtuse organization that is the Federal Reserve, then yes, I will side with you and agree. I'll also condemn any republicans that vote against it.

However, if it's just a thin veiled "reform" bill that gives big banks a way of circumventing the regulation, and doesn't do all that much, or broadens the power of Banana Ben in the Fed, then I maintain that it's all for appearances. Neither I, nor the public will be fooled.

 

[KrispyKreme50]

Quote from Dr. Zhivodka:

OTC derivatives should have been re-regulated 20 years ago. Vanila options have done quite well as regulated instruments.

But, someone will say...Oh but that gives the European banks an advantage. I say let them have it...for now. They gots a more to worry about for now.

EDIT: And it's unconscionable that the republicans are against this. It simply means that they don't understand the issue.

When you say regulated, don't you actually mean centrally cleared? That sounds like a great idea in theory, but vanilla options can be traded on a centralized exchange because they are largely standardized contracts. Other derivatives such as swaps or exotic options are much harder to do so because of their underlying characteristics.

 

[HelloDollar]

Well, the irony is that Deutsche Bank and Soc Gen received an almost identical payout from AIG as GS did. So while the SEC is ostensibly prosecuting GS in the anti-bailout court of public opinion, those Euro banks would also enjoy a greater competitive edge via these regs. And until repeal of Glass-Steagall, DB was making HUGE inroads domestically.

FT had a pretty good article on LEH's losses and the word derivative wasn't mentioned once. They went down the old fashioned way. Massively bad loans to developers. So really, except for AIG, not a single failure posed systemic risk to the system and other than AIG, complex derivatives weren't a catalyst. I agree some level of reg is needed, but exchanges have had poor results when attempting to list anything beyond the most vanilla of products. Hell EOW options can't even find a footing and customized T-Bond options went no where either. Do you actually think someday Globex will list "Pedro's mezzanine financing on an El Monte Strip Mall Nov/2027's." Bet you'd just LOVE to quote a b/a on those, eh?

Quote from Dr. Zhivodka:

OTC derivatives should have been re-regulated 20 years ago. Vanila options have done quite well as regulated instruments.

But, someone will say...Oh but that gives the European banks an advantage. I say let them have it...for now. They gots a more to worry about for now.

EDIT: And it's unconscionable that the republicans are against this. It simply means that they don't understand the issue.

 

[Dr. Zhivodka]

Agreed. "Centrally cleared" is a better phrase than regulated. But in essence it is the same thing.

I don't understand the problem though. Non-standardized contracts are priced and quoted and sold and bought all day all long. Bank oversight is futile. Exchanges however have been fairly stable. Mainly due to the concept of underlying competition when pricing anything. Of course banks don't want to give up the pricing power of their markets. But tough shit.

Quote from KrispyKreme50:

When you say regulated, don't you actually mean centrally cleared? That sounds like a great idea in theory, but vanilla options can be traded on a centralized exchange because they are largely standardized contracts. Other derivatives such as swaps or exotic options are much harder to do so because of their underlying characteristics.

 

[Dr. Zhivodka]

Why is it so odd to think of that published on a centralized exchange. And then if the crowd doesn't want it and a JPM jacket quotes and takes it that he then report it to the exchange and the public? Transparency is a good thing in this case.

EDIT: Every bad loan to a developer as you say the FT said was a derivative of some sort

Quote from HelloDollar:

"Pedro's mezzanine financing on an El Monte Strip Mall Nov/2027's." Bet you'd just LOVE to quote a b/a on those, eh?

 

[Blotto]

Quote from Dr. Zhivodka:

Agreed. "Centrally cleared" is a better phrase than regulated. But in essence it is the same thing.

Not exactly. Spot FX is a case in point. Not centrally cleared, but quoting banks are well regulated in most Western jurisdictions regarding the exposure they may have in these markets and how the exposure is to be monitored and reported. Certain derivatives are opaque, but why should the nanny state be responsible for policing credit risk? The institutions ought to be better regulated to ensure prudent use of leverage and not have solvency at risk due to financial market exposure. Additionally, the regulations devised should have the institutions take proper account of counterparty risk where appropriate.

Centrally cleared means nothing all unless the clearing is state backed, and we are right back to AIG again. The clearers and the (re)insurance industry need to be competently regulated also. No clearing house could have remained solvent with the same book as AIG had. The risk would have been moved from AIG to the clearer in the event of the AIG default, and would still need to be backstopped. We can have position accountability and correct use of leverage without central clearing.

 

[Dr. Zhivodka]

In one sentence you argue against the "nanny state...policing credit risk." And in the very next sentence you say "institutions ought to be better regulated."

Central Clearing need not be "state backed." The OCC is not state backed. It is state regulated but then you've already argued for that anyway.

EDIT: in the event of AIG. The idea is that no central clearing corp would have allowed that sort of excess in the first place. And yes I realize the implications for the reinsurance industry. However the last I looked they weren't in all that great of shape anyway.

Quote from Blotto:

Not exactly. Spot FX is a case in point. Not centrally cleared, but quoting banks are well regulated in most Western jurisdictions regarding the exposure they may have in these markets and how the exposure is to be monitored and reported. Certain derivatives are opaque, but why should the nanny state be responsible for policing credit risk? The institutions ought to be better regulated to ensure prudent use of leverage and not have solvency at risk due to financial market exposure. Additionally, the regulations devised should have the institutions take proper account of counterparty risk where appropriate.

Centrally cleared means nothing all unless the clearing is state backed, and we are right back to AIG again. The clearers and the (re)insurance industry need to be competently regulated also. No clearing house could have remained solvent with the same book as AIG had. The risk would have been moved from AIG to the clearer in the event of the AIG default, and would still need to be backstopped. We can have position accountability and correct use of leverage without central clearing.