Posts Tagged ‘commercial banks’

The Volcker Rule & AIG: It’s Not About Prop Trading

The Volcker Rule & AIG: It’s Not About Prop Trading

Courtesy of rc whalen at Zero Hedge

Watching the President announcing his proposals to forbid commercial banks from engaging in proprietary trading, I am reminded of the reaction by Washington a decade ago to the Enron and WorldCom accounting scandals, namely the Sarbanes-Oxley law.  The final solution had nothing to do with the problem and everything to do with the strange politics of the capital city and the national Congress.

The basic problems of the Enron/WorldCom scandals was financial fraud and the use of off-balance sheet vehicles to commit same.  By responding with more stringent corporate governance requirements, the Congress was seen to be responding — but without harming Wall Street’s basic business model.  In that regard, note that today former SEC chairman Bill Donaldson was standing next to President Obama on the dais, along with Paul Volcker and Treasury Secretary Tim Geithner.

A decade on, we have the same basic problem, namely the use of OBS vehicles and OTC structured securities and derivatives to commit financial fraud via deceptive instruments and poor or no disclosure.  Another name for OTC markets is “bucket shop,” thus the focus on prop trading today in the President’s comments was entirely off target.  The Volcker Rule, at least as articulated today, does not solve the problem.  And what is the problem?

The poster child victim for this latest round of rape and pillage by the large dealer banks is, of course, American International Group (AIG) along with many, many other public and private Buy Side investors. The FDIC and the Deposit Insurance Fund is another large, perhaps the largest victim of the structured finance shell game. Prop trading was not the problem with AIG nor the cause of the financial crisis, but instead the rancid production from the securities underwriting side of the business.

Not a single major securities firm or bank failed due to prop trading during the past several years.  Instead, it was the customer side of the business, usually the mortgage conduit, that was the problem, the securities underwriting side of the business that the Volcker Rule conveniently ignores.  And this is the one area that you will most certainly not hear President Obama or Bill Donaldson or Chairman Volcker or HFS Committee Chairman Barney Frank mention.  You can torment prop traders, but leave the syndicate desk alone.

The dealers,…
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Capital City

Intro, courtesy of David at The Deipnosophist: 

No other way to state this, but baldly: The article, Capital City, is phenomenally brilliant and insightful. Its author, Kevin Drum, not merely knows his stuff, he did his homework and lays bare the connections for all to see.

And it comes with my strongest recommendation to read, despite its length. Not only will you learn a thing or two (I did), but it also is likely to bring your blood to a boil. 

(I do wish, though, that writers and their editors would learn the difference between "danger" and "peril" — they are not synonyms for the same notion. When Kevin Drum says, "dangerous" in fact he means "perilous.")
-- David M Gordon / The Deipnosophist

Capital City

A year after the biggest bailout in US history, Wall Street lobbyists don’t just have influence in Washington. They own it lock, stock, and barrel.

By Kevin Drum | January/February 2010 Issue of Mother Jones

THIS STORY IS NOT ABOUT THE origins of 2008′s financial meltdown. You’ve probably read more than enough of those already. To make a long story short, it was a perfect storm. Reckless lending enabled a historic housing bubble [1]; an overseas savings glut and an unprecedented Fed policy of easy money enabled skyrocketing debt; excessive leverage made the global banking system so fragile that it couldn’t withstand a tremor, let alone the Big One; the financial system squirreled away trainloads of risk via byzantine credit derivatives [2] and other devices; and banks grew so towering and so interconnected that they became too big [4] to be allowed to fail. With all that in place, it took only a small nudge to bring the entire house of cards crashing to the ground.

But that’s a story about finance and economics. This is a story about politics. It’s about how Congress and the president and the Federal Reserve were persuaded to let all this happen in the first place. In other words, it’s about the finance lobby—the people who, as Sen.Dick Durbin [5] (D-Ill.) put it [6] last April, even after nearly destroying the world are "still the most powerful lobby on Capitol Hill. And they frankly own the place."

But it’s also about something even bigger. It’s about the way that lobby—with the eager support of a resurgent conservative movement…
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An Independent Look into JP Morgan

An Independent Look into JP Morgan

Reggie MiddletonCourtesy of Reggie Middleton’s Boom Bust Blog

The JP Morgan forensic preview is now available. Remember, this is not subscription material, but a "public preview" of the material to come. I thought non-subscribers would be interested in knowing what my opinion of the country’s most respected bank was. There is some interesting stuff here, and the subscription analysis will have even more (in terms of data, analysis and valuation). As we have all been aware, the markets have been totally ignoring valuation for about two quarters now. It remains to be seen how long that continues.

Click graph to enlarge

image001.png, JP Morgan Notional Derivatives

Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM’s derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008).

JP Morgan cartoonWe all know what happened to Bear Stearns and Lehman Brothers, don’t we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know  who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail – unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken??? I’ll leave the rest up for my readers to decide. 

This public preview is the culmination of several investigative posts that I have made that have led me to look more closely into the big money center banks. It all started with a hunch that JPM wasn’t…
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Market Gaming: Pressin’ Their Bets

This article by Karl Denninger helps explain Zero Hedge’s previous article on Goldman Sach’s principle trading unit and the ETF-underlying pair trades.

Market Gaming: Pressin’ Their Bets

Courtesy of Karl Denninger, The Market Ticker


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Zero Hedge

An American Horror Story: Rabobank On The Recession Of 2020

Courtesy of ZeroHedge View original post here.

Authored by Philip Marey via Rabobank,

Summary
  • While the outlook for 2020 remains sketchy, heavily dependent on non-economic factors, we now expect GDP to fall by 6% in 2020.

  • With a slowdown in February and a sharp contraction of the economy in March, we expect GDP growth in Q1 to be negative (-5% quarter on quarter at an annualized rate).

  • However, the most extreme economic growth figure is likely to be Q2 GDP growth with the lockdown continuing through at least April and l...



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Phil's Favorites

Largest French Bank Lost $200MM On Equity Derivative Trades As Market Crashed

Courtesy of ZeroHedge View original post here.

BNP Paribas SA, the largest French bank, lost hundreds of millions of dollars on complex stock trades as markets crashed in March, Bloomberg reports. Traders at the Paris-based bank, which together with SocGen has long carved out a niche in sophisticated derivative trades which worked great as long as the market was levitating unperturbed - lost an estimated €200 ($219 million) on equity derivatives once the market tumbled. According to Bloomberg, the trades that went awry included dividend futures and structured products.

BNP lost about 1...



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ValueWalk

Public pensions face liquidity crunch amid volatility

By Michelle Jones. Originally published at ValueWalk.

Public pensions have had weak liquidity for a long time, but the recent volatility has made a bad situation even worse. S&P noted that pensions‘ investment horizons are decades long. As a result, many funds claim that market turmoil doesn’t affect their returns because they have plenty of time to ride out volatility. However, funds with weak liquidity don’t have that luxury in the current volatility.

Q1 2020 hedge fund letters, conferences and more

Public pensions in liquidity stress

S&P Global Ratings analyst Todd Kanaster and team said in a recent report that because of ...



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Biotech/COVID-19

COVID-19 is hitting black and poor communities the hardest, underscoring fault lines in access and care for those on margins

 

COVID-19 is hitting black and poor communities the hardest, underscoring fault lines in access and care for those on margins

Nurse Shelia Rickman participates in an after-shift demonstration on Monday, April 6, 2020, in Chicago’s Hyde Park neighborhood, after media reports of disproportionate numbers of black people dying from COVID-19 in the city. AP Photo/Charles Rex Arbogast

Grace A. Noppert, University of North Carolina at Chapel Hill

As the COVID-19 epidemic continues to ravage the American public, an unsurprisin...



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Kimble Charting Solutions

Silver/Gold Indicator Creates Largest Bullish Pattern In Decades!

Courtesy of Chris Kimble

Is an important metals indicator sending one of the largest bullish messages in nearly 50-years? Very Possible!

This chart looks at the Silver/Gold ratio on a monthly basis since the mid-1970s. Historically metals bulls want to see the ratio heading up, to send the metals complex a solid bullish message.

The ratio hit the top of the falling channel (A) back in 2011, where it created a large bearish reversal pattern. Since creating the bearish pattern at resistance, the ratio has experienced a significant decline.

9 years after hitting the top of the channel the ratio hit the bottom of the channel at (1) last month, where it looks to have created one of the largest monthly b...



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The Technical Traders

Adaptive Fibonacci Suggests Much Lower Prices Yet To Come - Part I

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system suggests a much deeper price move is in the works and the current price rally will likely end near resistance levels identified by the Adaptive Fibonacci Price Modeling system.  We are posting this research post for friends and followers to help them understand the true structure of price and to allow them to prepare for what we believe will become a much deeper downside price move in the future.

Fibonacci Price Theory teaches us that price moves in waves within up and down price cycles. The recent peak in price, near February 25, 2020, has resulted in a very deep -36% price collapse in the S&P 500 (ES) recently. This dow...



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Chart School

The Big Short movie guides us to what is next for the stock market

Courtesy of Read the Ticker

There is nothing new in WallStreet, it is only the players that change. Sometimes a market player or an event gets ahead of the crowd and WallStreet has to play catch up.

Previous Post Dow 2020 Crash Watch Dow, Three strikes and your out!

It is important to understand major WallStreet players do not want to miss out on a money making moves.  







...

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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



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Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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