Posts Tagged ‘Financial Regulation’

The Trouble with Tim’s Treasury

The Trouble with Tim’s Treasury

Courtesy of New Deal 2.0, by Marshall Auerback

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FinReg may fall short if power is channeled into Geithner’s hands.

More depressing news from the “change” President.  The Washington Post has reported that one of the major impacts of the FinReg bill passed last week by Congress is the accretion of new power to Obama’s Treasury Secretary.  According to the Post, Tim Geithner stands to inherit vast power to shape bank regulations, oversee financial markets and create a consumer protection agency.

Make no mistake:  this is Timmy’s bill, plain and simple, as the Post makes clear: “The bill not only hews closely to the initial draft he released last summer but also anoints him — as long as he remains Treasury secretary — as the chief of a new council of senior regulators.”

The Geithner Treasury repeatedly pushed back against many sensible legislative proposals that would have made significant structural changes to practices that brought about the current economic crisis. And the article itself represents latest in a series of attempts to embellish the Treasury Secretary’s hagiography.

Reading it, one wonders whether the Washington Post inhabits a strange parallel universe.  Have the writers actually paid attention to what is truly happening in the economy? The WaPo persists in towing the party line that Geithner’s tenure has been marked with conspicuous success, supposedly by advocating a response to the financial crisis that allegedly later proved correct: “Geithner vigorously resisted calls by some lawmakers and financial experts to nationalize the nation’s largest and most troubled banks during the most perilous days. Instead, he helped get the financial system back on its feet, in particular by pressing for stress tests of big banks.” (my emphasis)

Oh, really?  I would argue that Washington continues to allow the big banks to operate “business as usual” and to cook the books to show profits so that they can pay out big bonuses to the geniuses who created the toxic waste that brought on the crisis. Most continue to show profits based not on fundamentally health lending activity, but one-off gains, and accounting gimmickry.  Commenting on the latest JP Morgan results, my friend and colleague Randy Wray has noted:

JP Morgan’s results were horrendous: it lost…
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Here Are The Key Points You Need To Know About Today’s BigFinancial Regulation Agreement

Here Are The Key Points You Need To Know About Today’s Big Financial Regulation Agreement

Courtesybarney frank of Joe Weisenthal at Clusterstock 

Early this morning The House and the Senate agreed on a financial reform compromise that will certainly be sent to The President to pass.

The name of it is the Dodd-Frank act.

The details are still emerging, but here’s some of what you need to know:

  • Volcker Rule: Only 3% of a bank’s tangible common equity can be invested in hedge funds or private equity.
  • Also under the Volcker Rule, prop trading at bank holding companies is not allowed, but of course this will be subject to substantial debate about what prop trading is.
  • As CNBC’s Kate Kelly reports, there’s also language in the bill that could prevent banks from hedging their exposure to trades done on behalf of clients. This is a response to the Goldman ABACUS scandal, and the idea that banks are taking positions contrary to their clients wishes. Major banks are said to be very concerned about this.
  • Blanche Lincoln’s anti-derivatives rule remained somewhat intact. Banks will be allowed to use various swaps to hedge their own exposure, but dealing of many derivatives will be forced into separately capitalized hives of the big firms.
  • As Reuters notes, the Fed is gaining several powers in this including greater oversight of systemic risk, and it will house the consumer protection agency.
  • As for the consumer protection agency, it reamain unclear what shape it will take. Much of it may depend on who is helming it, and what political party is in charge. This was previously seen as a particularly controversial measure, but nobody is all that worried about it right now.
  • Regarding the consumer, the bill limits fees debt card firms can charge.
  • The Fed will be audited regarding its open market activities, but will not face oversight on actions realted to monetary policy.
  • The Ratings Agencies will be subject to greater oversight, and will have more liability, according to Reuters.
  • The bill includes a new $19 billion levy on banks, according to POLITICO.
  • Broker dealers will still not have


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Wall Street Reform Could Cost Goldman Sachs BILLIONS

Wall Street Reform Could Cost Goldman Sachs BILLIONS

Courtesy of Ryan Grim and Shahien Nasiripour at The Huffington Post 

The proposed financial reforms pending before Congress could cost Goldman Sachs nearly a quarter of its annual profits, Citigroup analysts estimate in a new report.

Goldman, the most profitable securities firm on Wall Street, could lose up to $5.06 in earnings on a per-share basis if Congress passes a bill that forbids banks from trading for their own profit, owning or sponsoring hedge funds and private equity funds, and compelling them to move most of their derivatives dealing into regulated markets, according to the research note.

Combined with a potential fee to recoup taxpayer losses on TARP and higher deposit insurance assessments on its bank, Goldman could lose up to 23 percent of its profits, giving it the distinction of being the firm most impacted by the financial reform legislation.

Morgan Stanley is a close second as the team of Citi analysts, led by Keith Horowitz, estimate that it could lose up to 20 percent of its profits. Up to 18 percent of JPMorgan Chase’s profits are at risk, while Bank of America, the nation’s largest bank by assets, could see up to 16 percent of its profits evaporate.

The so-called "Volcker Rules," which would ban banks from putting their own capital at risk in hedge funds, private equity firms and through proprietary trades, and limit the growth of the largest ones, could shave four percent off the banks’ bottom lines, the Citi analysts estimate. Tighter restrictions on prop trading, which come in the form of a provision pushed by Democratic Senators Carl Levin of Michigan and Jeff Merkley of Oregon, could cost the big banks five percent of their profits.

Combined with the various other aspects of the pending legislation — like compelling banks to hold better-quality capital, making the biggest ones pay more for deposit insurance and robust regulation of heretofore unregulated derivatives — and the nation’s biggest banks could collectively lose up to 11 percent of their annual profits, the Citi analysts estimate in their Wednesday report. Goldman, Morgan, JPMorgan and Bank of America would be the most impacted.

"[O]ne of the biggest areas of risk for the group is tougher trading rules via [a] narrow definition of what constitutes banned proprietary activity," the authors noted. They were also careful to note that while their estimates required…
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HOW QUICKLY GREED TURNS TO FEAR

HOW QUICKLY GREED TURNS TO FEAR

Courtesy of The Pragmatic Capitalist

Frightened Woman

As the market complacently melted higher we continued to warn investors of the increasing three headed risks in the market.  The combination of China tightening, financial regulation and Greek sovereign debt continued to weigh over foreign markets and U.S. investors just continued to live in their domestic bubble where nothing matters besides how many iPads Apple sells on any given day.  Of course, that complacency is quickly catching up to investors.  As a risk manager this is my primary goal here at the site – not always to highlight the next best opportunity, but to help you keep from getting your face ripped off.  My first short positions in over two years were not implemented due to some crystal ball I have hidden away in my desk, but due to pure risk management.  The environment of the last two months has been rife with complacency.  Unfortunately, the situation is little improved across the globe as more government intervention proves to do little in helping matters.

The situation has deteriorated in Europe over the course of the last 24 hours as spreads in European sovereigns continued to blow out today.  My guess is that Trichet is in Berlin today having his Hank Paulson moment – down on one knee in front of a powerful woman (Merkel) begging for her to accept his proposal of “going nuclear”, i.e., buying bonds.  I can only imagine how the German heads of the Bundesbank must be feeling right now.  Disgusted is the only way they can feel.  Do they try to save the EMU or do they potentially inflate themselves into an even larger mess while imposing harsh fiscal austerity measures on member nations that almost guarantee depression?  There truly are no good answers here.

PORT HOW QUICKLY GREED TURNS TO FEAR

The scariest part…
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Surprise! and Something Weird is Going On

Something Weird Is Going On With The Financials And Berkshire Hathaway

Courtesy of Joe Weisenthal at Clusterstock 

The big story of the day in the world of financial stocks is that they’re all getting hammered, and the idea is that it might have something to do with the fact that strong derivatives reform seems to be coming down the pike.

Now there was a report earlier in the day that perhaps Berkshire Hathaway might somehow get a fat exemption, but now according to WSJ that’s not the case. The Democrats have killed that provision.

So you’d think that Berkshire might be getting pelted, but it’s not.

chartIt’s actually up about 0.4%.

That’s not a huge move, except in comparison to other financials, in which case it’s significant?

So what’s going on?

The markets are probably figuring that the hit to Berkshire will be one-timey in nature — basically that it will cause the company to post collateral, but that derivatives aren’t central to how it makes money.

With the financial firms getting whacked, strong regulations may go at the heart of what they do, and actually hurt future profitability, thus the falling shares and blowout in CDS.

 

Previously today:

Surprise! Buffett Set To Get A Big Fat Gift In Financial Regulation Bill

Courtesy of Joe Weisenthal 

Warren BuffettBerkshire Hathaway (BRK) CEO Warren Buffett has generally maintained a sterling reputation (as far as financiers go), but longtime observers know that he’s as good as any at taking advantage of public policy to suit his needs.

(Ever wondered why he loves the estate tax so…
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Oh I Feel So Safe Back in the Arms of Our Dear Leaders!

I am a big fan of the law of unintended consequences. 

My thoughts on Michael Covel’s article: you can’t legislate away human nature, true, but if you define and enforce penalties for criminal behavior, you can decrease its occurrence.  It is part of human nature to be deferred by harsh penalties. We’ve seen a lot of fraud go un-prosecuted and even rewarded recently. As long as this persists, it is human nature that the human behavior will continue.

This is where good legislation vs. bad legislation comes in, and real law enforcement (rarely spotted in the financial kingdom) vs. non-enforcement makes a difference.  - Ilene 

Oh I Feel So Safe Back in the Arms of Our Dear Leaders!

We will see the law of unintended consequences arrise from this:

“[Senator] Dodd’s 1300-plus page proposal includes a laundry list of items: a new consumer financial protection agency, new supervision of hedge funds and derivatives trading, a reshuffling of banking industry regulators, investor protection, new federal authority to handle too-big-to-fail financial firms meant to limit taxpayer bailout funds and the creation of a systemic risk council as part of an early warning system.”

Kids, repeat after me and tap your ruby red slippers three times: you can’t legislate away human behavior, you can’t legislate away human behavior, you can’t legislate away human behavior…Followed by: bigger bubbles will follow, bigger bubbles will follow, bigger bubbles will follow…

Seriously, doesn’t it appear the United States federal government is attempting to strap a diaper on all of us? I get the idea of a diaper’s job, but guess what: When everyone shits away it might not hit the floor, but it will still smell awful — diaper or not.

 

See Also: 

Senator Kaufman Blasts Dodd Bill, Says It Gives Regulators "Reshuffled Set Of Regulatory Powers That Already Exist", Zero Hedge


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Why Wall Street Reform is Stuck in Reverse

Why Wall Street Reform is Stuck in Reverse

My PhotoCourtesy of Robert Reich of Robert Reich’s Blog

At a conference in London, a Goldman Sachs international adviser, Brian Griffiths, praised inequality. As his company was putting aside $16.7 billion for compensation and benefits in the first nine months of 2009, up 46 percent from a year earlier, Griffiths told us not to worry. “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” he said.

Eight months ago it looked as if Wall Street was in store for strong financial regulation — oversight of derivative trading, pay linked to long-term performance, much higher capital requirements, an end to conflicts of interest (i.e. credit rating agencies being paid by the very companies whose securities they’re rating), and even resurrection of the Glass-Steagall Act separating commercial from investment banking.

Today, Congress is struggling to produce the tiniest shards of regulation that would at least give the appearance of doing something to rein in the Street.

What happened in the intervening months? Two things. First, America’s attention wandered. We’re now focusing on health care, Letterman’s frolics, and little boys who hide in attics rather than balloons. And, hey, the Dow is up again. The politicians who put off Wall Street regulation for ten months knew that the public would probably lose interest by now.

Second, the banks keep paying off Congress. The big guns on Wall Street increased their political donations last month after increasing their lobbying muscle. Morgan Stanley’s Political Action Committee donated $110,000 in September, for example, of which Democrats got $43,000.

Official Wall Street PAC donations are piddling compared to the tens of millions of dollars that Wall Street executives dole out to candidates on their own (or with a gentle nudge from their firms). Remember — the Street is where the money is. Executives and traders on the Street have become the single biggest sources of money for Democrats as well as Republicans. And with mid-term elections looming next year, you can bet every member of Congress has a glint in his or her eye directed at the Street.

That’s why the President went to Wall Street to raise money Tuesday night, gleaning about $2 million for the effort. He politely asked the crowd to cooperate with reform — “If there are members of…
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Burning Down The House

Cassandra on the so-called end of the recession. – Ilene

Burning Down The House

Courtesy of Cassandra Does Tokyo

Cassandra does Tokyo I am, in a strange sort of way, sorry to see the "recession" leave so quickly (if it indeed is leaving us). Not that I find subdued traffic, diminished restaurant queues, and elastic pricing unpleasant, of course, but I do not wish more suffering upon fellow citizens than necessary. And I understand that large complex processes (such as humanity’s combined economic activity) are difficult to attenuate in the best of times, and that in the heat of the moment, faced with what was a quite real threat of systemic collapse from loss of confidence, the cost vs. benefit of letting the house fire burn itself down vs. the quite heightened risk of the fire spreading IMHO justified action. We can quibble about the details, for I am no apologist for four-letter financial program acronyms that give away our collective money without extracting an appropriate slice of flesh on our collective behalf. However, I just have a gnawing feeling that the "recession" (as perhaps did each post-1981 recession) left much of its work unfinished. Leveraged spec still rules, and what wasn’t killed one might argue, is perhaps even stronger. Despite falls in counsumer credit, overall credit growth (according to David Pearson) remains positive as Feds have picked up the slack (for now). Little in the way of debt-to-equity conversion has been been realized. Aggregate energy use remains profligate (and likely unsustainable) contributing to the still-sorry state of America’s current account, which is bloodier-red than Omaha Beach in 1944. Expectations of what IS, what should be sustainably normal remains elevated; real estate agents (and stock brokers) are as ubiquitous as ever, and the People still have no clue that they ARE The State. Employing the house-fire analogy again, it’s as if the flames were nipping at the home of the despised and uncivic-minded neighbors, whose children were the neighborhood bullies, who neglected their property, free-rode upon others’ initiatives, and whom most would have been happy to see depart – even under such beastly incendiary circumstances. But now, with the fire extinguished, the smoke has cleared and the damage is such they will be staying, so long as their Prop-Cat insurer stays afloat and makes good their claim). Perhaps they will be slightly chastened. Perhaps they…
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Making Financial Regulation Work

"Making Financial Regulation Work" 

Courtesy of Mark Thoma at Economist’s View

This is something I did for the The Hearing blog at the Washington Post:

Making Financial Regulation Work: 50 More Years, by Mark Thoma: Banking regulation imposed in response to the Great Depression and the recurrent panics of the 1800s and early 1900s gave us 50 years of stability in the financial system without impeding economic growth. That’s quite a record to overcome for those who say regulation does not work.
 
But the stability began to break down with the savings and loan problems in the 1980s, and the growing instability since that time is evident in the severe meltdown we are experiencing today.
 
What happened? Deregulation beginning with the Reagan administration combined with financial innovation and digital technology led to the emergence of what is known as the shadow banking system. These are financial institutions that, for all intents and purposes, function just like banks but are not subject to the same rules and regulations and, in some cases, are hardly regulated at all.
 
The development of the shadow banking system is important because the troubles we are seeing today are not the result of problems in the traditional, regulated sector of the financial industry. The problems began in the unregulated shadow banking system.
 
We need to bring the shadow banking system – essentially any institution that takes deposits and makes loans either directly or indirectly – under the same regulatory umbrella as the traditional banking system.
 
What type of regulation should we impose to give us the best chance of achieving another 50 years or more of relative calm?

Initially my concerns were with the economic issues, and the focus was on designing a regulatory system that would overcome the market failures that led to excess risk-taking and to institutions that were too big and too interconnected to fail.

But large financial firms exert more than their share of political power, and this adds another dimension to the problem. Banks that are too big and too interconnected to fail pose an economic risk to the overall economy. However, firms can also be "too big for politicians to ignore." When this happens, they can exert undue influence on legislation or capture


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Phil's Favorites

Is blockchain all hype? A financier and supply chain expert discuss

 

Is blockchain all hype? A financier and supply chain expert discuss

Iaremenko Sergii/Shutterstock.com

Coutesy of Carlos Cordon, IMD Business School and Arturo Bris, IMD Business School

This is an article from Head to Head, a series in which academics from different disciplines chew over current debates. ...



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Digital Currencies

Is blockchain all hype? A financier and supply chain expert discuss

 

Is blockchain all hype? A financier and supply chain expert discuss

Iaremenko Sergii/Shutterstock.com

Coutesy of Carlos Cordon, IMD Business School and Arturo Bris, IMD Business School

This is an article from Head to Head, a series in which academics from different disciplines chew over current debates. ...



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Chart School

Dow Jones Gann Angle Update

Courtesy of Read the Ticker.

Let's review the Dow Jones Industrial Gann Angles and its secret sauce dominate cycle.

Dow Jones hit upper resistance Gann angle early 2019, a sell of followed, now the bounce works its way through the down ward Gann Angle, a fail at either make or break point will see the bounce sell off, and that may get very interesting!


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This cycle has worked for over 100 years, now we much watch the rest of 2019 to see if we get any more downward pressure. This cycle was found using readtheticker.com ...

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Zero Hedge

IMF Discreetly Preps Massive Aid Package For "Day After" Maduro's Fall

Courtesy of ZeroHedge. View original post here.

The International Monetary Fund is reportedly making plans for the "day after" embattled President Nicolas Maduro's fall, according to Bloomberg. Though there's been little momentum in military defections following US-backed opposition leader Juan Guaido's offer of amnesty to any army officer that switches loyalties, Washington sanctions have effectively strangled state-owned PDVSA's access to global markets. News of IMF maneuvering also comes amidst fresh reports the US is amassing aircraft, troops and armored vehicles on the Venezuelan border under the pretext ...



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ValueWalk

Quantitative Easing....Forever!

By CapitalTrading. Originally published at ValueWalk.

What is becoming obvious now is the fact that the global central banks can no longer hide the fact that without their QE and balance sheet expansion, asset prices would fall and economies would reverse. The last month or so has seen a huge reversal in the markets expectations for future rate hikes and one by which certainly shouldn’t have surprised any of our readers. We have used and will continue to use the #QE4EVR theme as basically we are and will all continue to be bound to the low interest rate to negative rate environment. We aren’t stupid…

Anyway, let’s look at the latest headlines and make some comments (headlines and charts are from D.Wienke of Cabrera Capital)

  • U.S. DEC. RETAIL SALES FALL 1.2% M/M, BIGGEST DROP SINCE 2009
  • PPI Growth S...


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Kimble Charting Solutions

Gasoline bullish breakout could fuel higher prices, says Joe Friday

Courtesy of Chris Kimble.

Are we about to pay much higher prices at the gas pump? Possible!

This chart looks at Gasoline futures over the past 4-years. Gasoline has become much cheaper at the pump, as it fell nearly 50% from the May 2018 highs. The decline took it down to test 2016 & 2017 lows at (1). While testing these lows, Gasoline could be forming a bullish inverse head & shoulders pattern over the past few months.

Joe Friday Just The Facts- If Gasoline breaks out at (2), we could all see higher prices at the gas pump. If a breakout does...



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Insider Scoop

10 Stocks To Watch For February 15, 2019

Courtesy of Benzinga.

Some of the stocks that may grab investor focus today are:

  • Wall Street expects PepsiCo, Inc. (NASDAQ: PEP) to report quarterly earnings at $1.49 per share on revenue of $19.52 billion before the opening bell. PepsiCo shares rose 0.2 percent to $112.82 in after-hours trading.
  • NVIDIA Corporation (NASDAQ: NVDA) reported upbe...


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Biotech

Cancer: new DNA sequencing technique analyses tumours cell by cell to fight disease

Reminder: We are available to chat with Members, comments are found below each post.

 

Cancer: new DNA sequencing technique analyses tumours cell by cell to fight disease

Illustration of acute lymphoblastic leukaemia, showing lymphoblasts in blood. Kateryna Kon/Shutterstock

Courtesy of Alba Rodriguez-Meira, University of Oxford and Adam Mead, University of Oxford

...

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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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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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