Tom Armistead

Reinstituting Glass-Steagall: Not as Easy as It Sounds

Banks are not weapons of war, that downsizing them is equivalent to disarmament.

CDS Regulation: Just One Simple Rule

I forgot to mentin that naked CDS is the equivalent of the naked short sale of a bond. Just like naked short selling of equities, it is a tool for manipulation.

CDS Regulation: Just One Simple Rule

Kid,
BSC, LEH, AIG, MBI, ABK, MER, AIG etc. were all brought down or severely damaged by the buy CDS, naked short, and put out the word short and distort crew. Have you every looked at the threshold lists from that point in time? A situation was created where no financial instituion had any access to capital. Finally, the failure of the Federal Government to stop the carnage brought Lehman down and with it very nearly the entire economy and financial system. Panic ensued, everybody started cutting production, canceling orders, firing workers, etc. So we nearly had a Depression because of CDS and you don't see a problem?

Your argument that hedging exposure to counterparty risk shows there is a need for CDS not supported by an insurable interest doesn't hold water, for the simple reason that a counterparty exposure creates a chance of loss due to the insolvency of the counterpary which in turn creates an insurable interest.

To deny the moral hazard created by CDS in the absence of insurable interest is absolutely naive: you clearly do not understand human nature. Arson and murder for profit are a fact of life: that's how people behave; that's why fire and life insurance have requirements of insurable interest.

Obviously, some of the institutions taken down were fragile. However to justify perpetrating the financial equivalent of arson on those firms is similar to reasoning that anybody who lives in a frame dwelling has no reason to complain if someone buys eight insurance policies on his house and then burns it down. The victim of arson is not responsible for his loss becasuse he did not live in a concrete bunker.

For that matter, a person who murders for the life insurance proceeds can't justify himself by saying: "the victim had cancer, he was going to die anyway."

I am not sure why you wish to bring mark to market into a discussion of CDS. What I have observed is that many of the securities that were the issue in mark to market have recovered much of their value. Similarly, many CDS spreads have come back down into contact with reality. But the damage done to the firms involved and to their shareholders has not yet been repaired.

The whole effect of permitting the sale of naked CDS was to give an irresponsible band of financial manipulators access to a huge amount of leverage which they promptly applied to every financial instituion they could finger as a remote possiblity for take-down. Finally we had the Fed guaranteeing the credit of GE and GS, and others, with Warren Buffett putting his money on the line, for huge profits.

That was the high point of the CDS bear raids, when the spread for GE ballooned out and it looked like they were gonig to bring down the big one.

CFMA, carefully engineered as an end run around regulation for the likes of Enron, and the perpetrators of CDS, was one of the most egregious examples of our legislators selling out to financial interests who have destroyed free market capitalism as it had been established following the Depression. One by one the protections created in the wake of that horrible time in the life of this country were taken down, cumulating with CFMA which brought the curse of unregulated CDS down on the country, destroying trillions of dollars of wealth.

To summarize, CDS should be regulated as insurance, with a requirement of insurable interest for the buyer and adequate capital for the seller.

Obamacare: Affordable Private Insurance Is Already Available

Mark, I live in CT and am in my early 60's. The last time I had to look at individual health insurance premiums they were higher than what you quote, even with high deductibles. They further came with exhausitve questionaires and the cheapest premium company undertook to sell me a policy with a rider that took out coverage for my entire gatro-intestinal system.

Even the numbers you quote look a little steep compared to average wage rates, and they are prohibitive when viewed in the context of the minimum wage.

There is something wrong here and it needs to be fixed. Whether the current health-care reform legistlation will fix it is another question entirely.

May the Lloyd Be with You: Blankfein Doing 'God's Work'?

Very good point - investment banking does have a social purpose. Very good questions - are "investment banks" fulfulling this purpose? and how much should they be paid?

I would add a question - are "investment" banks involved in activities that do not have a social purpose - that in point of fact undermine the financial system on which society depends?

Then we could start looking at the social utility of CDS, other derivatives, high frequency trading, weekly "huddles," etc. From there the suspicion might arise that the investment banks are blackmailing us by making the performance of their legitimate functions dependent on a continued license to run a casino on Wall St.

The whole God bit is a red herring - the result, whether intended or not, is to introduce questions of anti-semitism into what should be an informed debate about the social purposes of the diverse and esoteric financial operations performed by GS and other investment banks.

UUP Runs Out of Shares: Unlikely Anything Illegal Took Place

Sounds like a high roller move to me, let's all run out and make side bets, this is where the action is...

CDS Regulation: Just One Simple Rule

CDS levels affect the perceived creditworthiness of a company and their cost of funds. Financial companies that rely on credit can literally be put out of business by these perceptions. CDS were widely used in conjunction with naked short-selling in short and distort manipulations to take down financial firms leading up to the meltdown.

Naked CDS are gambling contracts, and contrary to your apparent belief system Wall Street is an inappropriate location for a casino operation.

Lack of insurable interest creates a motive to cause a loss - something that can be done be spreading rumors. The exemption from regulation of CDS was a primary cause of the financial crisis.

The correct "one rule" is a requirement of insurable interest: you have to own the bond in order to buy the insurance.

10% Unemployment: Good or Bad for the Market?

bit.ly/2ehyRk

WSJ article, this is not 1983

Stocks Soar, Unemployment Rises, Dollar Slumps

Where are you getting your productivity figures? I went to the BLS and the most recent quarterly figure is 9.5%.

Options Trader Wrong-Way Weekly Wrap-Up: Party Like It's 1999

You missed an extra step on the clean up of the mortgage mess. The government gives the amount by which each homeowner is underwater or over-leveraged to the homeowner who is required in turn to pay it to the bank who reduce the balance on the mortgage accordingly.

But then the government requires the bank to issue it shares for the amount of money involved. At that point the bank is well-capitalized and shareholders have been insanely diluted, leaving the loss exactly where it belongs.

Limiting Banker Pay - Another Downside

The answer is the banks are too big. The bigger the business, the bigger the bucks the top dog has to receive.

Cut GS, JPM, etc into ten equal size banks or trading houses and put one man at the top of each making one tenth of what Blankfein, Dimon et al make and that problem is solved.

From there you could go on to CDS, manipulation of markets, derivatives, fraudulent conduct, high frequency trading, front running, naked short-selling, insider trading, twisting, scamming, lieing cheating and stealing generally.

The retail investor has been slow to stick their head out of the bunker and get back into the game. Well doing something to level the field, and getting the government out of the game, would do wonders in that regard.

The only proper role for the government is as a referee, impartial, well versed in the rules, and equipped with an ample supply of red cards.

The New Version of Depression Apple Selling

Put this together with the huge bonuses being paid to those who created this mess.

Radical change is required.

Bernanke: Same Old Play Book

.25 would be a start.

Monetary policy is not a suitable tool for fixing what's wrong with the financial system.

In medical terms, we don't need an infusion of narcotics, we need laser surgery on cancerous areas: CDS and commodities manipulation come to mind, or liposuction on various areas of bloated leverage.

Why There Can't Be a Cap on Bank Capital Ratios

What I don't like is banks that have huge amounts of derivative assets and liabilities in more or less equal amounts. Typically the assets are about 5% greater than the liabilities. They all make money. The theory is that the assets and liabilities offset each other, they are perfectly matched, a million repetitious trades, all of them yhielding small profits on the huge notional amounts.

For a long time it was credit default swaps but now the interest rate swaps are getting to be the big thing.

No need for calculus or elaborate equations, the whole system is too big and too highly leveraged and it will blow up when interest rates start bouncing around in the wake of the currency crisis that is likely to occur somewhere, sometime in the future.

The Homebuyer Credit as Economic Success Story

Those who can qualify for a mortgage are the middle class, who have taken a hosing as the USG has spent billions bailing out TBTF banks. So now they get a small recompense. They'll pay it back in taxes.

From an economic point of view the point is to reduce supply. This country had about 1 million excess single family homes for sale so if this mops up some of that supply it helps sustain the asset values which is what this is about.

Remember, the asset values underlie a huge, huge amount of MBS, which is part of the capital structures of banks and insurance companies. TARP was originally supposed to support MBS. This credit for new homebuyers actually acieves that goal and could very well prevent the double dip recession so many a fearful of.