Daniel Jones

Should the Fed Lend to Investment Banks?

I for one have an opinion that the TSLF was a tremendous opening of a spigot to reliquidate the entire balance sheet of the I-Bank industry to the tune of $300 billion. Footing the bill, the US Taxpayer. Enjoy your economic stimulus checks of $1,200 or whatever - Wall Street got one for $3 bills courtesy of HP at the Treasury.

Rogue Traders and Economic Capital

"While the magnitude of the SG loss is remarkable - even incredible -- such events are increasing in frequency among large banks, in part because the financial instruments prevalent in the markets today enable and encourage this type of behavior"

I absolutely agree with that observation, Chris. The gun-slinging traders are in a heads-I-win, tails-the-bank-losses type of arrangement. They are incentivized to be as aggressive as possible. The "hedged" nature of a trade setting up one commodity vs. an equity index based upon correlations that have held up in the past is questionable at best. Nothing says both positions can't tank at the same time, or that risk premia can't act irrationally longer than the traders can remain solvent. (apologies to Keynes for butchering his quote).

While many will point to in-house risk management teams doing their jobs, there could be a strong need for a discussion on how to rein in some of the trading desks and hedge fund risk takers as well, in my opinion.

Enron, Subprime and the Derivative Disease

"...somehow aggregating large bank conduit risk into a single subprime burrito will somehow draw foreign and domestic investors back to the structured asset trough..."

That is writing, Sir! Very nice job. You have articulated this laughable plan perfectly. They should print your article in the WSJ.

Keep up the great writing! I will cite your article and authorship on my blog today as one of the best reviews and opinion pieces I've read on this subject.

Daniel Jones
e-bluewater.com