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Genesis Posts: 71411 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/1042-O....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-14 13:37:30
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Onchaos Posts: 70 Incept: 2008-10-09 Virginia
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They're afraid to turn the light on, the monster is even bigger than they imagine.
---------- Freedom is chaos - give it to me anyway!
2009-05-14 13:55:45
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Abn0rmal Posts: 2320 Incept: 2009-01-10 
DFW
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The phrase "snatching defeat from the jaws of victory" comes to mind.
2009-05-14 14:00:19
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Throxxofvron Posts: 2672 Incept: 2009-02-17
The Land of Bilk & Money
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You didn't think these eels were gonna drain the very swamp They live in did You? We've been having chicken all week; dammit -tonight lets eat the Fox. ---------- DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell Last modified:
2009-05-14 14:52:29 by throxxofvron
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Pika-steph Posts: 39197 Incept: 2007-09-11
^Why I keep^ fighting; so he is not fighting for nothing.
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Again, I'll say, they're looking for an answer to this problem that will not reveal the fraud (because it leads to who is responsible - and those are many of the people in charge). There is no such answer. ---------- Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org  "America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards."
2009-05-14 15:11:45
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Lastchance Posts: 1132 Incept: 2008-11-19 Las Vegas
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"The fox doesn't mind a fence around the chickens so long as you both leave a fox-sized hole and don't post someone with a rifle near it." That pretty much covers it. ---------- "We don't quit. I don't quit" President Obama 1/27/10 Man, I would to have him in one of our poker games.
2009-05-14 15:19:11
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Biscuits Posts: 17 Incept: 2008-12-03 IL
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Here's a blog that describes how there is lots of wiggle room on regulation between "standardized" and "non-standardized" OTC derivative contracts. It concludes that "if the systemic risk regulator is a ruse to let 99% of OTC derivatives go uncleared with weak initial capital requirements and no daily maintenance margin then the genie is not back in the bottle and will destroy us again in less than a generation." The story was from March. Have changes been made to the plan since then? http://accidentalhuntbrothers.com/?p=208 Last modified:
2009-05-14 15:34:38 by biscuits
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Snowman Posts: 1040 Incept: 2009-03-09 
avoiding yellow snow
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Karl, I think this is exactly where they are going with this. In talking to colleagues on the working committee with Euronext and other CDS clearing, the concept is to move CDS to real-time net settlement. The DTCC users settle their CDS through the CLS system (where all the FX settles) and this settlement and clearing model is what they want to use for the CDS contracts. It means real time monitoring and updating of collateral, netting, and net settlement with the cash piece flowing through CLS and ultimately net positions on the Fed accounts, and accounts with respective central banks. Physically there will probably be 2 systems (NY and London), but they will be linked up and the books passed. Running 24/7, just like the payment systems, unconstrained from exchange opening hours. The banks all realized this was coming and they aren't fighting it. The risk management dudes in the banks are insisting, as are the boards. There is considerable expense automating and linking the front office with this backoffice approach, and it will take some time. But it is very doable.
2009-05-14 15:38:51
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Genesis Posts: 71411 Incept: 2007-06-26
KD^2
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I'll believe it when I see it Snowman.
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-14 15:40:31
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Snowman Posts: 1040 Incept: 2009-03-09
avoiding yellow snow
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Biscuits: there are even discussions to price uncleared items, much like the Fed charges banks on intraday overdrafts. They starting charging fees and like magic banks got their act together and no problem.
2009-05-14 15:41:40
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Snowman Posts: 1040 Incept: 2009-03-09
avoiding yellow snow
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Karl, There is one tiny, itty bitty problem....dumb of me not to mention.... Not all CDS's would go through the system. JPM, for example, I think, is the biggest CDS dealer. Much of their volume can be settled intra-book, ie between accounts for their customers held on their books, and ultimately JPM's gross is netted. This means the banks with the big book entry capability have price, liquidity, and collateral monitoring advantages that goes around the exchanges, and the public. Either all contracts are forced to go through a central clearing mechanism or this thing won't work. I think that is what you are saying, yes?
2009-05-14 15:52:11
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Genesis Posts: 71411 Incept: 2007-06-26
KD^2
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Quote:Either all contracts are forced to go through a central clearing mechanism or this thing won't work. I think that is what you are saying, yes? Correct. "Bucket shops" are ILLEGAL in the stock and FX markets. There's a reason for that. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-14 15:57:59
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Tsberts Posts: 1809 Incept: 2008-02-05
Minnesota Online
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Why does JPM's claim of "internally, it all nets to zero" immediately bring to my mind the image of a ponzi scheme?
---------- Photoguy was an optimist. In Soviet Russia, the banks are run by the politicians.
2009-05-14 16:05:02
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Snowman Posts: 1040 Incept: 2009-03-09
avoiding yellow snow
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well, then, don't hold your breath. I am well aware of the rationale. The big banks use intra-book data mining to the extreme (even if the parties settle on an exchange). It's done with FX all the time as a matter of course.
2009-05-14 16:07:52
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Bozonian Posts: 14033 Incept: 2007-09-01
PFT - Pure F'n Tin
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This risk is going to be deleveraged by taxpayer money, putting us and our futures in hock. I'd rather have the collapse happen with wild abandon, wiping out the paper bull**** world and have the government put things back together on a bare minimum basis where everyone has to do things that are actually relevant to survival. Default on the Treasury debt (probably what they are going to do but might as well borrow for all it's worth while idiots are still willing to lend to us).
---------- I'm so depressed about outsourcing I called the suicide hotline and got a call center in Pakistan. They got all excited and asked me if I could drive a truck. Everything I write is my opinion and not to be considered proven fact. Nothing I write should be considered financial advice.
2009-05-14 16:32:42
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Omm Posts: 1623 Incept: 2007-08-29 NC
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Y'all might like this interesting little interview on Calculated Risk. In Charlie Munger's view, derivitives trading is like the Bucket Shop from the 20s. HAHAHAHAHAHA!!! http://www.calculatedriskblog.com/2009/0.... by CalculatedRisk on 5/14/2009 03:53:00 PM Stanford Law Professor Joseph Grundfest interviews Charlie Munger, vice chairman of Berkshire Hathaway: Legal Matters Munger makes a number of interesting comments (I believe many of you will find the interview interesting). Here are a few excerpts ... On accounting: Grundfest: As we look at the current situation, how much of the responsibility would you lay at the feet of the accounting profession? Munger: I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promoters want. They’ve sold out, and they do not even realize that they’ve sold out. Grundfest: Would you give an example of a particular accounting practice you find problematic? Munger: Take derivative trading with mark-to-market accounting, which degenerates into mark-to-model. Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade. Grundfest: And they can’t both be right. But both of them are following the rules. Munger: Yes, and nobody is even bothered by the folly. It violates the most elemental principles of common sense. And on derivatives: Grundfest: You and your partner, Warren Buffett, have for years warned about the dangers of the modern derivatives markets, particularly credit derivatives, and about interest rate swaps, currency swaps, and equity swaps. Munger: Interest rate swaps have enormous dangers given their size and the accounting that has been allowed. But credit default derivatives took that danger to new levels of excess—from something that was already gross and wrong. In the ’20s we had the “bucket shop.” The term bucket shop was a term of derision, because it described a gambling parlor. The bucket shop didn’t buy any securities. It just enabled people to make bets against the house and the house furnished little statements of how the bets came out. It was like the off-track betting system. Grundfest: Until the house lost its money and suddenly disappeared. Or the house made its money and suddenly disappeared. Munger: That is right. Derivatives trading, with no central clearing, brought back the bucket shop, because you could make bets without having any interest in the basic security, and people did make such bets in the billions and billions of dollars. Some of the most admired people in finance — including Alan Greenspan — argued that derivatives trading, substituting for the old bucket shop, was a great contribution to modern economic civilization. There’s another word for this: bonkers. It is not a credit to academic economics that Greenspan’s view was so common. There is much more. ---------- "Don't whine because the Chinese won't play fair. They're communists." Xennady Jan 21, 2010.
2009-05-14 17:01:33
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