The Swiss Franc Uncapped (ok, so this isn’t really a derivatives post..)

Dear Switzerland,

Your cheese may be full of holes; your currency may, for the moment, be more volatile than nitroglycerine; your European neighbors and various NGOs may be miffed and feigning surprise at what some might consider to be your outrageous and unilateral actions, but surely your spirit is whole this week.  To the applause of some and the chagrin of others, rightly or wrongly, you made a decision and have now acted upon it.  Time will tell whether it is the right decision or the wrong decision (I certainly don’t profess to be expert enough to predict), but I applaud the fact that you made a decision and then acted upon it. 

I love it when the little guy says, “we’re going to do what’s right for us and the chips are going to fall where the chips fall.”  I’m not sure if it’s an American cultural thing hearkening back to too many hours reading Ayn Rand or the threads of the never quite realized vision of the Jeffersonian yeoman farmer or the rugged individualists we Americans tend to admire so. Then again, maybe it’s just the primordial resonance from another modern incarnation of David vs. Goliath, but the idea of Switzerland just telling everyone to screw-off is pretty awesome to me.

There is a good write-up in Forbes explaining why the move may have been considered necessary http://www.forbes.com/sites/marcelmichelson/2015/01/16/swiss-franc-u-turn-is-realistic-move-as-snb-cannot-stop-tide/ and a Google search will yield plenty of others should you wish to read some other views.

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I was too stupid to understand the derivative I bought…so it must be my counterparty’s fault that I lost money…

I absolutely detest these types of claims and they just don’t seem to want to go away.  Bloomberg reports that BVG, JPM and Clifford Chance are embroiled in litigation over a CDS that BVG claims JPM sold it and which was too complex for it to understand (CC is involved due to alleged conflict of interest claims arising from the fact that it acted for both BVG and JPM).  BVG is arguing it didn’t understand the risks it was taking on.  JPM is arguing that BVG just made a bad investment decision.

The only question for me is how BVG thinks it is ok that it signed up to an instrument that it now claims it didn’t understand?  At what point does gross incompetence begin to be characterized as such?

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A nearly infinite array of reasons to hate the Volcker Rule…

Reason 1:  It is over inclusive, under inclusive and does nothing to advance the ball with respect to actually achieving its stated aims.  Indeed, it is the very essence of a badly written law.  Can anyone rationally explain to me why it is ok to securitize loan paper, but the very same credit in bond form is not permitted? 

More to follow….

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Wall Street Finally Takes The Fight To The CFTC!

And, in one voice, a few trade associations, representing most of the major financial players in the world, stood up and said to the CFTC, “NO MORE!”  As the mainstream media has been reporting, Wall Street is done lying down for Mr. Gensler.  Bring on the litigation and as Lincoln said, let us pray that right makes might.

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Sweet justice…what better way to say goodbye to Gary Gensler…

than for  for he and Bart Chilton to perform a duet of endless love the industry to fight back against sue his ass off for engaging in arbitrary and capricious rulemaking!  After 5 years of pure bullshit overzealous holier than thou righteousness that only a convert could bring to the table, it is finally time to wish Mr. Gensler goodbye.  And, I for one can think of no goodbye that would be more appropriate for Mr. Gensler than an industry wide suit…  Ironically, such an outcome may no longer just be the stuff of my fantasies, but this may in fact prove to be reality as Bloomberg reports today.  Check it out.  Come on Wall Street, it’s time to tell the mean, angry little man that enough is enough not to let the door hit him on the ass on the way out.

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Educating the ignorant mainstream media about derivatives…debunking the dreck that accounts for journalism these days…

Years after the financial crisis the mainstream media and even many in the financial press still do not really understand derivatives.  Indeed, in yet another puff piece clearly designed to call to mind images of derivatives as incendiary devices in need of “defusing” Matthew Leising manages to say absolutely nothing new.  Of course, with a title like, “Defusing Derivatives” Mr. Leising will undoubtedly get lots of page views, which I imagine was his goal in any event. 

Long gone are the days when journalists actually did the research to understand their subject matter.  But, hey, it’s easy to blame derivatives and big banks.  Why bother putting in the effort to understand what actually happened and how the regulatory backlash in response is remarkably ludicrous in most respects? 

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At last . . . “Crazy” Bart to leave the CFTC . . .

It seems only fitting that “Crazy” Bart felt it necessary to wait until the CFTC had adopted another position limits rule before announcing he would soon be leaving.  After all, who better than him to stick it out for a rule that isn’t based on facts and only sounds good to those who have bought into the notion that only evil speculators can cause heightened volatility (even though that silver investigation turned-up nothing).  I will miss “Crazy” Bart.  

I will miss him for, even if for no other reason, the pure entertainment value he has provided (and because I really enjoy writing “‘Crazy’ Bart”).  As a commissioner he remains deeply flawed–his decisions were intellectually illconceived and guided by emotion rather than logic or analysis of the relevant facts.  However, as comic relief, he is deeply gifted.  Indeed, his unique ability to interject irrelevant song lyrics or other whimsical anecdotes (or Dukes of Hazzard references) into otherwise very serious conversations made him unique or as I like to say, just a a little bit “crazy”. 

I like to think of “Crazy” Bart as the illbegotten stepchild (or what such a creature would look like were it possible to create it) of Willy Nelson, Jerry Springer, “the rent is too damn high” guy and the 1960s..plus he looks like he smokes up on the bathroom (although I am ot suggesting he actually does)….all of which made him wonderful blog fodder.  And, for that, I will miss him dearly. 

Good luck and bonvoyage “Crazy” Bart.  May all your future endeavors be successful. I wish you only the very best!  The CFTC will certainly be a hell of a lot more boring in your absence.

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CFTC Finally Removes Head From….and Drops Position Limits Appeal

Various media outlets have now reported that the CFTC is dropping its position limits appeal.

Now, some of you think it probably doesn’t matter that the CFTC dropped this appeal since they are just going to adopt a new position limits rule tomorrow anyway…but, for those of us who have been observing the agency’s often erratic and irrational footwork under Chairman Gensler, it is a relief to see reason prevail over Gensler’s irrational righteous rage… 

More to the point, while it is true tomorrow will likely bring the same bad rule just couched in different terms, we can but hope that it too will be challenged and that it too will be defeated.

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The view from the ivory tower is a little bit different than the view in the trenches…

David Zaring, assistant professor of legal Studies at Wharton declares in the New York times that, “American financial regulators are winning their fight to put through Dodd-Frank the way they think it must be done” after nonchalantly shrugging-off the fact that other than the CFTC (and there only by comparison to the other regulators) all of the Federal Regulators are massively behind schedule in the rulemaking process.  Professor Zaring from atop his lofty perch in the ivory tower also neglects to mention how flawed most of the CFTC’s rules are and seems to not even to notice the global debate over rule harmonization (or, should I say, lack of harmonization).  Perhaps Professor Zaring’s best argument for his point of view that the glass is half-full with respect to the Dodd-Frank Act is the  notion that while it is still early, “the government has won more cases related to its rules than it has lost.”  Of course, that very notion misses the point completely.

The issue is not whether regulators are implementing Dodd-Frank in the way they think it must be done, the main thesis of Professor Zaring’s piece, but rather whether implementing the Dodd-Fank Act in the manner the regulators have chosen to do so will prevent (in the most cost-effective and efficient manner possible) another financial crisis along the lines of what happened in 2008, which afterall, is its stated purpose.  In other words, the question is not which rule or rules will stand-up in court, but which rules should be adopted and in what manner. 

Perhaps in the ivory tower those issues don’t matter.  But, in the trenches where real businesses that hire real people are trying to survive, these things do matter.  Indeed, putting aside the pitfalls of any one set of rules, the fact that we do not have uniformity of approach even within the United States let alone around the world suggests to me, contrary to what Professor Zaring says, that the glass is damn near empty.  Of course, looking up from the trenches tends to give one a bit of a different perspective than does looking down from the ivory tower.

 

 

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CFTC Makes First Limited Purpose Swap Dealer Designation

I have to confess that I was one of those skeptics that thought the CFTC was never going to provide a single registrant with a limited purpose swap dealer designation.  I thus find myself having to admit I was wrongly skeptical, but then again, query whether this is the exception which proves the rule or just the first of many exceptions?  Here’s the link to the press release.

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