Contributors

Tuesday, December 14, 2010

Son of Trying Again


The clearinghouses that run the inner circle of the derivatives market are very exclusive. As the article details, banks try get into to the club only to be rebuffed for "having too little capital." But that's not the real reason.

“We are not a nobody,” said Sanjay Kannambadi, chief executive of BNY Mellon Clearing, a subsidiary created to get into the business. “But we don’t qualify. We certainly think that’s kind of crazy.”

The real reason the bank is being shut out, he said, is that rivals want to preserve their profit margins, and they are the ones who helped write the membership rules.

Mr. Kannambadi said Bank of New York’s clients asked it to enter the derivatives business because they believe they are being charged too much by big banks. Its entry could lower fees. Others that have yet to gain full entry to the derivatives trading club are the State Street Corporation, and small brokerage firms like MF Global and Newedge.

Preserve their profit margins...exactly what I have been saying all along. And these committees, not the government, write the rules. Great. Please let's continue to have more shit and paranoia blamed on the government so these assholes can continue to rip people off.

So is there a way to quantify all of this? No. Why?

The precise amount that banks make trading derivatives isn’t known, but there is anecdotal evidence of their profitability. Former bank traders who spoke on condition of anonymity because of confidentiality agreements with their former employers said their banks typically earned $25,000 for providing $25 million of insurance against the risk that a corporation might default on its debt via the swaps market. These traders turn over millions of dollars in these trades every day, and credit default swaps are just one of many kinds of derivatives.

The secrecy surrounding derivatives trading is a key factor enabling banks to make such large profits.


Super! So nothing at all has changed since 2008. Ah well, let's just say it's all the fault of the government and move on. These guys running these clearinghouses are all rugged individualists simply reaping the benefits of a free market. We need to leave them alone because it's clear that their market is perfectly competitive. The government just needs to get out of the way and watch the economy take off. Except, how can it when these people ARE TAKING ALL OF THE MONEY!

Since I know some of you aren't getting this yet, here's another way to look at it.

And the profits on most derivatives are masked. In most cases, buyers are told only what they have to pay for the derivative contract, say $25 million. That amount is more than the seller gets, but how much more — $5,000, $25,000 or $50,000 more — is unknown. That’s because the seller also is told only the amount he will receive. The difference between the two is the bank’s fee and profit. So, the bigger the difference, the better for the bank — and the worse for the customers.

It would be like a real estate agent selling a house, but the buyer knowing only what he paid and the seller knowing only what he received. The agent would pocket the difference as his fee, rather than disclose it. Moreover, only the real estate agent — and neither buyer nor seller — would have easy access to the prices paid recently for other homes on the same block.

Wow, that's fantastic. And this is perfectly OK with 30 to 40 million of you?

But listen, I can feel many of you still digging in your heels as you always do and refusing to accept these facts. Let's keep going because I know your knee is jerking to that ol' classic, "Let Loose the Market (And Watch It Take Off)."

Mr. Griffin said last week that customers have so far paid the price for not yet having electronic trading. He puts the toll, by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”

Tens of billions. Staggering. So where is the government again? Oh, that's right...neutered in the corner by Tea Party hysteria.

Under the Dodd-Frank bill, the clearinghouses were given broad authority. The risk committees there will help decide what prices will be charged for clearing trades, on top of fees banks collect for matching buyers and sellers, and how much money customers must put up as collateral to cover potential losses.

There is so much anti-government fervor out there that conservative Democrats, feeble minded wankers that they are, are succumbing to zillions of falsehood riddled with paranoia. People like Bernie Sanders and Sherrod Brown are painted as Nazis...choking the "poor and helpless" derivatives market out of their money and giving it to a lazy, lower class useful idiot with a flat screen. The more we fail to recognize that men like Sanders and Feingold are our last line of defense, the more our country decays.

Basically, what we are doing is blowing up our air force on the eve of a major aerial conflict because a little over a third of our country is afraid of flying.


8 comments:

juris imprudent said...

OK M, how about this - exactly how much money have you lost due to derivatives? How much money came out of your wallet and who did it go to?

Also, let me get this straight - you are arguing to expand access to a market that you have rightly characterized as reckless speculation? You want more people playing in it because that would mean actual competition that could improve the function/efficiency of that market? The same market you have screamed about being a danger to the stability of the global financial system? The same market that has been a player in the Irish financial debacle (and the bailout driven by the same feckless behavior on the part of losing players) despite all of the best European regulation?

Do you ever really think through your arguments or do you just love to rant?

Anonymous said...

Tomorrow, will you please do my research for me? Include in your blog exactly what this article refers to as the threatened Republican 'pushback'.

Also, please give the confirmation dates for the 'fellow commisioners' who may not be supportive of the chairman, so that I can better understand the insidiousness of the Republicans. I should probably assume they were all Bush appointees...

dw

ps - And do please tell me how none of us are in control of ourselves. thx

juris imprudent said...

Speaking of trying again, this is a wonderful rebuttal to so much garbage M has spewed on education and whether or not effort (hard work) is part of success in life.

juris imprudent said...

Yeah, me again and you can bitch at me for a cheap shot, but I'm only returning the level of discourse that M encourages...

My Testament: Some people (the government sponsored media) will say I was evil, a monster (V)… no… I was just born poor in a country where the Wealthy manipulate, use, abuse, and economically enslave 95% of the population. Rich Republicans, Rich Democrats… same-same… rich… they take turns fleecing us… our few dollars… pyramiding the wealth for themselves. The 95%… the us, in US of A, are the neo slaves of the Global South. Our Masters, the Wealthy, do, as they like to us…

Typical liberal, or deranged (and suicidal) gunman at school board meeting?

Anonymous said...

People like Bernie Sanders and Sherrod Brown are painted as Nazis...choking the "poor and helpless" derivatives market out of their money and giving it to a lazy, lower class useful idiot with a flat screen. The more we fail to recognize that men like Sanders and Feingold are our last line of defense, the more our country decays.

Let me guess... Bernie Sanders is a moderate.

Mark Ward said...

"And do please tell me how none of us are in control of ourselves. thx"

Suppose you and some friends decide to go to a David Bowie concert. It snows and the show is cancelled because of weather. Were you able to control the outcome of that event?

Suppose you are and your friends are going to the same David Bowie concert. This time the venue decides not to pay the artist before the show so he doesn't go on and play. Bowie leaves and the show is cancelled. Were you able to control the outcome of that event?

Suppose you are on your way to the show and a chemical truck driven by a driver going on no sleep for 48 hours due to his company having unrealistic deadlines to maximize profit. You are stalled on the highway for 4 hours and miss the show. Were you able to control the outcome of that event?

Notice in all scenarios the government was not to blame. The third scenario actually happened to me although I wasn't on the way to a Bowie concert. We were going to see my mom and my daughter was still a baby.

There are many things in life we can't control and this would be why I laugh at the Ranidans who still operate under adolescent power fantasies. You have the illusion of choice (ironically created by marketing firms hired by private corporations) but you really don't. This is real problem for Randians...loss of control. No doubt, this where the guns come in to play. They fear a loss of control and guns make them feel like that have it. I'm sure many of you will read this (emotionally) as anti gun. Far from it. I'm questioning the motivation behind having one and if it bears any significance in reality.

It's simply anathema for the "rugged individualist" to admit that we live in a society where we depend on each other and the choices that others (out of our control) make often times affect our lives adversely. I think the ones that are grossly adverse are largely made by private concerns who then turn around and pay large quantities of money to people to get YOU to erroneously believe that it is the fault of the government.

Worse, they perpetuate the struggle between the illusion of control and that uncomfortable feeling of insecurity that comes from secretly knowing you don't have it which leads to...well...being right wing..

juris imprudent said...

M you were asked "...how none of us are in control of ourselves"?

And you replied, thrice, with "Were you able to control the outcome of that event?"?

Do you NOT see how you missed the point? Really???

Notice in all scenarios the government was not to blame.

Which wasn't the point of the question you were asked, was it? You see why I say that you only argue with the voices in your head - because you don't actually engage with the arguments that are presented to you.

Because then you continue slashing at the strawman you created...

There are many things in life we can't control...

Which again, was NOT the question you were asked - but you simply roll right on to...

I'm questioning the motivation behind having one and if it bears any significance in reality.

So owning a gun is all about creating my own little illusion of control of my self? I don't really control my behavior, so I buy a gun to pretend that I do? THAT is your answer to And do please tell me how none of us are in control of ourselves.?

REALLY?

and the choices that others (out of our control) make often times affect our lives adversely

So, that gives YOU the right to tell ME what I may or may not do, is that it? Does that work the other way around - or only for liberal jackasses that think they know so much? I mean if I want to smoke a joint in my own home - I shouldn't be allowed to do that because it affects you adversely? Care to explain HOW?

Just once, do you think you could actually argue with the person who asked you something - and not with one of the cartoon characters of your imagination?

Just ONCE?

Oh, and thanks for ignoring all of my questions, and any opportunity of actually having a dialogue - so you could instead rant on about something that you weren't even asked. Thanks a lot. For nothing.

Anonymous said...

What he said ^^^

Is it possible that you just can't force yourself to believe that you really are in charge of yourself?

After all, how can you be blamed for any misfortune in life if it is the fault of Evil Corp Inc?

"I couldn't help it!"

"It's not my fault!"

The opposite is not a Randian power fantasy - it is called being an adult and accepting responsibility for your actions.

You are arguing the wrong point Mark. To somehow claim that -because the weather is beyond my control - none of us are in control of our own actions is either willful ignorance or non-willful ignorance.

But it's ok. It's not your fault. You couldn't help it.

dw