forwards from the Central Clearing requirements of Dodd-Frank ("D-F").
Tim’s words:
Treasury is today issuing a Notice of Proposed Determination providing that central clearing and exchange trading requirements would not apply to FX swaps and forwards.
The basis for Tim’s big decision was made clear in the Treasury announcement:
In contrast to other derivatives, FX swaps and forwards always require both parties to physically exchange the full amount of currency on fixed terms that are set at the outset of the contract.
Okay! Got that? Interbank FX is excluded from D-F because it requires a settlement. Unlike FX futures that have zero expectation of actual cash settlement (AKA: A bet) the FX spot and forward market requires that the parties exchange the currencies.
I think many people will like this distinction. The thinking is that if
actually delivery of a commodity or currency is required, then it is a
commercial transaction and not a bet speculation. But actually those folks don’t understand how the system works.
Tim Geithner knows how it works inside and out. He worked on the Fed desk in NY. Therefore he knows that the basis for his decision is flawed. The simple answer is that only a small fraction of interbank FX spot and forward transactions are actually settled for cash. They are netted out and settled by an outfit called CLS.
What’s CLS? A good description comes from Tim’s former employer, the Fed:
Is CLS a big deal? Does this outfit settle the lion’s share of all interbank spot and forward settlements? You bet it does. The Feb. numbers were a Multi-Trillion dollar blow out:
As a result of CLS 98% of all FX spot and forward transactions are netted out and settled with no delivery of the underlying currencies. So the argument that Tim has put forward in defense of his big choice is actually bogus. And he knows it.
Let me take you in a different direction on this. A guess on how
the D-F FX market carve-out will be exploited. Follows are three slides
of the spot/forward swap/Euro deposit rates for the AUDUSD. There are a
bunch of numbers (sorry). I circle the numbers to focus on. I’ll try to
make this easy. (Note: all currency pairs have similar swap rates)
Take the mid point of each of the swaps/rates for one year AUDUSD. Those numbers are:
Put this together.
The interest differential is 4.60% (5.43 - .83).
The swap differential is .0505, divide that by the spot rate of 1.0970 and you get 4.60%. Bingo!
Some observations on this:
a financial institution wanted to make a derivative bet on interest
rates AND avoid the central clearing requirements of Dodd-Frank they
could do it with no problem.
Ergo: Dodd-Frank has no teeth.
Ergo: We’re living in Joke Town.
I tried to post the following ling on my face book account and got the following message: This message contains blocked content that has previously been flagged as abusive or spammy. Let us know if you think this is an error.
http://www.youtube.com/watch?v=GTQnarzmTOc
Speaking of things that make you go Hmmmmmm....
<snort> You forgot who owns facebook?
Before long, anti-Keynesianism will be high treason, the minute they figure out that mocking and marginalizing is no longer effective. It's not your freedom of speech that threatens TPTB, it's everyone's freedom to listen and understand.
Thanks Bruce for that excellent read. Keep that two-faced, smarmy SOB on his toes...
Daily news like this is truly making me sick to my stomach, Armstrong is right, the rule of law is dead in America. I have a little bit of Ag/Au to protect myself but, the further we go, the more I feel even that is not enough protection. Where's that 'blue pill'? Damn, none left, gave it to my wife and kids to drink down!
Bruce - please run for office. I am so disappointed in Ron Paul. I don't think he could understand this or it's implications, nor am I sure if he did understand it if he would be able to put together a series of questions for Timmay (and RP is still the only apparent hope we have - sad). They rely on the complexity of the system to con us all. Thanks for all you do to shine the light on this fraud of a government!
Another Denninger crybaby who wants to blame the world's problems on Ron Paul? Grow up. Tune out that asswipe. Try following Mish or somebody - Denninger is a loser.
dup
I thought he made some excellent points.
Of course, the entire idea is moot but it does illustrate how the MSM is completely in bed with the powers that be.
well that explains why there are so many frustrated faces on MSM screens asking 'what is really going on?'...Their bed room life is not worth singing about...powers are not good bed fellows!!
That's not true. Yahoo said the web was a buzz about some silly hats in the royal wedding. And google trends verified that there was nothing at all about it in the top 20 searches.
Maybe you're right. Maybe all those layers and chromatic abberation anomolies meant nothing at all.
But did you hear LiLo is going to teach acting classes in jail as part of her community service? OMG! WTFE!
Denniger dwelling on photo copy dissertations of the birth certificate, he's lost it. Me anyway, gone.
Denniger dwelling on photo copy dissertations of the birth certificate, he's lost it. Me anyway, gone.
I am so disappointed in Ron Paul. I don't think he could understand this...
bwahahahahahaha
best belly laugh of the morning
Geithner has to be one of , if not the first, to go down
It is baffling that so many people do not understand that Geithner in a Bankster Mole whose so reason for existence is to serve his masters.
Imperialistic American Empire...Renouncing Empire...
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/04/imperialistic...
They've all set up a backdoor for themselves, which, above all, is used by the CIA (now under the command of one General Betrayus).
Where's Luke Skywalker when you need him, this empire needs taken out...
Thank you Bruce. Great insight!
Treasury is an executive branch department, and as we all know the executive branch is supposed to enforce the laws made by congress and and which are judged on constitutional merits and legal compatibility by the supreme court when conflict arises. But congress does often enact legislation that is either impossible to enforce, not funded, in conflict with existing laws, patently infringes upon human rights, or for some other reason can't or won't be enforced by the executive branch, headed by the president by the way, when you think Timmah stinks or Paulson stank it is really Obama and BushCo before him since that is who the Treasury Secretary answers to.
There are other examples recently of the executive branch simply refusing to enforce laws congress passed. One which most of you will not have heard of or care much about was the recent decision by the Obama administration that they cannot enforce the DOMA (Defense Of Marriage Act) because it is onerously and unconstitutionally burdensome to a significant part of Americans. Congress (radicals in the GOP caucus anyway) is saying that Obama cannot do this, he is not qualified to make a constitutional determination and cannot cherrypick the laws it wants to enforce or ignore. This is what PH29 was wondering how can the exec just change the law by ignoring it. Congress (republican leaders in the house anyway) are threatening to sue to force the Obama administration to enforce the DOMA but I doubt it will fly, after all it was the Bush administration that perfected the rule of man over the rule of law, ask Val Plame if you don't believe me.
The bottom line in any constitutional republic is that you can't force the sherrif to enforce laws he finds in conflict with other laws, or contrary to good order, or in this case simply the turf of another branch of government, one with more power, the Federal Reserve. Anyone that still thinks that the Fed is not a branch of government or that it can be audited, shrunk, eliminated, called to heel, or in any other way controlled just has not been paying attention.
The Emergency Powers decree, renewed by Obama, blurred all the lines between lawmaking and lawbreaking. It's a favored tool for all tyrants. The Egyptian form lasted 30 years under Mubarak until.....
Woodshed Bitchezzzzzzzzzzzzzzzzzz. Americans are royally fucked. Meanehile enjoy the Lindsey Lohan crap and go shopping at MACY's. Dumb Fucks running the USA to ground.
BK, a real eye opener. Thanks for the post.
Isn't it true that of the hundreds of trillions in swap contracts most are interest rate swaps
not the more popularly vilified credit defaults swaps?
Brooksley Borne where are you?
Damn, too real on a Saturday morning.
I've got to re-read this.
Thanks for the post.
The decision coming from a guy who can't fill out a 1040, you can be sure he is going to cheat the system for his fellow banksters anyway he can.
Very informative breakdown, Bruce. Thanks...
I don't like this joke.
Me neither.
DavidC
$20 bucks he still picks his nose! Another 20 he eats it!
I hear Timmay still eats elementary school paste... hence the hint of wintergreen on his breath when he screamed at Sheila Bair...
Please! I'm too busy watching Dancing with the Stars while drinking my Starbucks Moca Frappe with a shot of Hazelnut topped with Pure Whipped Cream sprinkled with those cute red things,,,,,Decaf, of course.
What time is American Idol coming on? Thanks.
We all knew DONK wasn't worth the paper it was written on but Fuck Me. Proof positive that the "Rule of Law" is dead in America. Wish I could pick and choose which laws to follow. Geithners' the kind of guy you just wanna take out back to the wood shed and pummel!
Another dead-on post by Bruce. More evidence of who serves who. Of course, there's never been any doubt with Turbotax Timmy, that he's a paid whore of the banks. Wonder why he is sticking with the puny-pay Secy job this long - maybe his deal is a much bigger payoff the longer he stays and does their bidding. Dodd-Frank left open tons of issues to be resolved (er, ah, worked out) after the fact. You'll be able to drive a semi through the loopholes. Corrupt, corrupt, corrupt. Same as it ever was.
Like Hank Paulson, Tim is banker-traitor scum.
Unfortunately most of our Congress critters don't know their ass from a hole in the ground much less a derivative.
Not really. Most of our politician are highly skilled bullshitters who know the stories to sing that causes their true-believers to parrot the same song to others. Most of them are rewarded with loot from the top 1% that own the country. It's all Kabuki. The Kabuki players REALLY know their stuff.
The trick is life is knowing who the sociopaths (predators) are and who the dumbasses (prey) are. Trust me, the politicians are NOT the dumbasses.
Yep, just another rerun of the Elephant 'n Jackass puppet show, with the same bankster cartel hands in both puppets.
Please explain to me how the Sec. of Treas. (TG) can alter a law by congress? Does this not go to the courts? Please no BS because it is Wash. or it is Timmy.
Then they can extend this definition, per this paragraph:
I can't find the exact lines that state that the Secretary of the Treasury can make the determination being discussed, but I don't doubt that its in the bill. Basically this bill is EXTREMELY long and a difficult read. Just what the banking system wanted.
Just what the banking system wrote.
There ... fixed it for you.
No congresscritter, or group of congresscritters, draft all these new 3,000-page bills. Neither the sponsors nor those voting on them even know, or care, what's in them!
Tks for this info Capt.
b
First you have a statute, then you have the promulgation of the designated enforcing body's interpretation of said statute in the form of regulations.
Under Cass Sunstein, isn't it more accurately put:
First you have a statute, then you have the promulgation of the designated enforcing body's REPUDIATION of said statute in the form of regulations?
by decree.
Duplicate
When someone lies to you, and you know they know they're lying, grab your wallet. It always means there's a con afoot, but what is it? Is it simply that the banks have the go ahead to gamble in the currency market. If this is the only sandbox they are allowed to play in, what will their manipulations so to the FX market?
Yes, but while the con's going on, something will happen in the market. What will be happening, and how do I make money from it?
Comex can't default. That's the "line in the sand." "Take delivery of the PM's? Or hand over the 10 trillion in treasuries Chicago?" What did Clint Eastwood say? "I know what your thinking punk, did i fire 5 shots or six? Well...in all the commotion...
5 star post