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.
Error
At least a 5 star! Thanks again BK!
This type of responsible analysis and clear message posting is part of a solution. IMO, it matters.
The climate has changed in the last year. Even Barrons' is beginning to discuss the issues. Congress will eventually oscellate toward better solutions.
sticky pinned front page 5 star
+6 stars (Beyond Outstanding). Timmaaaay can't hide!
Thank you, Bruce (and TD), for providing a backstage view of the magicians performing their tricks!
EVERYTHING is a bailout for the Banksters, its getting so blatant that I/m sick to my stomach. While Americans are devouring their savings accounts and retirement accounts just to keep paying their high-rate mortgages that the banks refuse to re-finance, these same Americans are expected to pay back $Trillions in over-spending by Congress? Who pass laws that have no teeth? "Asset Re-allocation", from my pocket to theirs.
You'd think BK and his readers would figure it out by now. Regulators are useless.
http://en.wikipedia.org/wiki/Regulatory_capture
This is what always happens.
Another good example of regulatory capture here:
http://healthland.time.com/2011/03/10/can-patients-get-around-the-exorbi...
Just give it up and admit your regulations are worthless and only make things worse as they are selectively enforced for the good of whoever owns the regulators.
All you are saying is that the USA today is already private gangland, the govt. being surrogate paid servants of TBTF private interests that own all assets where as THEY have officially pushed all debts they themselves created on to the public via their surrogate patsies.
We ARE in NO GOVT land right NOW as this criminal clique of TBTF private czars, have no one to prosecute their evident criminal acts. This so called central bank and Keynesian economic front is ALL baloney to hide the veritable scam. The US needs REAL honest responsible public servant government to reign in the private led scam. Not more "no government"...You see this all, you analyse and gripe about the TBTF swipe...but yo can't tell what's what!!
Why didn't we have this level of corruption when there was much less regulation?
Also I never said you had to get rid of the courts or police.
+
FX paper wheres the beef
All this is fascinating ... but how do I make money from it?
Don't know why anyone would junk this obvious question. Would like to see more ZH articles follow this script:
1. Explain latest rotten schemes of the banksters
2. Act astonished/flabbergasted/disgusted/cynical/resigned
3. Explain trades which will allow us little chumps to profit on their coat tails
Number 3 is often missing, sadly.
Short Treasury and The Fed
...there is an Ap for that: pay no taxes to the State.... the profits accrue in your pocket with immediate effect with this personal wealth enhancing scheme and lifelong payouts and benefits for you and your children
Zero Tax = Zero Govt ......and zero Bernancubus, zero Timshit and zero Bumsnake
that is the recipe for 100% mafia land and 100% serfdom...No recipe if no checks and balances. And individual citizens are sitting ducks for gangland bosses...you are in never never land.
Falek . . . . .in Fantasy Land!
...apart from your fantasy fear, have you ever been robbed or shot by the Mafia?
i don't know if you've noticed the vast collection of theives in your pocket (known as Washington), or the crooks gaming you (bailed out failures on Wall Street and other politcal 'sponsors') and the cabal of globally dysfunctional murdering thugs (Washington again!) involved in 3 wars with grande designs to take it up to 5 ???
So quite apart from Government being the biggest thief in society by far and an out-of-control mass murderer (is that not anarchy?) abroad involved in dirty tricks across the globe sponsoring terrorists, usurping democratic Govts it doesn't like, funding despots it does, snooping on your emails and bank accounts at home, the IRS getting your private income records, medical records, destroying the US property market, ruining education, turning students into debt slaves, running 2 bankrupt healthcare systems, giving your money to bailout mortgage fraud bwankers instead of jailing them and DC going bankrupt, States going bankrupt, Munis going bankrupt, pension promises going bankrupt etc etc....
Quite a long list of stupid, destructive national and international vandalism and anarchy by your beloved Govt is it not???
...so how about your fantasy fears about the private sector criminal fraternity you are scared of, what have they ever done to you?
...have you ever been shot by the mafia or a drug gang, robbed by some petty thief, snooped on by some pervert???
Tell me did Al Capone, apparently Americas biggest gangster, every shoot or rob a member of the public? How many members of the public has the Mafia shot up or robbed compared to say, the State Police? ..if you ever sat down and did some figures of real threats versus fantasy threats you'd have a 'brain dead zombie awakening moment'
Private criminals rarely harm the public (they fight each other over turf) because the public are ultimately their customers. The private sector doesn't abuse, intrude or shoot its customers, even criminals like the Mafia, Al Capone and drugs gangs
...the real criminals in society are not private sector but the organised crime of the public sector (Govt) which does rob your income all year long, threatens you with incaceration if you don't pay their extortion money, all the while patronising, bullying, spying and pissing on people at home and abroad
Maybe if you could fill your head with REALITY and not the liberal academic shit you were taught at State school that swims inanely between your ears you might be less of a total sucker and see what is fantasy and who the real criminals in society are
Try to be at least semi-awake as you go through life and semi-conscious to deal with reality as the world spins around
+++++