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Guest Post: With 'Synthetic Banking' Just Around the Corner Enjoy 'The Liechtensteiner' on 'Fed Monday'
Submitted by Vega Strategies
With 'Synthetic Banking' Just Around the Corner Enjoy 'The Liechtensteiner' on 'Fed Monday'
Swiss bankers know that the sharpest pencils in the business are wielded by the quaint and humble Liechtensteiners who run the choicest billions of the trillions of global HNW money out of their storybook village of Vaduz nestled splendidly amidst the Alps. And, lest anyone confuse such a pristine setting with a lack of 'street smarts', know that these expert practitioners in the 'financial arts' hovering there watch the Fed with the keen eye of the 'raven', studying every nuance and analyzing every utterance of the 'jujumen' of the FOMC.
Around Lindenplatz, the 'ravens' hold two 'truths' to be self-evident, that the Fed's 'quantitative easing' program represents a 'stimulus' for a most pernicious kind of 'stock market manipulation' the likes of which has never been seen before, and, that the Democratic Party's 'Dodd-Frank financial reform' represents a 'stimulus' for a most sociopathic strain of 'money manager capitalism' the likes of which will never be seen again.
Everyone knows that the Alps are the ancestral home of 'financial derivatives' and 'structured finance', that the Swiss have a taste for 'fine risk' as well as 'fine chocolate'. So it is not surprising to find a Liechtensteiner in California who has crafted the 'next big thing' in 'structured finance', coming soon to Wall Street, and it will 'donk' the 'frodd' right out of Dodd and Frank. It's called 'synthetic banking', and it's 'buy-side' in emphasis, it goes where the 'CDO', having been originated by the 'prehistoric financial engineers' at Drexel Burnham Lambert during the bygone era of 'the random walk hypothesis', born out of 'sell-side' passion, could never go, to that heretofore hypothetical state of 'continuous risk management', far more suitable to the hyperspeed era of 'the neurotic markets hypothesis', bypassing the 'superciliousness' of this 'lawyers and accountants relief act' that Frank and Dodd have wrought out of 'whole cloth'.
Though 'replicable and scalable' in any of many ways like the 'CDO' before it, according to this California Liechtensteiner, the basic structure of a 'synthetic bank' compresses into the very short-term the form and function of a 'bank' without the 'organizational risk' that weighs so hard on the Fed's 'primary dealers'. For example, a 'synthetic bank' raises $100 million in 'synthetic tier one capital securities' and sells another $900 million in 'synthetic perpetual subordinated capital securities'. This 'synthetic bank capital' is then invested on an '80/20' basis in cash Treasuries and gold bullion, transforming the 'synthetic bank capital securities' into 'gold-backed securities' along the same logic that classifies 'CHF' as a 'gold-backed currency'. That $1 billion yields cash flow at a 100-200 basis points annual rate, but also serves as the 'margin collateral' to back a large desk for 'synthetic lending' into 'beyond investment grade' credits and a smaller desk for 'synthetic trading' of 'equity derivatives' that are 'beyond economics'.
Writing $15 billion in 'CDS' on the largest and most well-managed highly-creditworthy multinational corporations generates the 'synthetic loan' portfolio, its thin premiums expanded through 'commercially prudent leverage' to generate more than sufficient cash flow to pay the holders of the 'synthetic perpetual subordinated capital securities' an 'excess excess fixed income return'. And with the 'management fees' covered by sound cash Treasuries management and smart 'gold bullion banking', the 'synthetic bank' deploys its 'synthetic traders' with a '$5 billion wallet'.
'Synthetic trading' zeroes in on 'equity derivatives relationships' where 'economics can be hedged away', situations involving the 'fundamental elements of tomorrow' and their 'higher order statistical moments' that securitize themselves into 'higher order derivatives', all of these, in such 'industries' as food, energy, medicine, semiconductors, communications, transportation, government, yes, government, and even the weapons of war, are absolutely and necessarily important irrespective of 'economic cycles'.
'Synthetic trading' is an 'engineered process', research-intensive, value-driven, and fundamentally-oriented, a prudently-undertaken transactional process with all necessary and appropriate incentives and disincentives firmly in place, along the lines of the 'post-2008' Goldman Sachs that just reported 'winning' on 64 out of 66 trading days in 10Q3. It is 'managed' in strictest harmony with the 'financial objectives' of the 'synthetic bank', there are no 'rogue traders', there is no 'noise trading' or 'lay off the losses' gambling posing as 'trading', there are no 'traders' at all, just 'synthetic traders' immersed in 'continuous risk management' with no 'exchange trading' or 'position management' costs or risks. Employing 'commercially prudent leverage' within 'continuous risk management', even a very modest 'metaphysically certain' 3% return on 'synthetic trading' generates a 100% return to the holders of the 'synthetic tier one capital securities'.
Whereas massive 'CDO' volume generated 'ultimately unquantifiable' financial risk that produced 'panic' in 2008, large-scale 'synthetic banking' activity will continuously improve 'systemic risk management' within a far tighter feedback loop beyond the fantastical capacity of any 'macroprudential regulator' conjured up by Dodd-Frank, the 'CDS market' and 'equity derivatives market' that Congress portrays as the 'bogeyman' are actually 'ultra real-time rating agencies' stripped of 'organizational risk'.
As a parade example of 'synthetic trading' consider 'The Liechtensteiner'. On Monday, the Fed, on its last legs as a credible institution, seeming more and more the 'mad dismal scientist', will 'double down' with two rounds of 'open market operations', a 'small bang' in the morning followed by a 'big bang' in the afternoon. Around Lindenplatz in Vaduz circa 2010's, where 'things are things', the 'ravens' easily reckon what market strategy is in conformity with the 'underlying strategy-of-strategies' at this market moment in time. The Fed moves the market, so they 'caw caw caw caw' about 'higher order statistical moments' and their 'higher order derivatives'. They 'caw caw caw caw' about an equilateral triangle of VIX and GVZ and EVZ, and how point KCJ makes 'the tetrahedron'. And they calculate 'the tetrahedral trade' from every possible 'financial angle' to 'maximin' the 'trade' and the 'risk'. Knowing the Fed, on 'GM Trades Again Day' last Thursday, any 'birdbrain' could have known to 'buy triangle JCJ GVZ EVZ and sell point VIX' and 'make a mint'. But this 'Fed Monday', the only trading day for the California Liechtensteiner's 'synthetic bank' of three-day tenor, it is left to 'Poe's raven' to make the 'caw caw caw caw' call to 'sell triangle VIX KCJ GVZ and buy point EVZ'.
Now go find that 'where next' prime broker probably Swiss that knows his 'higher order statistical moments' to book 'The Liechtensteiner' and watch 'the tetrahedron' generate more money than a 'gaggle' of Goldman Sachs traders 'thrashing about' in the 'really risky world' of Dodd-Frank.
'The Tetrahedron' Trade
'The Liechtensteiner'
'Fed Monday'
November 29, 2010
1015 AM 'Open Market Operations' 115PM
Short 'Triangle' VKG and Long 'Point' E
Vo VIX open Vc VIX close
Ko KCJ open Kc KCJ close
Go GVZ open Gc GVZ close
Eo EVZ open Ec EVZ close
VIX net
Vn=Vo^2-Vc^2
KCJ net
Kn=Ko*Vo^2/Ko-Kc*Vo^2/Ko
GVZ net
Gn=Go^2*Vo^2/Go^2-Gc^2*Vo^2/Go^2
EVZ net
En=Ec^2*Vo^2/Go^2*3-Eo^2*Vo^2/Eo^2*3
'The Tetrahedron' Net
Tn=Vn+Kn+Gn+En
»
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Wow.
Just when *nobody* wanted to go back into the water, it is announced the seas will be boiling in the next thirty minutes.
Well, the original "Jaws" might have been scary for non-shark people, but by the time Jaws 5 - or whatever the hell numerical joke it ended on - came around, everyone kinda grew blase about the whole rip-your-leg-off-bleed-to-death-while-screaming formula. Much the same with QE's and new derivative products, Viagra clones, CNBC talksters, hit-of-the-month financial analysts and lame books that Oprah is hawking. So, some bib-wearing horn tooters in some bumpy country within farting distance of the asshole of Europe decides to get rich with some new, new synthetic financial product...ok...let them give it a whirl while the "real" crooks back here in the US and in London figure out how to hoist them on their own creative petard. I will place my bets with GS on this one. But, you know, that whole post smells like some kind of April Fools thing....maybe it is just Durden throwing in a yellow swan to see who is paying attention, and who is just full of BS.
Does no one remember LTCM?
I was reminded of them as soon as I read, 'continuous risk management'.
This will end badly...
hehe...rocket science
Yeah...a bunch of theoretically smart assholes who went broke because they did not understand that markets do not respect intelligence nor arrogance nor pet mathematical formulas that win Nobel Prizes and pollute the brains of a generation of financial engineers. Nuff said about that....but yes, you are right in your question.
Yeah...a bunch of theoretically smart assholes who went broke because they did not understand that markets do not respect intelligence nor arrogance nor pet mathematical formulas that win Nobel Prizes and pollute the brains of a generation of financial engineers. Nuff said about that....but yes, the premise of your question is correct.
William Wright
24 Nov 2010
Investment bankers and traders are bracing themselves for a beating as they find out in the next few weeks and months what their bonuses will be for 2010. With revenues and profits down across the investment banking industry, political anger still rife, and new bonus regulations set to limit the amount of any bonus that can be paid upfront to as little as 20%, many people are expecting bonuses to be down by as much as 15% to 20% this year.
To cheer people up, Financial News takes a look back at the bonus season for 2009, when a flood of cheap money from the Federal Reserve and the European Central Bank helped propel many banks to record profits, just a year after the financial crisis.
A quick glance at the numbers for 2009 shows that it may turn out to have been a vintage year for investment bankers. Three separate sources help tell the story:
Official government figures:
Despite the bonus tax – a super tax of 50% applied to all bonuses above £25,000 – bonuses in the financial sector jumped 25% to £10bn, according to the Office of National Statistics. The UK Treasury said in October that it believed the bonus tax “curbed behaviour”, and reduced the amount that would have been paid in bonuses by 24%, but has so far not provided any evidence to back this up.
Companies House:
Pay at a number of firms in the UK also jumped. The accounts for Goldman Sachs International, the European arm of Goldman Sachs that is registered in the UK, available through Companies House, show that the compensation cost per employee increase 35% in 2009 from $493,000 to $665,000. So far this year, at group level, Goldman Sachs has reduced the amount it has set aside for compensation per employee by 29.7%.
At Morgan Stanley International, average pay per employee in 2009 jumped 24% to $303,000, and staff at Merrill Lynch International, in its first year under the ownership of Bank of America, saw their average pay in 2009 increase by 5% to an average $399,000. And staff at Citigroup Global Markets, the UK-registered arm of Citigroup’s European investment banking business, saw their pay increase by 2% to an average of $458,000.
The Financial Services Authority:
As the regulator that will oversee everyone’s bonuses for 2010, the FSA has a unique insight into how and how much people get paid. In July, when the FSA published its latest proposals to regulate bonuses (which are still waiting for the green light from European regulators next month), it included buried in the footnotes some details about how people were paid in 2009.
The FSA found that at least 2,800 people received total remuneration of over £1m at a sample of just 13 banks in 2009 – six large UK banks and seven big international investment banks. Of these, around 1,200 worked at UK banks. These people were classified as “presumed P8 employees”, FSA code for people they assumed to hold “significant influence functions” because they were paid more than £1m.
In addition, the FSA identified a further 1,500 senior executives at the 13 banks who were classified as “P8 employees”. While it did not disclose their pay, it is a safe bet that many of them will also have been paid more than £1m.
For those people earning more than £1m, the FSA found that 35% of bonuses were paid in cash, slightly down on 39% the year before, and that salaries accounted for just 9% of total remuneration, down from 11% the year before.
The FSA’s bonus rules for 2010 will cover more than 2,500 firms. While bonuses will be down by around 15% to 20%, if and when the FSA publishes the details of how many people earned more than £1m at the firms that it covers, it is likely to be a lot more than 2,800…
--write to william.wright@dowjones.com
I would say that the few the proud are looking for another market to enter on the ground floor to make up for the new tax bracket they suffer... the downward slide... They need more pushes into vigin territories Tyler to raise themselves above the Government claw backs and such!
Great read and as always Tyler Thank You! I thought that your story, plus a clear look at why people need to dream the dream of new vehicles to sell would go well together...
Black Ops Bitches!!!
Like Woody Allen, I hate reality, but it is the only place to get a decent steak.
Reality is where Willie goes to flesh-hone his sword.
If only this time we'd have a synthetic bailout.
was this a satire piece?
I really hope so. Sadly, I doubt it.
Not on this planet...lol
It has 'Onion' written all over it, 'no'?
That was I was thinking as well trav.
Complete gobbledy-gook, and who would want to get into all that?
Was that a serious question?
Yes, but that we actually have to question whether it was intentional or not (I sure did) is telling...
There were quite a lot of quotes. It read like a ransom note cut out of a sunday newspaper.
"Though 'replicable and scalable' in any of many ways like the 'CDO' before it, according to this California Liechtensteiner, the basic structure of a 'synthetic bank' compresses into the very short-term the form and function of a 'bank' without the 'organizational risk' that weighs so hard on the Fed's 'primary dealers'. For example, a 'synthetic bank' raises $100 million in 'synthetic tier one capital securities' and sells another $900 million in 'synthetic perpetual subordinated capital securities'. This 'synthetic bank capital' is then invested on an '80/20' basis in cash Treasuries and gold bullion, transforming the 'synthetic bank capital securities' into 'gold-backed securities' along the same logic that classifies 'CHF' as a 'gold-backed currency'. That $1 billion yields cash flow at a 100-200 basis points annual rate, but also serves as the 'margin collateral' to back a large desk for 'synthetic lending' into 'beyond investment grade' credits and a smaller desk for 'synthetic trading' of 'equity derivatives' that are 'beyond economics'."
Qualitative restrictions to the types of offset credits that will be accepted after 2012 are set to leave 530 million credits 'homeless'!
YEAH! BABY!!
"WTF" "quotation" "spasms" "?"
Minor quibble, and I'm not usually a stickler for form over function, but could have used a lot less of the single quotation marks. Slowed down reading a fair bit.
Oh dear. I am going to double down with a bottle of Teachers.
Zero sum game.
"Everything old is new again..."
"Blessed are the young, for they shall inherit the national debt"
-Herbert Hoover
"It shows nobility to be willing to increase your debt to a man to whom you already owe much.”
-Cicero
“Debt is the slavery of the free.”
-Publilius Syrus
it is amazing how the usury class has succeeded in overcoming literally thousands of years of accumulated wisdom - gained through experience - as to the impropriety of going into compound interest debt.
Wow!! I just got the same rap from a con on the corner of 4th and Vine...to the word. Things move so fast these days!
damn those pesky Liechtensteiners
Speechless ... just, wow
Because also, you could take this a few steps further, make these entities free-floating, stand-alone, time-elastic ... just, wow.
ps: Tetrahedron, beeery niiiice, and best thing about it, works no matter how you flip it over ;)
Some things are elegant, however twisted
can we have a picture of Vaduz
Everything will be fine.
Look how big it is.
How unthinkable that such a thing could sink.
Or cause collateral damage.
Here's a 2 minute tour of Vaduz:
http://www.youtube.com/watch?v=WikwAjyC-eU
Ah, my mistake on the reference.
Yes, very picturesque.
God, that was funny! I can't wait for 100th generation derivative products. Just chop 'em up and Moooooooo-ve out, wheee dooggie!
You just know these comically evil fuckers are gonna get shot in the end.
you people should quit laughing and start taking this as serious as the writer intended
this is no joke
C'mon, it's derivatives of derivatives of derivatives--where's your sense of humor?
The already known generations of derivatives were absurdly fatal already--now this is just plain funny!
It's like Scott, Dr. Evil's kid, has finally inherited the family business.
so you say, just run the formula through the paper weight you're typing on
Damn, tough crowd. Are you a Liechtensteiner? ;-)
Actually this sounds like what they've been doing all along.
Liechtenstein is pretty cool, wedged there between Switzerland and Austria. They use the Swiss currency, are out of the EU, their people multi-lingual and helpful if you do not read German.
And they are adopting the 12.5% corporate tax rate which Ireland is about to lose, as the Emerald Isle now submits to EU supervision.
Though 'We are the new Ireland!' will not be one of their marketing slogans in Liechtenstein.
The 1000-franc Swiss currency note (worth about 1000 US fiatscos or about 750 get-'em-while-they-last euros) is the highest denomination major currency bill to carry. (There are still Canadian $1000 bills circulating, but they are not printed anymore.) For fiat cash, the Swiss 1000 franc notes are cool, smart money.
Being in Leichtenstein with Swiss 1000-franc bills in their wallet, having a nice dinner overlooking the hills and trees, after visiting their 'company headquarters', is where you'll find some people who have very quietly 'made it'.
Looks like the "Fix Is In"...
LOL.....
Leave it up to these guys to belly up to the bar at the last minute...
Nov. 26 (Bloomberg) -- Irish officials raced to complete a
deal for an international aid package before financial markets
reopen next week with talks centering on the status of
bondholders in Ireland’s largest banks.
Euro-area finance ministers plan to finalize an agreement
on Nov. 28 at a teleconference starting at 4 p.m. in Brussels, a
European Union official said on condition of anonymity. Senior
bonds of Allied Irish Banks Plc and Bank of Ireland Plc slumped
today amid concern the government will force holders of such
debt to share the cost of bailing out its financial system.
The need for speed in securing a deal for Ireland is
growing amid an outflow of funds from its banks and as investors
dump the bonds of other European governments on concern they too
will be infected by the sovereign debt crisis. As officials from
Portugal and Spain rejected speculation that their economies
would also need saving, the average yield investors demand to
hold 10-year debt from Greece, Ireland, Portugal, Spain and
Italy today reached a euro-era record of 7.56 percent.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=asHMUvGw53kg&pos=2
'OK, OK....Ireland, Portugal, Spain and Italy, But afterward that's it!!"
"READ my lips: NO NEW BAILOUTS!!"
Lichtenstein-branded High-Frequency-Synthetic-Higher order derivative-Income-Trading (HFSHIT)
Those guys in Liechtenstein aren't so smart.
The other day I tried to pay for a lap dance with some of that synthetic money. I explained to the dancer (I think her name was "Goldie Sachs") the nuances of synthetic banking and how rich she was going to be if she gave me one of her "Wall Street Specials".
It didn't seem to resonate with her.
Goldie and the bouncer beat the living daylights out of me.
You got the daylights beat out of you, they live in the Alps... Who was it again that wasn't so smart?
I'm having a very hard time believing that this is a computer translation of colloquial Swiss German. It looks like the kind of tangential reference joke line that Mark Twain liked to use.
If only these evil genius dufuses spent half the mental energy figuring out a way to bring value-added production back into the States...
K.I.S.S. and yes that would be keeping it simple and would of course fix what we are suffering from... but lets wait until we have squeezed everyone we can for as much as we can, before we fix everything.
+ bookmark for (in)digestion
Thank you, my head now hurts.
The FOMC will be extending the US Dollar Liquidity Swap Facilities between the FRB, ECB and SNB to maintain liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers in anticipation of 'The Tetrahedron' Trade.
Now we know what that Large Hadron Collider is really all about; to suck the existing physical universe into one giant black hole and create in its place a virtual universe with everything in it governed financially by one giant mathematical correlation function. It’s alive Dr. Frankenstein, IT’S ALIVE!
Isn't there some way we can get these so-called geniuses to board a (one-way) rocket to the moon whereupon they can "convert" green cheese to greenbacks??
C'mon CERN, suck these guys into a "monopoly-money" parallel universe! (PLEASE?)
It is the financial version of the Retro Incabulator!
http://www.youtube.com/watch?v=RXJKdh1KZ0w
Swiss bankers know that the sharpest pencils in the business are wielded by the quaint and humble Liechtensteiners who run the choicest billions of the trillions of global HNW money out of their storybook village of Vaduz nestled splendidly amidst the Alps. And, lest anyone confuse such a pristine setting with a lack of 'street smarts', know that these expert practitioners in the 'financial arts' hovering there watch the Fed with the keen eye of the 'raven', studying every nuance and analyzing every utterance of the 'jujumen' of the FOMC.
That was sublime. Any o' you A-holes ever take the time to stop and give a cyber-5 to our man TD?!
'storybook village of Vaduz nestled splendidly amidst the Alps'..., 'fine risk and fine chocalate' and some fine #$%@ing reportage.
Gotta give it up--that was some gloriously inspired writing! Too bad there's no Financial Onion.
Seems like we need a "Defense against the Financial Arts" teacher at Hogwarts, STAT! :>D
Somewhere around the third line, my brain started to hurt. Do you mf'ers actually understand this piece? Shit
To simplify:
Schmuck in Cali want's $100M of our money to play leverage games and lose big after squirreling enough away to by his own place in Vaduz, Lichtenstein.
"Writing $15 billion in 'CDS' on the largest and most well-managed highly-creditworthy multinational corporations generates the 'synthetic loan' portfolio, its thin premiums expanded through 'commercially prudent leverage' to generate more than sufficient cash flow to pay the holders of the 'synthetic perpetual subordinated capital securities' an 'excess excess fixed income return'. And with the 'management fees' covered by sound cash Treasuries management and smart 'gold bullion banking', the 'synthetic bank' deploys its 'synthetic traders' with a '$5 billion wallet'.
What could possibly go wrong?...LOL.
Well...maybe so, but I find that hexahedron elements are more reliable as totality predictors of future-balanced derivatives...although I admit that their ability to be mesh-generated per scalability falls far short.
Gaahh! You're one of THEM! The "Pod People" are taking over!
The Mouse That Whored
http://www.youtube.com/watch?v=uYMuJDajujc
This article is not unique to Zero Hedge ( is here as a "guest post") and posted elsewhere on the intenet too. Could anyone give a clue as to the identity of the original source of this article : Vega Strategies ? ?
Thank You.
What the fuck are these symbols they're talking about?
I flew over Valduz once. Not much more than a stretch of highway. If you want a "storybook village nestled splendidly amidst the Alps", better look in Austria or Switzerland.