Collateralized Debt Obligations
In a larger sense, the Fed is already intervening in the oil sector via its zero interest rate policy (ZIRP) and its unlimited liquidity for financial speculation.Should the Fed turn the dial of intervention up by buying futures and oil-based bonds, it is not a new policy--it is simply a matter of degree. The intervention has been going on in every sector since 2008. The implosion of the oil sector is simply the latest outbreak of consequence following cause.
It's a wonderful life on Wall Street, yet here is a holiday wish list to make it even better...
Among those who’ll get to eat the losses: unsuspecting retail investors.
Is It Fair to compare this sell off to the Great Recession of 2008 and 2009?
Straight forward discussion of the key events next week. Weak on bluster. Strong on analysis. You've been warned.
It wasn’t an edgy blogger but the Office of the Comptroller of the Currency that issued the warning.
The stock market really was rigged... “It’s 2009,” Katsuyama says. “This had been happening to me for almost two years. There’s no way I’m the first guy to have figured this out. So what happened to everyone else?” The question seemed to answer itself: Anyone who understood the problem was making money off it...
“Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded.
I crush the JP Morgan Managing Director and Head of FX, John Normand, and his false-factual rant against Bitcoin. Fear, envy & loathing in seeing your bonus floating margin at cryptocurrency risk!
Earlier today, the non-profit organization Better Markets did what so many others have only dreamed of doing - they sued JPMorgan. We wish them the best of luck, as in a "crony jsutice" system as corrupt as this one - perhaps best described, paradoxically enough by the fictional movie The International - where the same DOJ previously implicitly admitted it will not prosecute "systemically important" firms like JPM to the full extent of the law and instead merely lob one after another wrist slap at them to placate the peasantry, any hope for obtaining true justice is impossible.
As we first reported one week ago, the first shadow default in Chinese history, the "Credit Equals Gold #1 Collective Trust Product" issued by China Credit Trust Co. Ltd. (CCT) due to mature Jan 31st with $492 million outstanding, appears ready to go down in the record books. In turn, virtually every sellside desk has issued notes and papers advising what this event would mean ("don't panic, here's a towel", and "all shall be well"), and is holding conference calls with clients to put their mind at ease in the increasingly likely scenario that there is indeed a historic "first" default for a country in which such events have previously been prohibited. So with under 10 days to go, for anyone who is still confused about the role of trusts in China's financial system, a default's significance, the underlying causes, the implications for the broad economy, and what the possible outcomes of the CCT product default are, here is Goldman's Q&A on a potential Chinese trust default.
So much for the strict, evil Volcker Rule which was a "victory for regulators" and its requirement that banks dispose of TruPS CDOs. Recall a month, when it was revealed that various regional banks would need to dispose of their TruPS CDO portfolios, we posted "As First Volcker Rule Victim Emerges, Implications Could "Roil The Market"." Well, the market shall remain unroiled because last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule. This is what came out of the FDIC last night: "Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule." In other words, the first unintended consequences of the Volcker Rule was just neutralized after the ABA and assorted banks screamed against it.
- Firms to Face new Rules Over Pay, Taxes (WSJ)
- US to test commercial drones at six sites (CNN)
- China’s Local Debt Swells to 17.9 Trillion Yuan in Audit (BBG) - which is about 2 trillion less than where it actually is (Reuters)
- Fears after key China debt level soars 70% (FT) and in reality the debt level is saoring far more
- Pot Shops in Denver Open Door to $578 Million in Sales (BBG)
- China Says It Will Shun Abe After Shrine Visit (WSJ)
- De Blasio Taking Office Citing Wealth Gap as Crime Falls (BBG)
- China Approves $353 Million of Share Sales as IPOs Resume (BBG)
- Obama Seeks Way to Right His Ship (WSJ)
- Netflix Tests Subscription Fees Based on Number of Account Users (BBG)
- Three big macro questions for 2014 (FT)
The rock is reality. The squishy place is the illusion that pervasive racketeering is an okay replacement for an economy. The essence of racketeering is the use of dishonest schemes to get money, often (but not always) employing coercion to make it work. Some rackets can function on the sheer cluelessness of the victim(s).
Financial innovation is a recurring theme in the NY Fed's review of historic crises. The 1720 South Sea Company structured the national debt in a way that was initially attractive to investors, but the scheme to finance the debt-for-equity swap ultimately proved to be noncredible and the market collapsed. Now fast-forward to 2013 and the five-year anniversary of Lehman's failure. As Fed Governor Jeremy Stein pointed out in a recent speech, a combination of factors such as financial innovation, regulation, and a change in the economic environment, contribute to an overheating of credit markets. So, the NY Fed asks - has the current reach for yield led to ever more complex, leveraged investments and the next credit market bubble? Or will the lessons from the Great Recession last at least a lifetime?