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Wall Streeter's Lament Volcker Rule: "Liquidity Is About To Be Sacrificed At The Altar Of Ignorance & Fear"
Another perspective on the Volcker Rule via Colin Burgess of Sterling, authoried by Anthony Peters of SwissInvest
Mario's Law and Volcker's Pandora's Box
Today, Tuesday, is a day rich in headlines from across Europe which confirm that all is well in the garden and that where things are not well they will become well.
Ireland will unquestionably receive its last tranche of bailout money because it has earned it, Cyprus will most likely receive its next tranche despite the fact that in truth it has barely deserved it and Greece continues to miss every deadline which has been set for it but will in the end surely also be found to be worthy – how can it not be?
All this is now a function of “Mario’s Law”. As opposed to Murphy’s Law which determines that whatever can happen will happen, Mario’s Law seems to teach us that whatever can happen won’t. That is the simple new reality which includes a sub-section which adds that sceptics will be flogged by rallying asset prices until they surrender. Spot the way I am holding both hands height in the air?
Meanwhile, while the UK’s Royal Institute of Chartered Surveyors (RICS) reports the highest level of optimism in the country’s residential real estate sector since June 2002 – it reported this morning at 58% – and the euro goes from strength to strength while breaking a five year high against the yen, the future of our industry is up for debate in front of Congress as the Volcker Rule threatens to be enacted into law.
It is no secret that the banks have fought very hard to prevent Volcker from taking effect but it looks suspiciously as though it is now game over and the industry in which we are working will, if it is introduced in the format which is proposed, never be the same again.
I am still of the generation which came into banking because we were not smart enough to get a proper job. The cream of the graduate population either competed for a slot on the British Antarctic Survey or for one of the highly prized positions as a graduate trainee in marketing with one of the principal consumer or pharma groups. The big queues at the graduate job fairs were at the stands for Shell, BP, Unilever, Proctor and Gamble, Coca Cola or Kodak. Banking was for those left over and who neither wanted to join the army or enter the church. Bank shares were for boring pension funds and figured somewhere with utilities, in as much as any of those were listed and not still in public ownership.
Luckily for me, I defaulted into a twenty five year period when banking lit up like shooting star. Deregulation of markets and the creation of so called "products" based on mathematical modelling drove the industry forward and even the smallest boats rose with the tide. Wall Street and the City found themselves full of people who believed that they were worth what they were being paid and the queue of those who wanted a part of it stretched all the way to Oxford and Cambridge and to New Haven and the other Cambridge. If you had a PhD in astro-physics or theoretical chemistry, you simply had to be perfectly qualified to advance in banking. My degree in politics and modern history might have helped me get a slot on the reception desk, no more.
Alas, the growth of the derivative markets along with relatively generous capital rules helped to boost bank earnings and with that their ability to lend. Lending led to growth which fostered further lending and further growth and the miracle of rising living standards which took off in the late 70s/early 80s under Reagan and Thatcher but which was funded more by easy borrowing as it was by higher productivity was up and running.
"Ordinary people" could aspire to possessions they had never been able to dream of before and in their hubris they never appreciated how much they were paying in fees and interest in order to buy the goodies they packed into the house which, in the end, they bought as well.
The culture of estimating how much debt service one could afford was born and with it the culture of worrying how one could ever repay what one had borrowed died. And the banks, bless them, encouraged the nonsense. That's right; if you don't ask borrowers to repay, you reduce the risk of default. Simples!
The entire socio-economic model is now built on this and, whether right or wrong, it demands a very different sort of banking that the "pay 3% on deposits and lend them at 5%" kind of industry which I came into and which prevailed until the late 1970s or early 1980s.
Volcker seemingly wants to go back to the world he oversaw as Chairman of the Federal Reserve but Pandora's Box has been opened and it can't be sensibly closed, post factum. Bond markets are not equity markets and they don't always have buyers and sellers afoot. Bonds tend to be all bid or all ask and the efficiency of the market is based on the banks' ability to act as a huge reservoir taking up the slack in both directions. This is not a matter of simply playing the intermediary - bond markets need much, much more than that in order to function in a manner which protects the ultimate investors', that's the savers' and policyholders' interests.
Minimum clip sizes of 100,000 units or more have driven small private investors out of direct participation bond markets and into institutional funds but these need forms of liquidity which the Volcker Rule risks effectively out-lawing. Sure, many of the trading patterns of the first decade of the century were reckless and crazy but higher capitalisation rules have taken care of most of this. Volcker risks over-egging the pudding and, to mix my metaphors, killing the goose that lays the golden egg.
I have no doubt that investment banking in general and fixed income in particular are still overpopulated and rife with people who still believe that a job in the industry is a free ticket to get rich quick. However, banks and brokers are in the natural Darwinian process of right-sizing and to do that they don't need the Volker Rule. Yet, it is difficult for people outside our industry to truly understand all the mechanics and drivers within it and if they are fuelled by the desire to perform populist legislative acts which they can carry to the hustings or, as Americans say, to the stump, then even less.
I see trouble ahead if Volker is passed and a decade in getting it right again. Liquidity, the holy grail of markets, is possibly about to be sacrificed on the altar of ignorance and fear.
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Time for the industry to change. Sorry that won't work out for you.
If this begins to reign in off exchange derivatives, this rubbish of too big to fail will collapse in a pile of steaming wookie doo pretty quickly. Big if, but we should see adjustments in risk management soon. Gawdhelpus.
Thinkin you got 10 years is ignorant.
WTF? This guy nostalgically remembers the more sensibke banking culture of yore, but censures Volker for attempting to reinstate it?
Offer a fuckin reasonable alternative if that's your position, dont just shit on others proposals
"..they are fuelled by the desire to perform populist legislative acts..."
FUCK YOU WALL STREET
Volcker risks over-egging the pudding and, to mix my metaphors, killing the goose that lays the golden egg.
Funny, the banksters got all the golden eggs while the rest of us got shat upon. Then they got bailed out. When was the last time you got bailed out?
"Alter of Ignorance and Fearful"
This is integral part of Obama cult of personality, no?
"However, banks and brokers are in the natural Darwinian process of right-sizing and to do that they don't need the Volker Rule. "
Where does TARP and TBTF fit into "natural Darwinian process?" Give me a break, this guy basically states he is unqualified and not smart enough to do anything besides squid fuck the US economy via prop trading with other people's money, then goes on to beg us not to change anything or he might have to get a real job.
yep, that's pretty much how i read that as well......sorry bro, the casino SHOULD be closed.
There's always herbal tea and sharp needles.
My experience with the Street taught me one thing certain.
That changes to laws and regulations are but a feast for the Street.
Change the paradigm by which a one operates, the result will be new offerings and means of transactions.
To wit: Back in the olden days, deposit ceiling caps were becoming a problem, viola, the Certificate of Deposit, the Mutual Money Market Fund, etc.
It don't take long.
A more modern twist as oft pointed out here on the Hedge, just say no to prop and call it flow.
Daddy, what's a hedge?
Anything I say it is, son.
The Only Thing That Work is a Clear Separation of Investment from Commercial Banking, a la, Re-imposition of a Clear and Real Glass Stegal. Not to mention the Investment Banks being removed from the Fed windows, etc....
Let them suck canal water
waaaaaa, I got sore pussy from that 8 foot tall bald guy with a rule book.
When the derivatives timebomb explodes...expect him and his buddies to be engaging in a sport not seen since 1929.
http://i.stack.imgur.com/EAskp.jpg
We aren't that lucky. I am hoping for a Howard Beale moment though.
Get a real job cocksucker! One that has some value to society.
Like, sucking cock!!!
The only thing that may be sacrificed is ridiculous bonuses for socipathic prop traders...
Unfortunately, they'll just call it something else, change the lines of oversight and authority, whatever...
Hard for the regulators even when not subsumed by the financial community to keep up with the "innovations" of sociopaths to have fun and make money.
Honey, who can we screw?
How about our buddies?
Like Goldman who so ruthlessly protected their IB clients way back when...
Now they're just part of a Big Grand Muppet Pile for Fucking
The rule doesn't even do anything.
Belief/Hype: "If enough detailed regulations are passed, no economic disasters/victims will occur."
Reality: Actually true, but because all legal economic activity will cease.
People were engaging in commerce long before the culture of regulation came into being. There is a reason the black market exists.
Is there a rule about the rule that says that Banks can't own a trading company?
Shouldn't be too hard to get around these good ol' boy rules...
In the words of my father, "NIGGA PLEASE!!"
paul mooney is ur dad?
No, bitch. His name is many, you might know him as the I Am, Mr. T, or Jesse Pinkman.
nigga please....
dayum straight!
dont make me slap a bitch.....and im sorry u are not sure who ur daddy be...but at least yu have it down to 3...maybe maury can figure it out for you...power to the people...
Dumb As%.
Cry me a river...
The banking business model where bankers invest people's hard-earned savings in all sorts of dubious schemes like subprime loans, reap in profits and bonuses, and then go crying to the government for a bailout when their stupid schemes go bust needs to end.
Bankers said Glass-Steagall was outmoded and unnecessary. But look at what happened less than a decade after it was eliminated.
IMHO, the start of the downfall of the financial sector was when the first investment bank went public. The industry was a lot more focused on risk when the owners had their money on the line, rather than just creating financial instruments designed to produce the largest bonus payout.
BTW, when do we officially change from Fuck Bernanke to Fuck Yellen.....or do we have to wait for the official passing of the crow......er....torch?
making fraud more difficult in a fraudulent economy risks destroying the fraudulent growth.
No fraudulent growth...no real bonuses
But seriously, anybody believe the banks don't already have built in back doors, exemptions, and a 1001 ways to get round any small speed bump.
Could have just said: Please don't shut down my Casino!
I dunno. Seems the banks have it pretty well watered down already. Probably even more so by the time it goes live 18 months from now.
Still I agree it's just a stupid law with even more stupid regulations if for no other reason than it DOES NOTHING TO PREVENT ANOTHER CRISIS. Just more compliance in the name of "getting something done."
If we only had a system were we could separate boring commercial banks from riskier investment banks. AND LET THE LOSERS GO BROKE WHEN THEY SCREW UP. Ah, who cares any more at this point? Do whatever you want. Just stop bitching to me about it. If you're in the banking industry your bleating of imminent doom falls of deaf ears with me.
stop playing in the stock market and you have liquidity for bonds, banker. in fact, stock markets don't need you, banker. you practically admit it. become again facilities, banks. boring facilities
eventually, you will. You know it, it's not the first time in history
Lending does not lead to growth.
Lending is a tool in a tool box; it is not the toolbox nor the hands that use the tools to produce something.
When you have a government that gives free money to non-producers you have a parasitic economy.
When you have a nation of paper pushing mammon lusting parasites - lending facilitates parasitism.
The parasites have flourished as the middle class and the soul of the nation have been bled.
Restore Glass-Steagall, the Rule-of-Law, and the Constitution to start.
The Volcker Rule is meaningless paper and hollow words.
The Volcker rule is and always will be another nothing..delayed implemenation and a far cry from the forgotten about "TEMPORARILY SUSPENDED" Mark to market. Just a smoke screen. The end result will be a violation of the "Rule" will be a 1% fine on the illicit gains. This Ponz is going to come down long before the rule is actually implemented...at that point with the 10 Year @ 3.50% it will be time for this band of cronys to attempt to shove TARP 2 down the American peoples throats.
And once again we will hear "NOBODY SAW IT COMING" as they jetpack away to the Azores and their fortified castles to allow the population to pull a Greece on one another. We all said this is a bubble that would be reflated because it must be and become the bubble to end all bubbles years ago and those responsible will be in their life boats and that is why the goal is too accumulate as much wealth and erode as much law as possible such as Posse Commitatus to prepare the private security, military and police potentially in return for the elites illgotten gains to "QUELL THE REBELLION"...
Yeah..it is gonna be bad and Tarp signed the U.S. death warrant years ago..there is no coming back for decades.
Yeah..it is gonna be bad and Tarp signed the U.S. death warrant years ago..there is no coming back for decades.
Crud.
NAFTA was the US death warrant.
OK, you want to outsource production. That means a lot of middle class jobs are going to other countries. They get the export income, plus there is doubtless some tax income. The US, in the meantime, LOSES tax income.
You can keep this going for a while, but essentially it's looking for the Philosopher's Stone so you can turn base metals (low capital service industries) into gold, or at least more BernankeBucks. Eventually the market destruction exceeds the cost savings, especially as the loss of tax revenue means water, energy, roads, and other public-use infrastructure falls apart.
Some people say the definition of insanity is doing the same thing and expecting a different result. What happens when you do the same thing -and you DO get different results? Think about the paradigm "Layoffs save money, which increases profits." What happens when the appreciation for the scale of the "solution" is lost?
Wait, is this prick fear-mongering about liquidity?
Yeah, I think he is, Nid. He's got some balls on him, doesn't he?
And, it would seem, claiming that without derivatives we'd be in the stone age, riding horses and crapping in an outhouse.
I've known people who have lived in Washington DC and have seen first hand Beltway Syndrome. By the tenor and tone of missives written by banker insiders, it would seem Bankster Syndrome may be worse. Their narcissistic tendancies, claiming armageddon if their profligate schemes are in any way hindered, is truly breathtaking....and disturbing.
if you cant find yerself some liquidity in this QE driven farce you are a total loser crybaby wanker banker dickhead
Legislate these fuckers out of work. I have more respect for whores.
"I am still of the generation which came into banking because we were not smart enough to get a proper job."
Why don't you look at the fucking mess you and your dumb fucking freinds have made of everything all in the name of pure greed.
After reading this, the only non cussing thought that comes to mind is that this is why there will be violence. They just don't get it and will not get it.
Where ignorance is bliss, 'tis folly to be wise.
i see what you did there
Wha, wha, wha. And by the way "bond markets need much, much more than that in order to function in a manner which protects the ultimate investors', that's the savers' and policyholders' interests."
My bond funds have been paying interest so low I will be broke in a decade at this rate. Some protection of MY interests.
What this country needs is Hyper-Inflation plus another World War and everything will be just fine.
Another crock of shit article from inside the Casino.
The article began as a very subtle satire, but in the end seemed to start believing itself.
http://en.wikipedia.org/wiki/NESARA
Or Go Home!
Nothing else will work.
Everything else is a pyramid scheme or a supermoney scheme.
You either have NESARA style laws.
Or
You simply have NO LAWS (what we have now).
Its your choice America, Nesara or Lawlessnes.
All that needs to happen for Nesara to take effect is for the Government to Nationalize the Fed and Peg Dollars to Silver at say 100 Dollars to an Oz/*16 for gold
And to wipe out the balance sheets of banks before the transition.
"[NESARA] would result in 0% inflation and a more stable economy."
But...but...inflation is growth, I was told. Growth sounds good. Isn't growth good?
Yes! says the cancer cell.
Sometimes people have a hard time understanding what reality is. Over-all growth is D-E-A-D.
OK, everyone, let's all join in a chorus (to this guy) of "Jump fucker!"...
The Volcker Rule is the "concession" made by two players on the same team in their weak attempts at pacifying the rage from we few taxpayers actually paying attention to their thefts of the past 7 years! or 30 years depending upon the subject. No different than what happened as the Detroit, etal, City Leaders and Public Unions coopted that supposed "adversarial" process.
If they wanted to fix all that is wrong with the industry, and world today, they would:
1. Reinstitute Glass-Stegall and its' 37 pages of simple doctrine;
2. Mandate Mark-to-Market Accounting and NO Off-Balance-Sheet Vehicles for anyone;
3. Recognize and Enforce The US Constitution and The Rule of Law;
4. Try and Imprison clear violators like John Corzine, Andrew Mozillo, Hank Paulsen, and All CEOs of the Big 6 Banks / PDs.
Heck, all that is happening now is the Big 6 are tading "up-stairs" as they say.....off market. They will still crater the whole world one day!
Sanity and restoration of the free markets is NEVER gonna happen voluntarily as All 548 are corrupt. Only hitting the wall with US$ Collapse will create opportunity to pickup pieces and start anew. God I hope we have enough folks paying attention as to the causes such that what replaces the sh!t we have now will have fiat and bankers extinguished or playing different, restricted deposit / lending with no leverage roles.
All of this on top of fiat is like whipping cream on top of dog shit.
The System cannot operate w/o growth. Ain't no fixing it (unless we cull huge sums of people [not advocating this]).
Sorry pal.
Outback Steakhouse already grabbed your motto.
"No rules...just right."
How bad is this for the WS banks?
There stocks went up when the rules were made public.
That says it all.
We can all chip in and send the bank cartel a large box of kleenex from Walmart.
Don't piss up my back after drinking a case of schlitz you stole from my fridge and call it liquidity.
what a little crybaby bitch! waaaaaaa
A poorly-written plea for all gain and no pain.
All I see different is the prop desk will become an hourly position at a higher pay grade.
a little cheese with that whine?
If THAT were true, if Darwin [social] was not at least temporarily suspended for bankers (for the last ~100 years), at this time there would be mayhem and bloood running in the streets, with every lamp reinforced to support an iron maiden or gibbet...
"However, banks and brokers are in the natural Darwinian process of right-sizing and to do that they don't need the Volker Rule. "
Where does TARP and TBTF fit into "natural Darwinian process?" Give me a break, this guy basically states he is unqualified and not smart enough to do anything besides squid fuck the US economy via prop trading with other people's money, then goes on to beg us not to change anything or he might have to get a real job.
If this guy is saying "liquidity is at risk", I would like to know specifically what liquidity? Are we talking individual stocks like Google? Or is it futures markets like the ES? Crude? ETF's? Forex? Exotic derivatives? Something else? You mean grandma trying to buy Twitter shares won't have anybody on the other side of that trade? What liquidity??
"What liquidity??"
Free drinks for pricks like him.
As a simple commercial real estate banker (of the borrow at 2%, lend at 5% variety), I welcome the Wall Street casino being shut down.
...I am still of the generation which came into banking because we were not smart enough to get a proper job. The cream of the graduate population either competed for a slot on the British Antarctic Survey or for one of the highly prized positions as a graduate trainee in marketing with one of the principal consumer or pharma groups...
I laughed my guts out at reading this admission.
Come on Volcker do something to really clean out these shit stables, or it'll be ten times worse in unruly collapse.
You can clean stables out but they are STILL shit stables.
"or it'll be ten times worse in unruly collapse."
There can be a ruly collapse? I'm not thinking that people have enough trust for "representatives" to design and execute a collapse. Or, is there going to be an actual vote put forth to the "people?" (and there's that DieBold issue/concern) I don't think that there's any such thing as an orderly crash: "crash" means a severe disruption to a system's functioning. Only possible way would be if everyone just picked up and abandoned the System, in which case one would have to ask whether, without actual particiapnts, there's really a crash or whether it's just an abandonment (as more and more people become disenfranchised it's like walking away).
... And on the eighth day he closed up shop early and hit the links he just created ...
Doing God's work is not so easy. Why Lloyd Blankfein is a good boy. He looks just like his mother, the Virgin Blankfein.
This character points to Reagan and Volcker as the beginning of the banking problems and ignores the 15% interest rates that they faced taking over from Carter and his democrat partners in folly. This sounds like more deflection rather than analysis and cheering for more keynesian crap because we can not stop now.