Category / Fun

Three quotes and an apology May 2, 2014 at 9:39 am

The resumption didn’t happen: sorry. I just didn’t feel like writing. Even the Michael Lewis/HFT thing couldn’t rouse me from my stupor, mostly because it is so obvious what you need to do to fix these issues*.

There is a three day weekend ahead. I don’t anticipate writing much any time soon, but let me at least leave you with three quotes that have amused me recently:

Happy worker’s day: I hope you get to go to the Fair.

Frozen rain

*National auctions every second or so using orders in all the markets so that reg NMS is obeyed by construction; reporting of the results of those auctions delayed at least ten seconds to stop quote fishing; minimum fees for quote submission and no rebates; dramatic simplification of order types; a small FTT.

Eurovision and redenomination risk February 17, 2014 at 10:14 pm

Coming quickly behind the news that Scotland can’t have the pound, nor join the EU, should it pick independence, comes an even bigger worry for the Yes campaign:

Scotland’s bid to join Eurovision would be opposed by countries where people can hear, it has been claimed.

As so often, the Daily Mash is your source here. Still, at least all those lawyers trying to figure out what to do with thirty year inflation swaps sold to Scottish pension funds and now referencing an irrelevant inflation rate and settling in the wrong currency can listen to the radio without the risk of hearing bagpipes.

A selective boost February 16, 2014 at 10:56 am

I am all in favour of Keynesian stimulation when the economy is in the doldrums, but £28m for a public toilet is… perhaps inefficient? Still, as anyone caught short in many UK towns knows, we do need more public conveniences. At least this approach could provide a massive boost to would-be-edgy architects, plate glass manufacturers, and young people with art history degrees and an over-developed sense of fashion.

The best of… February 14, 2014 at 11:33 pm


If we’d go again / All the way from the start / I would try to change / The things that killed our love.

Also sprach Analyst
I prefer our finances to be independent to prevent moral hazard

Malcolm Crocker
I love it when you address your structural deficits

I will always be there for you. Unless there is inflationary pressure.

Season’s greetings to all my readers December 20, 2013 at 5:36 pm

I am in need of a rest, long walks in the snow, and good cheer – you probably are too. Season’s greetings to one and all; I hope Santa brings you whatever you asked for. DEM will be back next year. Meanwhile, happy Christmas.

Yahoo unveils plan to make users hate it October 18, 2013 at 8:10 am

Typically accurate Daily Mash story. The new Yahoo mail interface really sucks.

Erudite political theory October 2, 2013 at 3:09 pm

I am acquainted with some scholarly political theorists, so I pride myself that this blog has an extremely high standard of discussion of these issues. In this spirit, then, I offer you:


BTW, I am lead to believe that US Treasuries do not have cross default clauses. That fact may, just possibly, be material in due course…

Phrase of the day August 28, 2013 at 10:32 am

gathered in all their wonky majesty from Robin Harding writing in the FT about Jackson Hole.

A summer daydream, part 2 August 1, 2013 at 6:44 am

When Alice looked up, the White Rabbit had returned.

‘This is a very strange regulation’, said Alice.

‘Not at all,’ replied the Rabbit, ‘it is necessary for financial stability. Too many CCPs are considering interoperation. Why only the other day the Ruritanian equity derivatives CCP proposed an interoperation agreement with the Atlantis credit derivatives CCP, the better to support capital structure arbitrage hedge funds. If we let this kind of thing happen, who knows what kind of economic efficiency might result. CCPs are such a good idea we need to impose a CCP for CCPs.’

‘So a CCPCCP…’ mused Alice.

‘…is a CCP that only clears intra-CCP transactions, yes, do keep up’, said the White Rabbit. ‘Their use will be mandatory in Wonderland from 2014. CCPs will have to post margin to their CCPCCP, and in return the CCPCCP will guarantee intra-CCP trades. It’s a huge boon you know.’

‘To who?’ asked Alice.

‘Why to the financial system, of course,’ replied the White Rabbit. ‘Taking trillions of dollars of derivatives out of well-capitalised banks and putting them into CCPs was so successful that we had to repeat the idea. So we’re taking most of the exposure out of CCPs and putting it into CCPCCPs with wafer-thin amounts of capital. What could possibly go wrong?’

‘Dear, dear! How queer everything is to-day! And yesterday things went on just as usual. I wonder if the financial system has been changed in the night?’ said Alice.

‘I don’t know what you mean I’m sure’ said the White Rabbit snatching up his regulation and walking off.

Suddenly, as if from far away, she heard a new voice.

‘Wake up, Alice dear!’ said her boss; ‘Why, what a long sleep you’ve had!’

‘Oh, I’ve had such a curious dream!’ said Alice, and she told her boss, as well as she could remember them, all these strange Adventures of hers that you have just been reading about; and when she had finished, her boss had a strange gleam in his eye, and said, ‘It WAS a curious and suggestive dream, Alice, certainly: but now run in to your meeting; it’s getting late.’ So Alice got up and ran off, thinking while she ran, as well she might, what a peculiar dream it had been.

DEM is now on summer break: we will return at some point later in August.

A summer daydream, part 1 July 31, 2013 at 6:11 am

In a city park, perhaps in Brussels, perhaps in Washington, perhaps elsewhere, it is hot. A regulator named Alice lounges on a park bench on her day off. She feels the heat of the sun, and, exhausted by her labours, she falls asleep…

… when suddenly a White Rabbit with pink eyes ran close by her. There was nothing so very remarkable in that; nor did the regulator think it so very much out of the way to hear the Rabbit say to itself, ‘Oh dear! Oh dear! I shall be implementing late!’ (when she thought it over afterwards, it occurred to her that she ought to have wondered at this, but at the time it all seemed quite natural); but when the Rabbit actually took a draft regulation out of its waistcoat-pocket, and looked at it, and then hurried on, the regulator started to her feet, for it flashed across her mind that she had never before seen a rabbit with either a waistcoat-pocket, or a draft regulation to take out of it, and burning with curiosity, she ran across the field after it, and fortunately was just in time to see it pop down a large office door under the hedge.

In another moment down went Alice after it, never once considering how in the world she was to get out again.

When Alice got inside, it was all dark overhead; before her was a long passage, and the White Rabbit was still in sight, hurrying down it. There was not a moment to be lost: away went Alice like the wind, and was just in time to hear it say, as it turned a corner, ‘Oh my ears and whiskers, how late it’s getting!’

When she came near the Rabbit, she began, in a low, timid voice, ‘If you please, sir—’ The Rabbit started violently, dropped the regulation, and skurried away into the darkness as hard as he could go.

Alice picked up the document. “The Regulation on Central Counterparty Central Counterparties” it was titled. “At the September 2009 summit in Pittsburgh, G20 leaders agreed that all standardised OTC derivative contracts should be cleared through a central counterparty (CCP) by the end of 2012. However, there are now a multiplicity of CCPs, and information concerning them is usually only available to the contracting parties. CCP interoperations threaten to increase counterparty credit risk, interconnection and market fragmentation. Just as CCPs are the solution to these problems in the bilateral OTC derivatives market, so central counterparty central counterparties (CCPCCPs) are the solution to CCP interoperation. This regulation sets standards for CCPCCPs. Moreover, as incentives to promote the use of CCPCCPs have not proven to be sufficient to ensure that intra-CCP exposures are in fact cleared centrally, mandatory CCPCCP clearing requirements for those CCP exposures that can be cleared centrally are therefore necessary.”

Curiouser and curiouser thought Alice.

To be continued…

Giraffe diving May 6, 2013 at 7:58 pm

It’s a holiday here in the UK so I feel the need to give you something a little lighter than usual. And what could be lighter than giraffes leaping into the air and executing perfect dives?

Unfair but funny April 6, 2013 at 9:34 am

That most authoritative of news sources, the Daily Mash, has drawn their own conclusions from the HBOS report:

A DAMNING report into former bank bosses has raised the question of whether anyone should be allowed to work in finance.

As the banking standards commission suggested three former HBOS directors should be banned from the industry, experts said the men had been greedy and very bad at their jobs, just like absolutely everyone else who does this kind of thing.

Julian Cook, chief economist at Donnelly-McPartlin, said: “Acres of empty office space. You may as well graze sheep at the foot of the Shard.

I think this is a very bad idea. The Shard is tall, and it will block the sheeps’ light, leading to depressed baa-lambs. Grazing sheep at the top of the Shard is a much better idea.

A typically considered, serious DEM link January 11, 2013 at 2:40 pm

The Jack Lew signature generator.

Answers, round 3 December 13, 2012 at 9:43 pm

Here are the answers for the regulation round.

  1. Yes.
  2. Probably 100% as there is no ruling in the text, so the default is ‘other’. Whether this was intended or not is unclear.
  3. Residential mortgages.
  4. 1 day and either 5 or 10 days depending on whether the swap is cleared. Can we all say `futurisation’?
  5. 0.56% of market value, i.e. 7% risk weight. Which is shocking.

Happy holidays.

Answers, quotation round December 12, 2012 at 11:27 pm

Simon H did the best job on this round, but many other people did well too.

The answers are:

  1. The correct answer is the BCBS and IOSCO, as BCBS 226, Margin requirements for non-centrally-cleared derivatives, from which the quote comes is jointly authored by those two bodies (hence the SEC dissent so eloquently rendered in the text).
  2. The Liikanen report – and quite right too.
  3. Jamie Dimon, explaining to analysts why changes in JPMorgan’s VAR mean absolutely nothing to anyone not privy to the full details of JP’s (ever-updated) model.
  4. This foxed all of you, I think. It’s from the Trustees on the Liquidation of MF Global.
  5. Most of you got this lovely phrase, originally from MacKenzie and Spears’ LRB article, subsequently commented upon across the blogosphere.
  6. Euro area summit communique promising much, delivering little, as usual.
  7. This is Mark Carney, soon to be governor of the Bank of England. Interesting.
  8. No one got this: it was from Markus Ferber, German MEP and member of the ECON committee. One can see his point.
  9. Comedy line one came from Ron Paul.
  10. Comedy line two came from the Daily Mash.

Answers, picture round December 11, 2012 at 11:26 pm

The picture round was pretty easy, mostly.

Shot 1 was indeed sunrise over Logan airport, outside Boston.

Shot 2 was the BIS, HypoVereinsbank (now part of Unicredit), and Goldman. Unicredit continues to have a rather low price/book ratio (around 0.35 when I was writing the quiz); Goldman’s ability to keep the lights on during Sandy when others could not generated some comment.

The plaque in shot 3 is at the FDR memorial in Washington DC. The connection with Sandy Weill is Glass Steagall: FDR enacted it, while Sandy recently opined that it would have been better if it had not been repealed (by the Gramm Leach Bliley Act Weill campaigned so hard for).

Light posting – and a quiz to keep you (somewhat) amused December 6, 2012 at 6:16 am

I am trying to finish something, so things will be a little quiet here for a while. I’ll also be travelling, too, so let me leave you with sunrise over the Eastern seaboard* and a few other things besides. The DEM seasonal quiz consists of three rounds.

Picture round.

1. Which airport is this?

The sun rises in the East

(Hint: 071-00-23)

2. Name the banks**.


For extra credit, why is the price/book ratio of the middle one unusual, and what was the controversy concerning the scene depicted in the last picture?

3. Where is this?


For extra credit, what’s the connection with the recent conversion of Sandy Weill?

Quotation round. Identify the sources of the following quotes:

  1. “While there was broad consensus that re-hypothecation or re-use of initial margin should be
    prohibited in order to ensure that property would be readily available to derivative counterparties if the receiving firm failed, the US SEC has raised a question as to whether re-hypothecation or re-use of initial margin should be permissible”
  2. “History has shown that many systemic banking crises resulting in large commitments of public support have originated from excessive lending in real estate markets. This has often been coupled with funding mismatches and over-reliance on wholesale funding. The current levels of RWAs based on banks’ internal models and historical loss data tend to be quite low compared to the losses incurred in past real estate-driven crises. The EBA and the new single euro area supervisory authority should make sure that capital adequacy framework includes sufficient safeguards against substantial property market stress (e.g. via robust floors on the RWAs calculated by internal models).”
  3. “VaR models change almost every time we talk”
  4. “The loss of counterparties and increased haircut demands further exacerbated liquidity strains. In addition, throughout the week, securities that could no longer be funded through third-party repos market were left “in the box” at DTCC, BNYM and JPMC. The excess box collateral, as depicted on the Liquidity Dashboards, increased from $119 million on October 21 to $606 million on October 26. No funding in the market via repos or stock loans (as normally done) was available for these assets… At the same time, during the last weeks of October, the cash created within the repo matched book began to decline because counterparties demanded greater haircuts”
  5. “A ‘hedge’ is not a self-evident feature of the world, but a contestable cultural category.”
  6. “We affirm that it is imperative to break the vicious circle between banks and sovereigns.”
  7. “In particular, we must address, once and for all, the unfairness of a system that privatises gains and socialises losses. By restoring capitalism to the capitalists, discipline in the system will increase and, with time, systemic risks will be reduced. In addition, the knowledge that major firms in markets far away can fail, without meaningful consequences at home, will restore confidence in an open global system.”
  8. “We had some discussion about this issue, but there was no-one able to explain to me why there should be a totally different approach for FX markets in comparison to other markets. Of course I’ve learnt what the US did during the weekend – they will not include FX swaps in the Dodd-Frank regime. But that is the US approach. For the moment I don’t see any need to have another approach for FX at the European level.”
  9. “The Federal Reserve should be abolished because it is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty.”
  10. “Credit rating agency Standard & Poor’s has upgraded itself to Triple-A Plus Super Fantastic”

Regulation round.

  1. Under the Basel III capital rules, if I buy CDS to hedge my CVA from a counterparty with whom I have no collateral agreement, does the hedge attract CVA capital?
  2. Under the Basel III liquidity rules, what is the RSF for derivatives assets in the NSFR?
  3. Which asset class showed the largest reduction in capital requirements in the move from Basel I to Basel II?
  4. What is the margin period of risk for futures in the US? For swaps? Given this difference, what could possibly go wrong?
  5. What is the capital charge for AAA-rated non-granular senior ABS under Basel 2.5, assuming that the security is not a re-securitisation? Given that assets like that caused the biggest financial crisis in two generations, how do you feel about that?

Answers in the comments please. There may be a prize if (a) I can think of something suitable; and (b) the replies are impressive or amusing enough. Google if you want to, but it’s probably more fun to try guessing first.

* You are right, I didn’t say which country this airport is on the Eastern seaboard of. And was the American plane included to further confuse?

**Picture credit for the one on the right, Julia C Reinhart.

Where to find CCP financial resources November 21, 2012 at 6:56 am

As it turns out, a few miles from Belfast:

Benchmarking the snow

Best logo for a quantum mechanics course ever November 11, 2012 at 4:37 pm

From Umesh Vazirani’s Quantum Mechanics and Quantum Computation on Coursea:

Superposition of cats

East London from the air (line) November 4, 2012 at 2:06 pm

Some friends visited yesterday and we tried the Emirates airline for the first time. Interesting views.

East London HDR

One interesting thing about suddenly having hundreds of thousands of tourists passing over them is that it has clearly made some businesses clean up their yards. Look how neat this is:

East London HDR