Zombies, police, and ridiculous charges

The Guardian tells us about a number of arrests yesterday: The action against the 10 or so people participating in the Right Royal Orgy in Soho Square was one of several pre-emptive strikes by Scotland Yard. Police said they made a total of 52 arrests including 13 at Charing Cross station, where people were found […]

Step away from the CCP

The Streetwise Professor has a lovely post about how regulators are starting to edge away from the new clearing rules, as they realise how flawed they are. First he quotes a WSJ article which begins: One by one, financial regulators who supported the Dodd-Frank law in 2010 are beginning to deny paternity, especially for the […]

Equador is still poor, but slightly less poor than it would otherwise have been

There is a story that Equador rather cleverly bought their bonds back in the secondary market after default rather than waiting for the restructuring. Essentially instead of having to pay 35 cents on the dollar, they paid in the 20s, and so saved the country a few hundred million dollars. Apparently the State Department thinks […]

Dodd Frank and your pint

Via ERM strategies, a lovely insight into the kind of damage mandatory clearing for end users will do: The Dodd-Frank Act could force companies who use derivatives to hedge commodity price fluctuations to provide cash collateral on the transactions. If that happens, then the cost will be transferred to the consumer in the form of […]

Getting out of town

I will be away for that ghastly wedding. Posting may be light.

EU FX clearing exemptions

One might have some hope that the EU will be rational on exemptions from mandatory clearing. The WSJ reports: A consensus has emerged among the European Union’s 27 countries to exempt most companies and short-term foreign exchange instruments from clearing obligations for derivatives, according to a person familiar with the matter. While the countries continue […]

My favourite operational risk loss of the week

Detailed here: An army of termites munched through 10 million rupees ($222,000) in currency notes stored in a steel chest at a bank, police in northern India said Friday. Which Basel II operational risk loss category does that go in I wonder?

Capitalism is failing most people

Chrystia Freeland continues to impress me. One of her most recent Reuters columns is about an insightful article by Michael Spence and Sandile Hlatshwayo on the failure of capitalism to enrich anyone other than the CEO class in the US. As Freeland paraphrases: The take-away is this: Globalization is making U.S. companies more productive, but […]

Special assets for special people

FT alphaville has an interesting article on Citi reclassifying $12.7B of assets in the Special Asset Pool from held to maturity to trading. Alphaville quotes the FT proper: [This] “enables it to take advantage of a recovery in the market for distressed assets and boost capital buffers as Basel III rules are phased in between […]

Mustier tells it like it is

Jean-Pierre Mustier, deputy general manager and head of corporate and investment banking at UniCredit, reported in Risk Magazine, says: The “thin capitalisation” of CCPs – which will end up clearing hundreds of trillions of dollars notional in standardised derivatives – could be compared with monoline insurance companies that underwrite securitisations. Before the crisis, individuals who […]

Do we need informationally insensitive debt?

Yes we do. Felix Salmon is wrong. Let me explain. First, what is informationally insensitive debt? financial assets which (normally) don’t change in price when new information about them emerges That’s not a good definition, actually, as there are no assets (apart from cash) which satisfy it. But it hints at a more useful definition, […]

Cheesy business

My parents used to live near Cooper’s Hill in Gloucestershire. Here, once a year, they used to stage cheese rolling. Basically it is a very steep hill, someone throws a whole cheese down the hill, and lots of people chase it. I was telling my pilates teacher about this, and she speculated that it wasn’t […]

Market discipline for economists

Dean Baker, writing in the Guardian, has a lovely idea: If we want economists at the IMF and other institutions who actually think for themselves, they have to know that they will endanger their jobs and their careers if they do mindlessly follow their boss. Whenever I have raised this point in conversations with economists, […]

Overcooked Coco

Andy Haldane thinks that we should consider Cocos with market triggers as capital instruments for banks. Um. Dunno. For me the issues are complex. First, whatever the Coco trigger is, it should be objective. There market will react badly to a trigger which is, in effect, whatever the supervisors want. That’s partly because as we […]

Isn’t it over yet?

London is lovely, but the winter is not over in New England:

Capital and centrally cleared client OTCs

Just because I have only just understood this, here’s what happens to a client OTC derivatives trade when you clear it… Let’s begin with me, a bank say, doing an OTC with a client, A. There is one trade, B to A, and B takes capital against their counterparty credit risk (‘CCR’) to A. Now […]

I have not been posting…

… so lock me up…

Complexity is in the eye of the beholder

Q: What’s a complex derivative? A: One the respondent does not understand. It seems like that is sometimes the answer anyway. Just because something is new, or new to the writer, does not necessarily mean it is complex, nor are old familiar things necessarily simple. As Merton demonstrated, for instance, common stock is far from […]