Category Archives: Derivatives

Did Derivatives Worsen the Eurozone Sovereign Debt Crisis?

Yves here. This post summarizes a paper that argues that derivatives, specifically credit default swaps, exacerbated the severity of the European sovereign debt tsuris. This sort of analysis deserves a wider audience, precisely because the prejudice of both neoclassical and neoliberal economists is that markets are ever and always virtuous, and that prices are never wrong unless someone is interfering (with labor unions the preferred bad example).

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SEC Lawyer on Goldman CDO Case Describes How the Agency Wimped Out

Susan Beck at American Lawyer (hat tip Abigail Field) has managed to get an inside view of what was going on at the SEC when it launched its case against Goldman and a Goldman vice president, Fabrice Tourre, over a Goldman CDO called Abacus that went spectacularly bad. So was the SEC corrupt or merely incompetent?

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The SEC Finally Takes an Interest in Collateralized Loan Obligations

The old saying is “better late than never,” but as we hope to demonstrate, the SEC is awfully late to take an interest in collateralized loan obligations. The problems it has gotten curious about now were discernible years ago. And the failure to take interest until now means that misbehavior that was discussed in the press during the crisis is almost certain to go unpunished, since the statute of limitations for securities law violations has passed.

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Banks May Have Scored Hollow Victory on Volcker Rule/TRuPS CDO Compromise

Readers may recall that banks, in their eagerness to depict the final Volcker rule as a terrible miscarriage of justice, made a great deal of noise about the case of Zions Bank, which was blaming $378 million of prospective losses on the Volcker-rule requirement that banks sell these dubious instruments called TruPS CDOs by July 21, 2015. The regulators clarified the relevant rules, which looks like a concession. But how much of a concession is it?

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In Echo of Runup to Crisis, Bond Investors Reaching for Yield

An article in the Financial Times by Tracy Alloway gives yet another sighting that bond investors are getting a bit frantic in their hunt for yield. The piece has the eyepopping title, Yield-hungry investors snap up US homeless bond. It uses recent deals in the CMBS (commercial mortgage backed securities) market as a proxy for bond investors’ QE-driven hunt for more return.

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Simon Johnson Reminds Us That the Banks’ Quiet Coup is Still Very Much in Place

Simon Johnson wrote a remarkably blunt article for the Atlantic in May 2009 titled The Quiet Coup. In case you managed to miss it, it remains critically important reading. He provided an update of sorts in a New York Times column today.

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Amar Bhidé on How Following Hayek Leads to Regulating Banks Like Utilities, Looking Askance at Liquidity and Securitization

I highly recommend this short interview by John Authers of the Financial Times with Amar Bhidé, a professor at Tufts, in which he argues that a proper reading of Friedrich Hayek would lead to considerable skepticism about whether most of the changes in finance over the last three decades actually represent progress.

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Volcker Rule: The Devil’s in the Unimpressive Enforcement Details

If you managed to be late to the Volcker Rule party, you can learn a great deal of what you’d need to know via the revealing contrast between two reasonably detailed accounts, one at Huffington Post by Shahien Nasiripour, the other by Matt Levine at Bloomberg. If you didn’t know better, you’d wonder if they were talking about the same rule.

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CFTC’s Bart Chilton Takes it to the (Position) Limits One More Time

Yves here. This post is important not simply because it describes where the fight over position limits stands and why it’s important, but it also gives some insight into regulator processes. It makes clear how even as few as two well placed officials, Bart Chilton and Gary Gensler, did a great deal to hold the line against predatory large financial firms. It also shows how hard regulators have to fight to do their job.

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