Category Archives: Derivatives

Shale Gas Hype: Subprime 2.0?

If my RSS reader is any guide, most of the press about shale gas has focused on two issues. First, shale gas is in considerable supply, cheap to produce, and burns far cleaner than other fossil fuels. Second, shale gas does not look so hot environmentally, all in. Fracking can pollute ground water (and potable water is our most scarce resource) and releases enough methane to make shale gas as detrimental as coal. Still, it has been treated as the Great Hope for America’s energy woes, a way to turn the US into an exporter, and maybe it will cure cancer too.

Frontline Takes Issue With Our Critique of Its “Money, Power & Wall Street” Shows

I received this e-mail last week. I will issue my rebuttal Tuesday during the day. Check back in then!

Economists, Liquidity Mongers and the Banker Assault on Financial Reform

This has been a bad stretch for advocates of financial reform – and therefore for the economy as a whole. One after the other, new financial regulations contained in the Dodd-Frank law are being gutted or delayed by regulators and Congress, while the bankers – escorted by a phalanx of paid economists, lawyers and lobbyists – are squealing “wee, wee, wee” all the way home.

Frontline’s Astonishing Whitewash of the Crisis

Several of my savviest readers wrote expressing disappointment and consternation with the Frontline series on the crisis, “Money, Power, and Wall Street.” The first two parts of the four part series have been released, and it’s probably safe to say that this program is far enough along to be beyond redemption.

The Hidden Bank Time Bomb: Interest Rate Risk

At the Atlantic Economy Summit in Washington last month, Sheila Bair fielded a question about the just-released results of the latest bank stress tests. The former FDIC chief took pains to point out that they were an improvement over earlier iterations by virtue of keying off a truly dire economic scenario, but then ticked off a number of ways in which they fell short.

Andrew Haldane on the Arms Race in Banking

Regular NC readers have seen us repeatedly invoke the work of Andrew Haldane, the executive director of stability of the Bank of England. His thoughtful and original work on the risks and costs of our financial system have provided serious ammunition for reform advocates.

At the recent INET conference in Berlin, Haldane recapped some of his recent observations under the rubric of an arms race, in which efforts of individual players to improve their own position wind up leaving everyone worse off.

Occupy the SEC’s Goldstein Exposes Rep. Carolyn Maloney’s Banker-Favoring Ways

As we pointed out, the representative from the Upper East Side, Carolyn Maloney, in being maneuvered into position in an effort to displace Maxine Waters, who would otherwise become either the ranking member or the chair of the House Financial Services Committee, depending on which party wins this fall. The idea of Waters, who is acutely skeptical of bankers and not afraid of making a ruckus, having even more influence on a key committee is something financiers are keen to stop. (Full disclosure: I’m a Waters fan simply by virtue of her remark: “The Tea Party can go to hell. I intend to help them get there.”)

Goldman Ex-Prop Traders Flopping on Their Own

John Whitehead is being proven right.

Dallas Fed’s Fisher Criticizes Dodd Frank as Not Going Far Enough on TBTF

Ordinarily, pointing out that long-standing critic of too big to fail banks is still unhappy about them would not count as news. But the commentary of Dick Fisher, the head of the Dallas Fed, and that of his research director, executive vice president Harvey Rosneblum, is noteworthy because it stands in contrast to the emerging conventional wisdom inside the Beltway. I was told last week that the prevailing and accurate view of last year, that Dodd Frank didn’t go far enough, is being supplanted by the Jamie Dimon view that’s it’s too intrusive. Note that those aren’t actually inconsistent: effective bank regulation IS intrusive. Banker unhappiness would ordinarily be a good sign, but the crisis perps have taken to howling at any intrusion on their imperial right to profit. And the worst is that third parties take their kvetching seriously.

Gillian Tett Exhibits Undue Faith in Data and Models

I hate beating up on Gillian Tett, because even a writer is clever as she is is ultimately no better than her sources, and she seems to be spending too much time with the wrong sort of technocrats.

Satyajit Das: Pravda The Economist’s Take on Financial Innovation

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

In the old Soviet Union, Pravda, the official news agency, set the standard for “truth” in reporting. Discriminating readers needed to be adroit in sifting the words to discern the facts that lay beneath. Readers of The Economist’s “Special Report on Financial Innovation” (published on 23 February 2012) would do well to equip themselves with similar skills in disambiguation.

Quelle Surprise! Feds Dust off Old Rogue Traders CDO Case to Burnish “Tough on Mortgage Crime” Credentials

The powers that be are in the process of seeing how they can burnish their “tough on bank crime” credentials while not ruffling anyone really important. And the case featured in the Wall Street Journal, “U.S. Plans Charges on Bond Fraud,” illustrates the sort of enforcement theater we are likely to see over the coming months.

Wow! Charges! Better yet, criminal charges! Finally the Administration is getting tough on crime.

Right. It’s tough on crime against banks.

So Why Hasn’t SEC Enforcement Chief Robert Khuzami Resigned? SEC Only Now Investigating CDOs Created on His Watch at Deutsche Bank

I’d heard from German speaking readers about the Der Spiegel report of an SEC investigation in its German edition over the weekend and they’ve now released it in their English language version.

Der Spiegel is careful about its sourcing, so readers should take this account seriously.

More Evidence that JP Morgan Stuck the Knife in MF Global

The death of MF Global and JP Morgan’s role in its demise is starting to look like a beauty contest between Cinderalla’s ugly sisters. As much as most market savvy observers are convinced that there is no explanation for how MF Global made $1.2 billion in customer funds go poof that could exculpate the firm, JP Morgan’s conduct isn’t looking too pretty either.