Gobama!

There is a man in the House--the idiot child is back on the farm.

This should be good for a healthy equities rally next week.

Somehow I feel the sense of priorities is misplaced. All these are important areas, but they can certainly wait.
Can Citi, Fannie, Freddie FHLB wait?

The administration is also preparing to require that derivatives like credit default swaps ... be traded through a central clearinghouse and possibly on one or more exchanges.

Sweet, now I can daytrade CDS!

Real regulation, I can hardly wait.

There is a lot of crime that has gone unpunished.

And I don't mean Martha Stewart type piddly crap.

The masters of the universe will return to earth as bond clerks.

Someday this war's gonna end...

Of critical importance, the article says: some credit default swaps with unique characteristics negotiated between companies might not be able to trade on exchanges or through clearinghouses. But standardized or uniform ones could.

Now it all depends on how you define the contracts with the "unique characteristics". Could be a loophole you could drive a triple A insurance company through.

Hedge funds haven't been a systemic problem, yet. Well, their deleveraging does affect equity prices but I don't see this as a systemic problem. It is conceivable that they become one in the future. Came close with Long Term Capital. It is right to watch out for this. But so far the problem was your triple A insurance company AIG that was able to do derivatives without posting collateral due to it's alleged good credit rating.

The horse ( the FIRE sector) is dead in the pasture having eaten toxic oats (debt).

The 70% consumption economy is over ...

A lot of talk.....but the overall approach coming from the Obama camp is (so far) not materially different from what we have seen from the last administration.

Mr. T. | 01.24.09 - 10:24 pm | #

I don't know if I agree with that.  These moves are a step in the right direction.

Now it all depends on how you define the contracts with the "unique characteristics". Could be a loophole you could drive a triple A insurance company through.

The big problem with CDS is that with no central exchange it becomes difficult to close a position. Instead of closing a position most buyers or sellers simply opened an offseting position.

The problem of course is that opening an new position to close another doesn't offset the counterparty risk. Didn't seem a big issue when all this stuff was being written.

FD: Interactive Brokers is the broker I use.

Anybody care to comment on Thomas Peterffy's comments about a CDS clearinghouse?

Clearing House for CDS ...

Great idea, let's see what happens when they see the real value on those instruments. Values are cascading daily, hourly.

There is a legitimate question as to what should be on an exchange and what should not. If you want to loan money to a private company and have a hedge fund take part of the risk via CDS this can't really happen on exchange. The government probably should not try to prohibit this sort of transaction; but the better solution is to have some sort of information sharing requirement. Collateral requirements might also be a good idea although for custom trades figuring out how this would work would be a nightmare.

Great idea, let's see what happens when they see the real value on those instruments. Values are cascading daily, hourly.

Good point...

Since the CDS aren't standardized contracts the sellers and buyers themselves mark-to-model. It's possible that on some contracts both buyer and seller are both holding them on the books at a profit.

Re the Peterffy comments: I don't find this persuasive. Putting the contracts on a clearinghouse will probably reduce systemic risk. Now putting them on CME is a problem since if you blow up CME over CDS problems you take down some other markets with it. But this is not a major worry since in all likelihood ICE is going to win this and there won't be CDS trading on CME. Perhaps more importantly, CDS trading is a lot like options trading and they have successfully done this via a clearinghouse.

Since the CDS aren't standardized contracts the sellers and buyers themselves mark-to-model. It's possible that on some contracts both buyer and seller are both holding them on the books at a profit. Your second sentence is true and is a good point but the first sentence is not correct. Most CDS are standardized and pricing is available in semi-public areas. Pricing is standardized for these. The custom trades could have varying prices. This is part of the reason that Lehman bonds are worth so little; they were marking their swaps too high.

Talking about more transparency and regulatory reforms don't mean anything to me at this point.
Mr. T. | 01.24.09 - 10:32 pm | #

I agree that it does more to help the NEXT bubble from unraveling.  Of course, the next bubble won't have much to do with CURRENTLY broken instruments of our economy.

We will see....I am not writing this administration off by any means but based on the appointments to date I am not really encouraged.
Mr. T. | 01.24.09 - 10:32 pm | #

Agreed.

Call me naïve, but smells like competent government. Though too little, too late. As painful as the current crisis may be, perhaps if the right regulatory measures are implemented, this mess won't happen again for at least 20 years

It's possible that on some contracts both buyer and seller are both holding them on the books at a profit.
Kicker | 01.24.09 - 10:33 pm | #

And THAT is why banks are not lending or forclosing or anything.  They have no assets and do not want anyone else to figure it out.

Obama is trying to restore some trust in a system that is broken,or close to it using the mechanisms available to him.Considering the alternatives...

Hedge funds have no counterparty risk so pay big margin. Oops big misstatement. Of course they have major counterparty risk. What I meant to say was that they have no credit rating so pay big margin.

I'm afraid Obama is about to find out the hard way that an economy built on fraud is not going to like or accept anything semi-honest.
FFDIC | 01.24.09 - 10:34 pm |

yeah , kicking a drug habit is painful

I'm afraid Obama is about to find out the hard way that an economy built on fraud is not going to like or accept anything semi-honest.
FFDIC | 01.24.09 - 10:34 pm | #

Just in case, I am trademarking this for later:
Hoobamacoodanode?

Pavel,If reich has a sex change first I would approve.

There are no prime brokers for CDS. (or, there are, but it's very rare). They are bilateral contracts. They are actually pretty simple. One party agrees to pay a premium to the other. In return, the party receiving the premium agrees to pay the other party "100 - bond price" in the event of a credit event; basically bankruptcy or default. (This is a simplification but it suffices to understand the product). So it's really kind of like an option that kicks in if a company has a credit problem.

FFDIC - Thanks for the pointer. Good article. Ideological blindness and pervasive incompetence. Not sure if this good or bad news: how easy would it be to fix that?

Plagues,Famines and wars frequently accompany large economic disruptions.Famine and plague both seem more likely than another world war,although regional conflicts are always happening and a limited nuclear exchange is not improbable.

One other clarification. The credit event has to relate to a third party. So basically if a hedge fund is a buyer of protection, they pay premium to the dealer and the dealer agrees to pay the hedge fund if the underlying third party company has a credit event.

Pavel,I simply do not like reich,and expressed myself crudely,My apologies.

trying to collect nickels in front of a bulldozer

I can't take credit for it. It's a great line from When Genius Failed. Which if you are interested in this subject is a great read.

"Pavel Chichikov writes:
The remark concerning construction workers struck me as much more than stupid and insensitive. Anyone can be stupid from time to time. They struck me as out of control."

Back in the 70's I made good money as a carpenter (I'm a girl) because the boys would party all night and be too effed in the a.m. to show up for work. So, yeah, I'd rather cross a bridge built by a woman than some guy who's brain is fried crispy.

I'm cautiously hopeful about Obama's committment to regulatory reform -- but -- my worthless opinion is that it is likely to go through several iterations before becoming cruel, rigid and heartless enough to rein in the financial cowboys.

There's two indicators I'm looking for a) closures of many college Business Schools and b) the IRS gets big enough that I can get a federal job with 'em.

Forget nuclear war. We need prosecutions. Lots and lots of prosecutions.

I don't have a good understanding of how the synthetic CDOs work. Thank god that is not my area. (I interviewed a lot of lawyers who formerly did that for a living -- no longer any demand).

Anyway I gotta go but will be back next time this subject comes up. I'm trying to get the word out on how these things work so that there is not a lot of discussion that just says "BIG BAD DERIVATIVES MAKE US SAD". The nuances matter.

@ RockyR:

Seems to me a lot of people from the Bush administration dare no go overseas for fear of winding up in dock at the Hague for war crimes. More and more I revere the people who created the Nuremburg trials. That seems to me a major difference between the world of the 1930's and today. There has to be real fear of the consequences of aggresive war.

Umm ... I forgot to mention:  I'm one of the dimmer bulbs ...

Mongo, CIO, FUBAR & WASS LLC writes:
"No exchange; no clearinghouse; no contract.
Simple really."

Not simple at all. Exactly how does one define a contract that must go through a clearinghouse and be traded on an exchange? Any and all contracts?

A lot of careful definition is required to catch all of the funny business and not entangle things like legitimate purchase orders...

Hedge funds haven't been a systemic problem, yet. Well, their deleveraging does affect equity prices but I don't see this as a systemic problem. It is conceivable that they become one in the future.

Oh no, hedge funds are going to be a huge problem. Somebody upstream mentioned that CDS are generally mark-to-model and so both parties can (and probably will) recognize a profit on something that's a zero-sum exchange.

Guess what? That applies to any complex or thinly trading asset being swapped. And what do hedge funds trade in? Mostly complex and thinly traded assets. Hedge fund book are full of mark-to-model fictitious profits and as they try to unwind it's all going to be coming out.

And remember they're all heavily leveraged! The financial system will get a nice strong dose of toxin from all these decomposing funds. Perhaps not enough for a systemic problem by itself but it will certainly add to the fun.

Regarding the Peterffy comment - it is a pleasure to read so much sense. He gets it. CDS contracts unlike stocks dont work with huge collateral (remember it is 50% for stocks). think how quickly the cds market would dry up if one had to pony up 50% of (notional - recovery rate).

also CDS has so little liquidity compated to stocks. Moves of more than 10% are common for more than 10% of the names in any given week (at least these days). stocks just dont behave like that.

i will open an account with interactiv brokers just for the intelligence shown by peterffy.

regards

I'm afraid Obama is about to find out the hard way that an economy built on fraud is not going to like or accept anything semi-honest.
FFDIC | 01.24.09 - 10:34 pm | #

Fraud is one problem. 

Excessive leverage is another.  Its use is what allows the players to make 60:1 heads-I-win tails-taxpayers-lose bets.  Suppose Obama actually got it, and wanted to stop the socialization of these losses.  If he pulls the plug on leverage, asset prices go into rewind, right back to 1998.  I recommend this, but the cure will seem like poison at the time it is administered.

Does anyone remember the 1980's advertisements from United Technology concerning simple, clear statements?  "Mother's dead." ..."The check is in the mail" ... etc.

Reason I bring this up is in regard to regulatory schemes. Clarity seems essential or near essential to effective enforcement and compliance.  Hmm ... I have some regulatory enforcement background to speak on this topic.

@ Cobradriver:

I can understand where you're coming from, but my experience in the Navy tells me that attitude and desire to learn make all the difference in the world. A good teacher and/or a well thought out instruction program can make someone pretty darn good or at least "tolerably effective" real quick. Here's where I could see it being useful for a very large government funded expansion of union training systems, among others.

Oh yeah ... I used to walk the walk by doing QA on people assembling live ordnance. Pick 'em with desire to learn and the bridge won't fall down or anything else blow up ...

Hi Anon "You thnk B. Madoff would have gone straight if just a couple of more rules were in place?"

No. There will always be the sociopaths among us who will always choose to break the rules.

bgates writes:
in regards to construction defects, outright criminal fraud seems to be the biggest issue - witness recent incidents in SF and NYC involving sub-par concrete.

There always have been, and always will be, crooked contractors, inspectors, RE people, bankers, etc. But there is a lot of redundancy in the system, too. And the alternative is to do nothing.

Also, in terms of tighter regulations for mortgage brokers, they are missing a HUGE group: The Consumer Loan Companies.

Consumer finance companies like Household Finance and Ameriquest were responsible for two of the biggest predatory lending settlements.

Sometimes a loan originator who works for a consumer loan company will broker out, however, most of these deals are closed on the company's credit line.

To ignore the consumer loan companies would be disasterous. The predatory brokers will just go work for consumer loan companies.

Many of them already have.

Cobra,skill or at least the desire to learn and the ability to show up are minimal requirements for survival.I remember talking to an HR person at a large corporation about the BASIC literacy and math skills test every prospective employee had to take.This was in the '80s,and I was told that quite a few college grads could not pass them,almost a third.These were BASIC tests...

"These are very bright people, and they will figure out a way." My comment: this is human nature. It is FUN trying to figure out a way around the rules.

That's why we need criminal sanctions and 100X higher civil penalties for folks who work around the rules and then want the public to clean up their crap.

It has to HURT if you game the system and get caught at it.

Then, put in regulators and prosecutors that believe in preserving the system (instead of industry cronies that think regulation is unneeded because wall street is full of honorable people)

Jail Terms, multimillion fines, and exclusion from market activity help people to not cater to their greed and desire to dominate.

@Cobradriver"  Some of my bewst friends are mMarines ...;)  Even if one ran off with my wife .. err, now ex-wife...

I work for a major corp. We had to drop our skills test because it was considered to "hard"

What grade was the grammer? j/k

To ignore the consumer loan companies would be disasterous. The predatory brokers will just go work for consumer loan companies.

Jillayne, since 2006, Obama has been pushing a very aggressive mortgage fraud prevention act which puts multiyear jail terms on most predatory mortgage lending and requires specific front-page disclosure of loan tricks. Don't worry, consumer finance lending is going to get some decent regulation.

Machinists manuals, company training manuals and other texts from the 1930's through the 1960's --  a time of committment to 'full employment' by the way -- are perhaps a model for what companies today should look at for designing training programs. If you can train people in 1944 to wire a B-29, you can train people to day to do other technical things. If your pool of "applicants" is too small, you may be lim,iting yourself in ways you don't realize. Look again to who you consider part of your recruiting pool. That in ityself might open people's eyes to using women and minorities. Yes we can.

Hi Fair Economist,

For fraud, yes we've seen some people do jail time. For predatory lending, I have yet to see a case go to trial where a mortgage person has gone to jail.

Most cases settle before going to trial, the company "admits no wrongdoing," pays a minimal fine and promises to do better next time.

Daily Bail, that rant was uninformed, dumb, and not funny. Please stop pimping it.

"Jillayne, since 2006, Obama has been pushing a very aggressive mortgage fraud prevention act which puts multiyear jail terms on most predatory mortgage lending and requires specific front-page disclosure of loan tricks. Don't worry, consumer finance lending is going to get some decent regulation.
Fair Economist"

When I see real prosecutions, and people going into real jails, not minimum security country club jails, I will be a believer.

For predatory lending, I have yet to see a case go to trial where a mortgage person has gone to jail.

Obama's STOP FRAUD act has not yet been passed, so of course it hasn't been enforced. But he's said it's a top priority, so I expected it will be passed and start being enforced soon.

Got a problem with a car? that I can handle...I tooks da maf in skool. I can adz 2+2=5 just fine...not mmuch engrish.

Chris

I make typos like that all the time, just couldn't resist.

Back to fixing the economy.

@bgates:  At Tucker Women's prison in Arkansas inmates who'd done time in minimum security Federal institutions complained about the federal conditions -- but conditions were so miserable in parts of Tucker they knew it was hopeless to compalin about the State pen ...

peAkcredit | 01.24.09 - 11:57 pm |

Sounds like you made out really well, considering the alternative. If you still had that SD house and other assorted debts, where would you be?

Cobradriver writes:
"Mandatory pre hire drug test and recurrent testing(DOT)". HALF the people in the room walk out. Mind you this job starts at 20/hr. I think we had ~20 people take the drug screen."

Have you considered that many of them walked out on principle?

I almost lost a few people at one company when HR pulled a drug test after the new hires signed on. Not because they thought they would fail, either.

I've also seen companies try to put morals clauses into contracts - public companies are especially bad about that. It doesn't seem to do any good, but it can sure mess up negotiations, because the language usually overreaches. More $$ for the lawyers to negotiate it down to something reasonable.

I do have a clue anonymous. I pay taxes.

I'm still curious, which minorities are you worried about? Maybe the Jews that built the pyramids? Or is it the Irish that mined the coal? Or is it the white anglo saxon protestants that are currently a minority in this country?

Those WASP minorities have done some pretty scary things in this country. Might need some watchin'!

whatever rules we devise, there will always be some folks out there trying to game the system
prairiedog | 01.24.09 - 11:33 pm | #

Really?  Between the Panic of 1907 and 2000, side-bets were illegal.  Then Congress made them legal  again.  Now they are exploding.

This wasn't gaming the system;  it was purchasing the rule-makers.  Some rules do work, as long as corruption is held to manageable levels.

Cobradriver(Unrated) writes:
\tsm_landlord | Homepage | 01.25.09 - 12:11 am | #

I am going to make a guess with the pool of people we pull from most did't walk due to principle.

You are right, poor folks who need a job shouldn't have principles. That's for rich folks only. If they need the job that badly, surely they should give up any dignity that they might want to retain.

Am I mistaken or didn't Bob Pisani of CNBC make some comment in favor of medical marijuana ... somehow also using phrases like we  all should hust take a big bong hit and relax?

Hmm ... In 1973 I had to decide which side of the line I was going to stand on. I was to be commissioned so I couldn't use pot anymore ...;{  I haven't used it since. I'm more than ready for the decriminalization of pot. Time for everybody to take a big hit and relax.

1111, as we all know, single women and minorities pay most of the taxes in this country. Isn't that what you learned when you got your GED?

Troll invasion. There goes the neighborhood.

Cobradriver writes:
"Mandatory pre hire drug test and recurrent testing(DOT)". HALF the people in the room walk out. Mind you this job starts at 20/hr. I think we had ~20 people take the drug screen."

So you imply that those people who do weed are unemployable. If you want good workers maybe you should consider dropping your foolish drug testing policy.

I was talking with my brother. He's finally reached the same state I'm in.

I'm fighting false resumes and credentials from offshore people. On paper, guys with 1/3rd my experience look great, they have friends willing to say whatever they need to for references, they're certified in all kinds of stuff that they don't actually know.

I can't fight this by being honest, working hard or learning skills.

I'm being killed by my own government.

It's been happening to my sister for years and now my brother.

Quite frankly, I'm ready to throw 20 years of experience away now, too. I can see where this is headed and it's gotten progressively worse since 2003.

My government is insane.
.

This will do wonders for velocity. Now all we need is a stiff tax on trading and we'll be saying, "We're all Amish now". The good ole' days.

Broker(Irritating) writes:
\tI can hardly wait to drive on bridges built by single mothers and minorities.

Are bridges build by married mothers OK? What if it's a married majority mother married to a minority?

Help us out here.

MR, I like married women. Less problems, if you know what I mean.

OK, I'll stop feeding the troll, he seems to be completely immune to sarcasm or logic. Please don't hate me for trying.

Are bridges build by married mothers OK? What if it's a married majority mother married to a minority?

Help us out here.
MR

Good. I am also tired of this racist bullshit. Over the years while I was in the renovation business I hired many skilled workers. Based on anecdotes I found a certain correlation with ethnic background and skill. The best stone and masonary workers were from Jamaica and Mexico, stucco (not the blow on crap) from Mexico, carpenters and cabinet makes were caucasian and black, painters were Mexican and Polish and plumbers Polish Americans.

Now this was a limited sample. But I have to say with one exception I never found an American born worker who could do good plaster and stucco work. These jobs involved renovations of houses built 60 to 150 years ago.

In California, white males ARE the minority. I'm wondering if Reich took that into account when he made his famous statement. ha.
.
Broward Horne | Homepage | 01.25.09 - 12:16 am | #

Broward, generally you support your statements. Wiki seems to disagree with you. Have you other data to support that claim?

Goodnight Broker, and remember, it's "investors", not "inwestors".

Gosh, I was gonna leave some compliments about Leader O actually proposing some effective regulations but I see the thread has moved on to more important matters.

Broward, generally you support your statements. Wiki  seems to disagree with you. Have you other data to support that claim?
Exit | Homepage | 01.25.09 - 1:27 am | #

----
I'm just grateful that the W.H.A.M. bus didn't keep on rolling at the turn of the century.  Those laws would've been bat-s**t insane to have on any state's books.

Paul Craig Roberts writes: "Democrats in the Senate, aided by 13 turncoat Republicans, have passed legislation that creates new federal crimes that can only be committed by a White Heterosexual Able-bodied Male (WHAM). The legislation, pushed by Edward M. Kennedy, D-Mass., and Gordon H. Smith, R-Ore., would provide another weapon to be used against WHAMs, a non-preferred and legally isolated minority with no lobby, no voice and no political protection. The legislation would make any violent act committed against a woman, a homosexual or a disabled person a federal "hate crime." It is already a "hate crime" to commit a violent act against a "person of color."

White Heterosexual Able-bodied Male (WHAM)

I HATE CRIME!!!!! I really dislike bankers MORE!!!!

Alrighty, then. I'm planning pancakes for breakfast tomorrow. Who's got the maple syrup, hhmmmmm??

Anonymous wrote at 1129
More rules and regs will accomplish very little. Look at Fannie & Freddie...

You thnk B. Madoff would have gone straight if just a couple of more rules were in place?

ok so lets try less rules or almost no rules

oh yeah thats right

bush been there done that

Obama Signals Tough Restrictions on Banks in Rescue Package - Bloomberg.com
Obama Signals Tough Restrictions on Banks in Rescue Package
“We have economic problems that have never been seen in this country or the world before,” Reid, a Nevada Democrat, said on the Senate floor.

Feckless Ness | 01.25.09 - 2:13 am | #

Where is that virgin that needed pinching from last night? Pinch and slap! So, where do you call home?