Comments on: Why the Volcker Plan Doesn't Go Far Enough http://moneymorning.com/2010/01/28/volcker-plan/ Global Investment News Fri, 25 May 2012 18:42:41 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Rene dos Remedios http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12542 Rene dos Remedios Wed, 03 Feb 2010 13:09:00 +0000 http://moneymorning.com/?p=16152#comment-12542 You hit it on the head. Today, insider trading is not about trading on insider company information, it is all about insider trading on money flow information. I respectfully disagree however with your conclusion that nothing can be done about it. Major investment houses have an undue advantage over small traders since small traders do not have visibility on the major trade trends that the investment houses themselves or their peers may be trading on. If trading on the information about money flows can't be made illegal, then steps must be put in place to make the money flow information available to the public. In the context of today's electronic trading platforms, this is entirely possible. Anonymity can be maintained to protect the interests of specific parties and collated trades by large traders should be disclosed. Using means to disguise such intent should be made illegal. Trading flow disclosure is a key disclosure requirement. Proof is, SEC rules all over the world have long required investors to disclose ownership above certain thresholds and almost all large ownership changes. The disclosure rules were made to keep the trading public informed in the days of manual exchanges. The "fast trading" which is now possible on electronic systems can make daily mockeries of the ownership disclosure rules, with parties exiting positions well before disclosure time frame requirements are reached. This is aggravated by the micro-profits that are made on the trades which as you point out encourages even more "Fast Trades". Likewise, why do only the largest investors have real-time or near real-time access to money flow information like short interest? Ordinary traders only have access to this information long after the value of the information has passed. The role of the regulator is to level the playing field. Putting in place measures that will prevent catastrophe on the playing field is good but not nearly enough. Taking away the "obscene" home court advantage is a key step to developing markets that are stable and efficient. You hit it on the head. Today, insider trading is not about trading on insider company information, it is all about insider trading on money flow information.

I respectfully disagree however with your conclusion that nothing can be done about it. Major investment houses have an undue advantage over small traders since small traders do not have visibility on the major trade trends that the investment houses themselves or their peers may be trading on. If trading on the information about money flows can't be made illegal, then steps must be put in place to make the money flow information available to the public. In the context of today's electronic trading platforms, this is entirely possible. Anonymity can be maintained to protect the interests of specific parties and collated trades by large traders should be disclosed. Using means to disguise such intent should be made illegal. Trading flow disclosure is a key disclosure requirement. Proof is, SEC rules all over the world have long required investors to disclose ownership above certain thresholds and almost all large ownership changes.

The disclosure rules were made to keep the trading public informed in the days of manual exchanges. The "fast trading" which is now possible on electronic systems can make daily mockeries of the ownership disclosure rules, with parties exiting positions well before disclosure time frame requirements are reached. This is aggravated by the micro-profits that are made on the trades which as you point out encourages even more "Fast Trades".

Likewise, why do only the largest investors have real-time or near real-time access to money flow information like short interest? Ordinary traders only have access to this information long after the value of the information has passed.

The role of the regulator is to level the playing field. Putting in place measures that will prevent catastrophe on the playing field is good but not nearly enough. Taking away the "obscene" home court advantage is a key step to developing markets that are stable and efficient.

]]> By: Paul http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12340 Paul Sat, 30 Jan 2010 14:26:52 +0000 http://moneymorning.com/?p=16152#comment-12340 I very much appreciate the article and the comments. I always liked classical economics in college because of the "truism" of the perfect competition model, and the ever-repeated mantra that deviations from it (imperfect or FALSIFIED information, OLIGOPOLY, and failure to price in externalities) would cause problems, distortions, higher prices, and ultimately less total value in the economy. Enlightened regulation was ALWAYS the cure, to return the system to as close to the perfect competition model as we could get. Our systemic problems today are the result of failure of our economic, banking, investing, and political elites to follow Economics 101, due, definitely, to the Original Sin of Greed. Unfortunately, it our collective failure as voters to become educated, and then vote the bums in both parties out! I very much appreciate the article and the comments. I always liked classical economics in college because of the "truism" of the perfect competition model, and the ever-repeated mantra that deviations from it (imperfect or FALSIFIED information, OLIGOPOLY, and failure to price in externalities) would cause problems, distortions, higher prices, and ultimately less total value in the economy. Enlightened regulation was ALWAYS the cure, to return the system to as close to the perfect competition model as we could get. Our systemic problems today are the result of failure of our economic, banking, investing, and political elites to follow Economics 101, due, definitely, to the Original Sin of Greed. Unfortunately, it our collective failure as voters to become educated, and then vote the bums in both parties out!

]]> By: Kip Walls http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12277 Kip Walls Fri, 29 Jan 2010 13:30:25 +0000 http://moneymorning.com/?p=16152#comment-12277 I think Volker’s influence is a good thing. His knowledge and independence in economic opinion seems unbiased by political whim. He quietly distanced himself the past year from the policies implemented under Bush or Obama to save us unless directly put on the spot when he denied being an influence in the policy determination. In fact one situation in England he made it fairly clear his opinions were being ignored and laughed. Now a year later he is being called back in to clean up the situation and develop sustainability for us! It may not be immediate and it may still be painful! A lot of the stock market rise and enjoyment of life since 1980 has been based on unrealistic inflation and devaluation and articially low interest rates. He has consistently indicated we were living beyond our means as a country. We were buying and consuming more than we were producing! We went from a net lender in 1980 to the largest net borrower now! Like personal debt its got to be paid back or defaulted on! Usually this involves doing with less consumption which is created by national policy or global lending refusals! In any case it means living on less and possibly a reduction in inflated values. This problem happened under the Greenspan terms in the FED which started under Reagan. There seemed to be strong ties and perpetuation of national global policy under the Bushes and Clinton inspite of supposed party differences and they are still pictured together in the requests for money for disasters. I wonder who Volker would recommend for Treasury or the Federal Reserve to get this mess straightened out! I also wonder what other changes he would recommend including congress! I think Volker’s influence is a good thing. His knowledge and independence in economic opinion seems unbiased by political whim. He quietly distanced himself the past year from the policies implemented under Bush or Obama to save us unless directly put on the spot when he denied being an influence in the policy determination. In fact one situation in England he made it fairly clear his opinions were being ignored and laughed. Now a year later he is being called back in to clean up the situation and develop sustainability for us!

It may not be immediate and it may still be painful! A lot of the stock market rise and enjoyment of life since 1980 has been based on unrealistic inflation and devaluation and articially low interest rates. He has consistently indicated we were living beyond our means as a country. We were buying and consuming more than we were producing! We went from a net lender in 1980 to the largest net borrower now! Like personal debt its got to be paid back or defaulted on! Usually this involves doing with less consumption which is created by national policy or global lending refusals! In any case it means living on less and possibly a reduction in inflated values.

This problem happened under the Greenspan terms in the FED which started under Reagan. There seemed to be strong ties and perpetuation of national global policy under the Bushes and Clinton inspite of supposed party differences and they are still pictured together in the requests for money for disasters.

I wonder who Volker would recommend for Treasury or the Federal Reserve to get this mess straightened out! I also wonder what other changes he would recommend including congress!

]]> By: Mike http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12239 Mike Thu, 28 Jan 2010 23:03:38 +0000 http://moneymorning.com/?p=16152#comment-12239 Matt, The problem is that before the removal of Glass-Steagall, you couldn't take A loans and B loans and combine them together and call them AAA. Millions of those bundled securities got sold to insitutuions that could only buy AAA because they where chartered to be ultra safe. When those B loans started to go bad the value of those structured securities fell causing huge loses to the holders. If the government hadn't bought billions of dollars of these depleted instruments, many of the biggest financial institutions would have probably collapsed. Guess who ownes those financial instruments now? Yep, we the takepayers. Does it kind of make you a little mad. Glass-Steagall was enacted in 1934 because of the findings of the Pecore Hearings which where held to figure out what caused the Crash of 1929. It was removed in 1999, eight years before the worst financial collapse since 1929.... In my opinion, THAT is why we need to reiact it. In my opnion Mr. Volker favors reinactment or reregulation by another name. Mike Matt,
The problem is that before the removal of Glass-Steagall, you couldn't take A loans and B loans and combine them together and call them AAA. Millions of those bundled securities got sold to insitutuions that could only buy AAA because they where chartered to be ultra safe. When those B loans started to go bad the value of those structured securities fell causing huge loses to the holders. If the government hadn't bought billions of dollars of these depleted instruments, many of the biggest financial institutions would have probably collapsed. Guess who ownes those financial instruments now? Yep, we the takepayers. Does it kind of make you a little mad. Glass-Steagall was enacted in 1934 because of the findings of the Pecore Hearings which where held to figure out what caused the Crash of 1929. It was removed in 1999, eight years before the worst financial collapse since 1929…. In my opinion, THAT is why we need to reiact it. In my opnion Mr. Volker favors reinactment or reregulation by another name.
Mike

]]> By: Matt http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12228 Matt Thu, 28 Jan 2010 19:08:05 +0000 http://moneymorning.com/?p=16152#comment-12228 Regulation is a terrible idea. First of all, it was not CDS, but conventional home loans that brought down banks like Wamu, Wachovia, and Countrywide. CDS was not a significant component, nor would it have been since they were going to sell most of the junk to Fannie and Freddie (which don't use CDS). Bear and Lehman had similar problems, and though their exposure to CDS was greater, the solution was simply to let them fail. That leaves only AIGFP with huge CDS exposure, which should have been left to fail as well. CDS are not the cause of the housing bubble or the financial crisis. They were simply the first indicator, the canary in the coal mine, and a lucrative arbitrage strategy orchestrated by Goldman. Regulating them along with proprietary trading will have no effect. And even if it did, in 5 or 10 years the banks will have vitiated the restrictions or figured out ways around them, or another (perhaps foreign) non-bank will have figured it out. As for restricting or taxing trading, that kind of proposal will have unintended consequences, not least of which is making US banks uncompetitive (as if SOx isn't enough). Nor is it tenable politically. Everyone wants smaller banks. It's easy. End the bailouts and let the big banks fail, and then chop them up in receivership. Regulation is a terrible idea. First of all, it was not CDS, but conventional home loans that brought down banks like Wamu, Wachovia, and Countrywide. CDS was not a significant component, nor would it have been since they were going to sell most of the junk to Fannie and Freddie (which don't use CDS). Bear and Lehman had similar problems, and though their exposure to CDS was greater, the solution was simply to let them fail. That leaves only AIGFP with huge CDS exposure, which should have been left to fail as well.

CDS are not the cause of the housing bubble or the financial crisis. They were simply the first indicator, the canary in the coal mine, and a lucrative arbitrage strategy orchestrated by Goldman. Regulating them along with proprietary trading will have no effect.

And even if it did, in 5 or 10 years the banks will have vitiated the restrictions or figured out ways around them, or another (perhaps foreign) non-bank will have figured it out.

As for restricting or taxing trading, that kind of proposal will have unintended consequences, not least of which is making US banks uncompetitive (as if SOx isn't enough). Nor is it tenable politically.

Everyone wants smaller banks. It's easy. End the bailouts and let the big banks fail, and then chop them up in receivership.

]]> By: James http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12223 James Thu, 28 Jan 2010 18:29:23 +0000 http://moneymorning.com/?p=16152#comment-12223 Rescind TARP (Troubled Assets Recovery Program) now. It served its purpose. Why not let the CDOs' (Credit Derivative Obligations) and CDSs' (Credit Default Swaps) float and stand on their own feet, swim or sink. The ones holdings them took the risk. Let them answer to themselves for buying them and taking the losses like we ordinary investors did buying stocks and seeing our stocks drop in value more than 50%. Why save them? Only then will Mr. Market be performing its proper function and living up to the principle of "survival of the fittest". The mega banks, investment banks, oil sheiks and sovereign wealth funds should take their lumps like everybody else to bring back fairness to the marketplace. It is so grossly unfair now to see the institutions that brought us into this morass go unscathed and basking in continuing wealth. Now is an appropriate time to take that kind of drastic measures needed to correct our dysfunctional global and domestic financial systems. Now that our global economy and our own US economy have stabilized and making gradual recovery, maybe we need to take some more pain to make our financial system right. Otherwise, the same scenario will repeat itself with the same players who brought us into this mess in the first place once again doing the same thing. Rescind TARP (Troubled Assets Recovery Program) now. It served its purpose. Why not let the CDOs' (Credit Derivative Obligations) and CDSs' (Credit Default Swaps) float and stand on their own feet, swim or sink. The ones holdings them took the risk. Let them answer to themselves for buying them and taking the losses like we ordinary investors did buying stocks and seeing our stocks drop in value more than 50%. Why save them? Only then will Mr. Market be performing its proper function and living up to the principle of "survival of the fittest". The mega banks, investment banks, oil sheiks and sovereign wealth funds should take their lumps like everybody else to bring back fairness to the marketplace. It is so grossly unfair now to see the institutions that brought us into this morass go unscathed and basking in continuing wealth. Now is an appropriate time to take that kind of drastic measures needed to correct our dysfunctional global and domestic financial systems. Now that our global economy and our own US economy have stabilized and making gradual recovery, maybe we need to take some more pain to make our financial system right. Otherwise, the same scenario will repeat itself with the same players who brought us into this mess in the first place once again doing the same thing.

]]> By: A. Pearsall http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12222 A. Pearsall Thu, 28 Jan 2010 18:25:35 +0000 http://moneymorning.com/?p=16152#comment-12222 And for once I find myself agreeing with a Tory grump like Martin Hutchinson. It's great how Wall Street has succeeded in uniting so many people in common loathing. And for once I find myself agreeing with a Tory grump like Martin Hutchinson. It's great how Wall Street has succeeded in uniting so many people in common loathing.

]]> By: Daniel Hiller http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12220 Daniel Hiller Thu, 28 Jan 2010 18:07:18 +0000 http://moneymorning.com/?p=16152#comment-12220 The problem with Wall Street banks is only part of the problem caused by the stupid idea that if there are few firms in a business and they are big, that they can not fail. In reality, big companies can only survive with the protection of the government to prevent competition and bale them out when they do fail as we have just been through. This happen in insurance, and the auto as well as banking. They managed on the idea that they were so big that them failing would do more damage then if the government bailed them out. The problem with Wall Street banks is only part of the problem caused by the stupid idea that if there are few firms in a business and they are big, that they can not fail. In reality, big companies can only survive with the protection of the government to prevent competition and bale them out when they do fail as we have just been through. This happen in insurance, and the auto as well as banking. They managed on the idea that they were so big that them failing would do more damage then if the government bailed them out.

]]> By: walter mitchell http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12219 walter mitchell Thu, 28 Jan 2010 17:54:46 +0000 http://moneymorning.com/?p=16152#comment-12219 The greed was for derivatives; now it is for gold. How many pitches by different names have we seen on both television and in print? Does anyone care for the ecological loss that is faced every time a new open pit mine is dug? I ask for you who buy this gold to please come to Costa Rica to see the "approved" damage done to this entire country for gold, for highway building, for progress. There is only one country that does not allow cyanide to be used in gold extraction and it is not Costa Rica. The list of damaged and soon to be damaged areas is greater than the famous national parks. Part of the political payoff for CAFTA was an airport. Perhaps you have heard of or visited the Osa Penninsula and Corcovado National Park. National Geographic calls this area the most biological diverse area on the planet. Guess where this airport is. It is just outside the park. There are alot of airstrips around this country as air travel was the only way to go between vast areas of this small utopia. Palmar was one of these places with an airstrip. It soon will be a jetport. If you drive here you will be able to see the ruined rivers devoid of all fish. The stones are now the gravel for this airport. The tourist bureau will soon have no reason d'etre. Come soon or soon won't be soon enough to enjoy this area. Greed will win. Please do NOT buy gold. I don't. THANK YOU. This is all done with the approval of the Nobel Laureate Oscar Arias. The greed was for derivatives; now it is for gold. How many pitches by different names have we seen on both television and in print?

Does anyone care for the ecological loss that is faced every time a new open pit mine is dug? I ask for you who buy this gold to please come to Costa Rica to see the "approved" damage done to this entire country for gold, for highway building, for progress. There is only one country that does not allow cyanide to be used in gold extraction and it is not Costa Rica. The list of damaged and soon to be damaged areas is greater than the famous national parks.

Part of the political payoff for CAFTA was an airport. Perhaps you have heard of or visited the Osa Penninsula and Corcovado National Park. National Geographic calls this area the most biological diverse area on the planet. Guess where this airport is. It is just outside the park. There are alot of airstrips around this country as air travel was the only way to go between vast areas of this small utopia. Palmar was one of these places with an airstrip. It soon will be a jetport. If you drive here you will be able to see the ruined rivers devoid of all fish. The stones are now the gravel for this airport. The tourist bureau will soon have no reason d'etre.

Come soon or soon won't be soon enough to enjoy this area. Greed will win. Please do NOT buy gold. I don't.

THANK YOU.

This is all done with the approval of the Nobel Laureate Oscar Arias.

]]> By: Mike Muoio http://moneymorning.com/2010/01/28/volcker-plan/comment-page-1/#comment-12215 Mike Muoio Thu, 28 Jan 2010 17:16:47 +0000 http://moneymorning.com/?p=16152#comment-12215 Not with Mr Volcker on duty! Not with Mr Volcker on duty!

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