Impossible
Until It Is Done
by
Sinclair Noe
DOW
– 52 = 15,973
SPX – 5 = 1802
NAS – 8 = 4060
SPX – 5 = 1802
NAS – 8 = 4060
10
YR YLD - .06 = 2.79%
OIL + 1.17 = 98.51
GOLD + 21.60 = 1263.00
SILV + .59 = 20.53
OIL + 1.17 = 98.51
GOLD + 21.60 = 1263.00
SILV + .59 = 20.53
Today
federal regulators voted to implement the Volcker Rule. It won't
actually be implemented until 2015, but the vote was today. The
Volker Rule will lay out specific activities that banks can and can't
do.
The
final rules would prohibit proprietary trading by banking entities.
As required by the Dodd-Frank Act, the final rules would include
exemptions for: Underwriting - this exemption would require that a
bank act as an underwriter for a distribution of securities
(including both public and private offerings) and that the trading
desk’s underwriting position be related to that distribution.
Market making-related activities - a market-making desk may hedge the
risks of its market-making activity under this exemption.
Risk-mitigating hedging - this exemption would require that hedging
activity is identified specifically. Trading in certain government
obligations banks could still trade in Treasuries and muni's, and
what the heck, foreign sovereign debt or its political subdivisions.
The
final Volker Rule would also clarify which activities are not
considered proprietary trading, and it is looking like nothing is
considered a proprietary trade with the possible exception of when a
bank trader places a bet on the Yankees with his local bookie. You
may recall that Jamie Dimon tried to claim that the London Whale was
not involved in proprietary trading, rather hedging; of course this
was after he claimed he didn't know what the London Whale was doing
The final rules would become effective (appropriately) April 1, 2014. The Federal Reserve Board has extended the conformance period until July 21, 2015. Turning the Volker Rule into regulations has been slowed by a lobbying onslaught. And it looks like the banking lobby has won. The banks met with regulators on a regular and constant basis, and basically rewrote the rules. There was a token appearance from bank reformers, but the odds were against them by about 99 to 1.
The
Volker Rule won't be totally worthless. Already many banks have shut
down or spun off the desks they used for trading that was clearly
solely for their own account, what’s known as proprietary trading.
Banks do other kinds of trading that can also make them money, or
loses it. Figuring out which trades fall into which category isn’t
always easy, and deciding how much risk is too much for which kind of
transaction may be even harder. On these issues, how regulators
decide to enforce the rules may be as important as the rules
themselves. Some regulators may be concerned only with seeing that
the markets operate smoothly, other regulators may actually try to
prevent banks from trading that would blow up the bank and possibly
the global financial system.
The
banks say there is no way to distinguish between proprietary trading
and hedging and market making. Paul Volker, the former Chairman of
the Federal Reserve, the guy the rule was named for; Volker says the
distinctions aren't tough: “It's like pornography, you know it when
you see it.”
Bottom
line is that the banks are going to try to skirt the rules, and
whittle them down a bit more before implementation, but if this
fails, the logical next step is to make it real simple and reinstate
the Glass-Steagall Act.
And
here is why it will likely fail: the banks wrote the rules, it's all
way too complicated, too big to fail is still a problem – only
bigger, and nobody cares. Admit it, your eyes are starting to glaze
over. Your concern is whether the ATM will spit out cash, will the
bank process your payment to the electric utility, and maybe they can
pass out a few mortgages from time to time. So, nobody will say much
until the next credit freeze, or the next international crisis when
everything goes to hell in a handbasket and the banks come begging
for bailouts. When that happens, we can all shout bloody murder.
Don't
worry. What could go wrong?
Right
now, politicians are gathering in Washington to craft and pass a
budget deal and avert another government shutdown, which could happen
January 15, unless they can put together a deal. And it looks like
they might be close to a deal to de-fuse this fiscal time bomb they
set themselves.
Any
tentative budget deal might allow spending to rise from the scheduled
$967 billion for fiscal 2014 to around $1 trillion. While that
increase in outlays would be offset by raising some government fees
and possibly cutting federal workers' retirement benefits. The plan
does not purport to be any "grand bargain" that would slash
the federal deficit. They may have a deal in the next few days, but
for right now, there is no deal.
GM
is once again General Motors, and no longer Government Motors. The US
Treasury sold its last shares yesterday. Bailouts from the Bush and
Obama administrations helped GM avoid liquidation and instead
reorganized in 2009 bankruptcy. In return, the Treasury became a
shareholder in GM. The
US said it lost about $10.5 billion on its investment of $49.5
billion, but that's not the entire story.
GM
was returned to investment-grade status by Moody’s Investors
Service in September after losing it eight years ago; it's back in
the S&P 500 index (it had been kicked out back when it was facing
bankruptcy). Share price is up over 40% year to date. They're making
good cars that are winning awards. And they have a new CEO, Mary
Barra, the first female CEO of an automotive company.
According
to a study by the Center for Automotive Research, a total
automobile-industry shutdown from a liquidation of GM and Chrysler
would have cut 2.63 million jobs from the US economy in 2009. The
bailout saved or avoided the loss of $105 billion in transfer
payments and the loss of personal and social insurance tax collection
in 2009 and 2010.
Eight
major technology companies have joined forces to call for tighter
controls on government surveillance, issuing an open letter to
President Obama arguing for reforms in the way the US snoops on
people.
The
companies said that while they sympathize with national security
concerns, recent revelations make it clear that laws should be
carefully tailored to balance them against individual rights. The
letter reads in part: "The balance in many countries has tipped
too far in favor of the state and away from the rights of the
individual — rights that are enshrined in our Constitution... This
undermines the freedoms we all cherish. It's time for a change."
The
companies signing off on the letter include: AOL, Apple, Facebook,
Google, LinkedIn, Microsoft, Twitter, and Yahoo. It sure would have
been nice if the tech companies had been loudly supporting
intelligence reform before
Snowden's disclosures.
And
today, more than 500 authors delivered a petition urging the United
Nations to create an international bill of digital rights that would
enshrine the protection of civil rights in the internet age. The
signatories say the capacity of intelligence agencies to spy on
millions of people's digital communications is turning everyone into
potential suspects, with worrying implications for the way societies
work.
The
petition says the extent of surveillance revealed by Snowden has
challenged and undermined the right of all humans to "remain
unobserved and unmolested" in their thoughts, personal
environments and communications. "This fundamental human right
has been rendered null and void through abuse of technological
developments by states and corporations for mass surveillance
purposes."
The
statement adds: "A person under surveillance is no longer free;
a society under surveillance is no longer a democracy. To maintain
any validity, our democratic rights must apply in virtual as in real
space."
Demanding
the right "for all people to determine to what extent their
personal data may be legally collected, stored and processed",
the writers call for a digital rights convention that states will
sign up to and adhere to. "Surveillance is theft. This data is
not public property, it belongs to us. When it is used to predict our
behaviour, we are robbed of something else – the principle of free
will crucial to democratic liberty."
Have
you heard about the Doomsday File. Edward Snowden claims he didn't
bring a
single NSA document into Russia, but as journalist Glenn
Greenwald has hinted, he may have access to a trove of pilfered
documents stored on a data cloud. British and US intelligence
officials tell
Reuters they
think he may have a "doomsday" cache containing highly
classified material to ensure he won't be arrested or physically
harmed. He's believed to have enough data to keep the bombshell
reports coming for the next two years. It's unclear if intelligence
agencies know where the data is stored, but somehow they're aware
that at least three people have the passwords, which are only valid
at certain times each day.
Of
course today also the memorial service for Nelson Mandela. More than
100 current and former heads of state plus tens of thousands of
others, attended the service at a soccer stadium in Soweto. Jacob
Zuma, the current president of South Africa was booed. President
Obama shook hands with Cuban President Raul Castro. It was a peculiar
service, rambling and punctuated by high winds and a harsh rain. I
think the best quote of the day goes to President Obama, who said:
"Nelson
Mandela reminds us that it always seems impossible until it is done."
And while there were many dignitaries, it was a day for the people,
not the powerful.
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