Contributing Member of the Financial & Business Services Councils

All News Analyses by this Author

An Interesting Idea Obviously Made by Policy Makers Not Industry Experts

July 20, 2009

Analysis of:EU derivatives plans focus on clearing | uk.reuters.com

I think it is safe to say that the CDS Market will be “standardized” as much as possible after the events that lead up to the Credit Bubble last fall.  However, going about this process is more complicated than many believe. What is striking is the difference between where the US and the EU want to place power.  As politicians, who do not fully understand the inner workings of the Markets, are making decisions there are some gapping holes in their plan. 

Can a Wall Street CEO Explain a Credit Default Swap to Their Teenager?

March 30, 2009

Analysis of: "Daddy, tell me, what exactly is a derivative?" | www.ft.com

Obama is having difficulty explaining "toxic assets" to Americans.  With dismal Financial Literacy most Americans do not even understand stocks and bonds. The events of the past 6 months has motivated them to seek out education. The larger problem that Washington faces is how will it regulate an industry when the people running it do not understand the core concepts of their businesses.  With little knowledge of the financial markets and complex products, Wall Street is being led by people who do not understand what their traders are trading. 

Exchange Entrance into OTC Markets Provides Checks and Balances

February 3, 2009

Analysis of:Exchanges are already muscling into the unruly over-the-counter market | www.economist.com

Over the Counter Derivative Markets exist because they provide access to trading products not listed on Exchanges.  These Markets can serve a good purpose if used for hedging. As we look back at the activity over the past few years, it is obvious that the OTC Market became a vehicle to trade a variety of complex products.  There are two issues to be addressed: why firms traded these unquantifiable assets and why no one anticipated real counterparty risk?

Is America Watching the Macro Economic Picture?

January 9, 2009

Analysis of:Is America Watching the Macro Economic Picture? | www.ft.com

The German government acted quite nonchalant Thursday after a 10 Year Bond Auction failed.  The Auction raised 87% of the needed 6 billion Euros.  To many watching the Bond Market, the failure triggers fears that the World Economy is worse than expected and that governments may not be able to raise money via their Central Banks.

Wall Street Blabber Compounding Confusion and Investor Doubt

October 10, 2008

Analysis of:On Wall St: A little less conversation By Francesco Guerrera | www.ft.com

When faced with unprecedented lack of confidence the public is flooded with statements from Executives across the Financial Sector comparing the recent downfall of their firms to natural disasters.  Natural disasters cannot in anyway be avoided.  The use of this egregious analogy only furthers public panic as it suggests that the collapse of the economy could not be circumvented.  The current situation is aggravated by constant negative and confusing news flooding newspapers, television and the internet.

Calling all Risk Managers

October 3, 2008

Analysis of:Why Risk Models Failed to Spot the Credit Crisis by Adam Davidson | www.npr.org

The eyes of the world are focused on Washington where the SEC, the FED and Congress debate how they are going to execute the massive bail out announced last week.  As a derivatives trader who sits in the trenches, I am more concerned about a larger issue.  Where were the Risk Managers of these firms as they doubled down on exotic derivatives and traded credit default swaps as if they were shares of  IBM?  How in a world of endless quantitative models could we have ended up here in the midst of the largest credit crisis of all times?  Washington would like us to believe the short sellers created this fiasco.  Short sellers may have exasperated the present situation but the storm has been brewing for years.  I strongly believe there has been a systematic failure in the area of Risk Management.

The Impact of Banned Short Selling on Stock Valuation and Liquidity

September 23, 2008

Analysis of:SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets | www.sec.gov

The SEC managed to subdue the panic as the markets rallied last Friday.  In uncertain times, perception or the illusion of stability in the markets can be invaluable.  The key word being value.  The government's actions last week, while seemingly positive, have created a vacuum in which certain stocks can trade without the friction of short selling.  Removed from the free marketplace, and subject to aberrant supply and demand, what is the true value of these stocks?  Furthermore, in these anomalous markets who will provide liquidity?

CME to Benefit from Merger

February 1, 2008

Analysis of:CME-Nymex: Good Deal? | online.wsj.com

As the CME antes up a large bid for the NYMEX, outsiders wonder whether this merger could put the US Futures Markets in peril.  The mega exchange resulting from this merger would be very close to a monopoly.  The CME is not concerned over antitrust laws because it was successful in acquiring the CBOT.  The enormous difference here is that if this merger were to occur, almost all futures would be traded on one exchange and that is a completely different antitrust issue.  Only the publicly traded CME entity can be certain to gain from the proposed merger.

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