Week InReview | And we want to restart the CDS market, because...? | Are ETFs preparing for a liquidity crisis and a market meltdown? | Banks just say no to weed; Treasury says yes | Fibbing about MBSs | Binge reading disorder: Some new ways to crash the financial markets
Friday, May 15, 2015
And we want to restart the CDS market...
     because...?
(May 11) Last week, Bloomberg reported a push to revive a type of derivative known as the single-name credit default swap, the CDSs blamed for exacerbating the financial crisis of 2008. After regulators mandated that trades for standardized products be processed via centralized clearing, some in the industry have expressed concern about a race to the bottom, whereby clearinghouses, focused on profit growth, include products that are less liquid than so-called plain vanilla derivatives such as interest rate swaps and credit indices.
Are ETFs preparing for a market meltdown?
And there's that 'L' word again
(May 13) The companies that run some of the largest exchange-traded funds in existence are deeply concerned about what a lack of liquidity would mean for them during the next financial crash. So right now they are quietly bolstering bank credit lines so that they will be better positioned for a market meltdown. The measures come as the Fed and other U.S. regulators express concern about the ability of fund managers to withstand a wave of investor redemptions in the event of another financial crisis.
Banks just say no to weed
As Treasury pushes them into business
May 12) It's been just over one year since the Treasury's Financial Crime Enforcement Network (FinCEN) first provided instructions to banks on how they can both accept marijuana business dollars - now estimated at $3 billion a year - and still comply with the law. Yet few banks have opened their doors. The government wants to tax the revenue and keep it away from organized crime. But at the same time, federal bank regulators have remained silent on the issue. 
Fibbing about mortgage-backed securities
The stuff judicial opinions are made of
(May 12) On Monday, Denise Cote, a federal judge in New York, published a massive history of the financial crisis in the form of an opinion in a lawsuit brought by the FHFA against Nomura and RBS, accusing them of selling shoddy mortgage-backed securities. Even if you can't stomach all 361 pages, it gets right to the point.
This case is complex from almost any angle, but at its core there is a single, simple question. Did defendants accurately describe the home mortgages in the Offering Documents for the securities they sold that were backed by those mortgages? Following trial, the answer to that question is clear. The Offering Documents did not correctly describe the mortgage loans. The magnitude of falsity, conservatively measured, is enormous.
Binge Reading Disorder
Some free-range weekend reads
  • New Ways to Crash the Market (New Yorker)
  • What Would You Pay to be Happy? The source of our happiness is closer than ever to being located, measured and commodified. (The Guardian)
  • The Most Creative People in Business (Fast Company)
  • What Hollywood Can Teach Us About the Future of Work (NY Times)
  • Male Investors vs. Female Investors: Studies show men and women could learn from the other's approach (WSJ)
Transparency.
Inclusiveness.
Consensus.