Wednesday, January 18, 2012

Volcker Rule, Proprietary Trading and...

concerns expressed by some, mostly those whose bonuses, options and or compensation depend(ed) on it or their political sock puppets, over the free flow of capital.

Let's be clear - proprietary trading is a misnomer. How's that?
In the past, trading did NOT take place, HOLDING did and valuing prop positions with home grown computer models for proprietary profit. In fact, at the end of 2007, summing up such holdings came to a breezy $16T; correct $16T of assets owned (NOT traded, perhaps never) but NOT paid for. Hiding of marks seem to have taken place too - when certain people take the time to READ a 518 pp FCIC document.

Since the sponsors of proprietary trading have been called out for what they are, the next rallying point "free FLOW of capital" also fails.

The 2007/8 financial crisis is THE case study that prop trading INHIBITED, indeed was the polar opposite of the free flow of capital. How or why else would the Fed, lender of last resort, have to take action, under extreme, exigent circumstances and step up and rescue, with $1.2T in CASH in exchange for certain prop trading securities, if assuming arguendo prop trading had any positive effect on the free flow of capital? I'm not even going to list the trillions of dollars of amelioration (attempts) on behalf of the erstwhile prop trader aficionados - please spare me.

The champions of prop trading, do not even have support in the "end justifies the means" and are EVEN MORE preposterous, disgusting, revolting, and abhorrent as saying (with apologies in advance, if I offend any victims) "A few guys, got drunk and just gang raped your sister but it's ok, because society benefits from an increasing birth rate, and a growing, younger population, not worrying about the fact that the victim contracted AIDS as a result of the brutal attack."

YES - that's it - certain prop trading units on Wall St gave Main St and the rest of the US and world real economies AIDS from private, exclusive financial sex orgies going on ALL NIGHT LONG.

If, the bonus cry babies, false flag waving, money sucking vampires and their considerable, ill-informed, lobbying corp d'esprit inside the beltway WANT to fix the problem then all that's required is a few simple, doable things:

Disclose EVERY trade on an independent exchange or platform
Clear EVERY trade on an independent clearing agent
Every trade would include any security including any and all private placements of any stripe or regulation, future, option, currency, derivative, credit default swap contract, or any other new financial interest or contract on (or derivative of) any of the above
Hedge funds, need to disclose, just like their 1940 Act competitors, holdings (long, short, repo, swap, etc.) twice per annum.

On that basis, let the largest, most sophisticated financial institutions TRADE (that's an action verb) all they want as long as it's arms-length and market - based; THEN AND ONLY THEN THE MARKET WILL SEE CAPITAL TRULY and EFFICIENTLY FLOW.

The SEC terminated the CSE (Consolidated Supervised Entity program) on September 26, 2008 for a reason - EVERY SINGLE CSE FAILED, MERGED OR CEASED OR APPLIED TO BECOME LUCKY DISCOUNT WINDOW BORROWERS AS BHC'S ON SEPTEMBER 21, 2008- including:
Bear Stearns,
Lehman Bros.,
Goldman Sachs,
Merrill Lynch,
Morgan Stanley.

Period, full stop.

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