This is interesting. According to the article, with the Dodd-Frank regulation put through in 2010, it looks like the new rules now gives restrictions on U.S. banks that have access to the Federal Reserve discount window, in contrast, foreign banks that have U.S. branches do not get access to the discount window but “can” trade in derivatives.
This creates the issue on banking preference depending on your country of origin. I do agree that banks that take part in derivatives trading, should not have access to u.s backstops reserved for deposit taking commercial banks.
CNBC (Financial Times) – The U.S. Federal Reserve is weighing a plan that would allow big foreign banks to avoid costly regulatory changes that were meant to prevent derivatives trading from being subsidized by U.S. taxpayers.
I didn’t want to jump all over this story because it seemed to be really hyped up. First I saw headlines that were talking about “a fresh look at banking regulations because of loss”, like we didn’t need to strengthen them after the 2007-08 crisis. As if we all just forget about the trillions of dollars that were sucked out of the market, declining housing prices and major government support to almost any companies that could call themselves a “financial institution”.
I hope our attention span is longer than that.
Now I am reading on CNBC that the $2 billion was just an initial estimate and these positions are not “unwound” and could still materially affect the bottom-line of JP Morgan. At the same time I am hearing of a possible default and exit of Greece in Europe. From what I have read, it looks like these bets are connected to Europe and if they are taking a bath like this, it would be safe to assume they have some exposure to this developing situation. Many experts were stating on the record that the European debt crisis was not over and that all the stop-gap measures the ECB was implementing were not permanent fixes. Could this be the straw that breaks the camels back and starts unforeseen events down the road?
The Federal Reserve did meet today and it seemed to be warming to the possibility of more stimulus to support our “recovery”. Emphasis was added because it still feels like we are still in the same muck as before with gas and food prices becoming more elevated. Gold prices have been soft as of late but it is May so we will need to sit back and see what transpires.
CNBC - The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank.
This is unfortunate events but in the end, these functions are beneficial. By taking the pain now and restructuring programs to meet the available funds for ongoing operations. We will and need to see much more of this so we can not have states running unsustainable budgets that they will not impose taxes and fees to cover.
Bloomberg - Providence Mayor Angel Taveras has put pressure on Brown University and other nonprofit organizations to help close a budget gap of at least $20 million, while Governor Lincoln Chafee is pressing lawmakers for action on measures to curb municipal pension costs. Unsustainable retiree expenses helped push Central Falls (1058MF) into insolvency. Moody’s Investors Service cut Providence debt a step to Baa1, third-lowest investment grade, this week citing its “strained” finances.
“Bankruptcy is not the preferred option for restoring Providence’s fiscal health; it is the last option, and I will do everything in my power to prevent it from happening,” Taveras said in a statement in response to a request for comment on Flanders’ remark. “I respectfully disagree with Judge Flanders that bankruptcy is unavoidable.”
Hopefully this will work out in the end and this nation among others will get their budget and entitlements in order. At the end of the day, you need to have services that match what you can tax from your people so that you are not incurring debt that can have disastrous effects in the long run.
This is a major issue America will tackle over the next 50 years and hopefully we will learn a lesson that will stick with our citizenry and be taught to future generations. We need to break this horrible habit of believing there is such a thing as a “free lunch”. There always is a cost at some point that needs to be addressed and or offset.
Bloomberg – Banks, hedge funds and other investors that sold credit-default swaps protecting against losses on Greece bonds paid a net $2.89 billion to settle the contracts, according to the Depository Trust & Clearing Corp.
The payouts were completed yesterday after the nation took steps to force investors this month to participate in the biggest sovereign-debt restructuring in history, New York-based DTCC, which runs a central repository for the market, said in an e-mailed statement today.
This may be the signal for another round of downgrades in the Euro zone. With Germany, the Euro-star also seeing a reduction in GDP, could this be the signs of a recession? It has been quite quiet in the Euro-zone over the last 6 weeks with many analysts wondering what would trigger more downward pressure. Too much complacency in my opinion, yes it is a election year in the United States but we have not gotten our house in order and many parts of the world have just been masking the problems, not addressing them in any meaningful fashion.
Look to see how markets open in the U.S. on this news, if we see a sharp sellout, it could be a sign for more things to come.
The euro fell in early Asia-Pacific trading after Standard & Poor’s stripped France of its top credit rating and cut eight other euro-zone nations, magnifying concern the region’s financial turmoil will intensify. The shared currency depreciated in each of the past six weeks against the dollar, dropping to a 16-month low. European leaders are divided and falling behind in their response to the sovereign-debt crisis, Frankfurt-based Moritz Kraemer, S&P’s managing director of European sovereign ratings, said on a Jan. 14 conference call.