It's a long read, but very interesting:
http://www.economist.com/news/essays/21 ... cialcrises
The gist: every time a financial crisis occurs the same pattern emerges. We patch things up, blame some kind of rule that is missing or not functioning. We institutionalize new ways of working which always gives rise to some unintended consequences. Sooner or later new reckless credit expansion follows, and the cycle repeats.
Not in the article, but it reminded me of the situation with JP Morgan beginning this week. Their stock opened -20%, and for a company with a market cap of over $100B that is a big deal. It would not have happened if JPM or other banks would still have been allowed to operate their own prop desk. It's already clear that this rule will create liquidity problems in the future.
aftermath of financial crises
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marksmeets302
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Received a semi annual report from a hedge fund I invest in:
"Looking forward
The implementation of the fourth Capital Requirements Directive, which reflects the latest global standards on bank capital adequacy commonly known as Basel III, causes higher capital charges for, among others, banks and clearing brokers. Consequently, the cost of trading will probably increase and indirectly might lead to less liquidity in markets."
"Looking forward
The implementation of the fourth Capital Requirements Directive, which reflects the latest global standards on bank capital adequacy commonly known as Basel III, causes higher capital charges for, among others, banks and clearing brokers. Consequently, the cost of trading will probably increase and indirectly might lead to less liquidity in markets."
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marksmeets302
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If you buy or sell a stock or future your counterparty is the clearing, and those guys are required by basel 3 to be less leveraged than in earlier years. Hence they cannot make us much money as they used to. Of course they don't like this so they charge more to their counterparties (you, or in this case the fund). "Basel 3" is a set of rules that apply to banks, clearers and other financial institutions to make sure we'll never have a financial crisis again (ahum).
Got it. I am always a bit wary of these type of beaurocratic attempts to limit market activity. In the end it will just mean it costs more to trade and the markets. I wiuld like to know if the people who came up with these proposals know anything about the market. I would guess few if any have ever traded. Banks and big firms will always find a way around the rules so i agree with you that the idea they can avert financial crisis is laughable
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marksmeets302
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To their credit, these are heavyweights from the ranks of central banks etc.I wiuld like to know if the people who came up with these proposals know anything about the market.
No doubt. Its just that in my experience the regulators are often misguided with their focus. It has been certainly the case with HFT. The fact is that the reason we have near efficient markets today, with penny wide spreads is because there are liquidity providers, and hft traders in there. If we remove them will be back to the days of wide markets and zero value for retail customers. So i am similarly concerned that ideas such as Basel II, although well intentioned might bring to bearmarksmeets302 wrote: To their credit, these are heavyweights from the ranks of central banks etc.