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Seems fitting that I found this on Father's Day. I'd trade 100 Princeton Economic Chairs for 1 "unemployed since 1954" Martin Meyer any day.
http://us1.institutionalriskanalytic...ry.asp?tag=287
The whole piece is a gem but a couple of things stood out:
I have never seen the problem with bank deregulation - i.e., the repeal of Glass-Steagall or the breaking down of the barriers between Investment and Commercial Banking - so clearly laid bare as here:
"The way I like to put it is that the commercial banker wants to know how am I going to be repaid, the investment banker asks how am I going to sell the paper. These two attitudes really do not coexist well together."
Or on the OTC markets and innovation as a codeword for regulatory arbitrage:
Mayer: One of the problems I have with the OTC markets and the arguments that we mustn't cramp innovation is that a lot of what is called innovative is simply a way to find new technology to do what has been forbidden with the old technology.
The IRA: Yes, techno-regulatory arbitrage. What a lovely thought; using new technology as a means for committing financial fraud. It's kind of like the affordable housing and innovative financing games.
Mayer: Yes. Innovation allows you to go back to some scam that was prohibited under the old regime. How can you oppose innovation? The fact that the whole purpose of the innovation is to get around the existing regulation never seems to occur to regulators or members of congress.
Or on the seriousness of our current predicament:
Mayer: What is happening on this LIBOR business? That is a very strange story that the five big banks are cooking their books on reporting LIBOR.
The IRA: Well, with many banks now struggling to fund themselves, the larger banks don't want to be seen as aggressively bidding in the funds markets for fear of starting a reputational issue a la Bear, Stearns (NYSE:BSC) or Lehman Brothers (NYSE:LEH). LIBOR is a manifestation that global investors don't want to lend to US or even EU banks.
Mayer: That is a very serious statement.
The IRA: Meanwhile, our friend John Dizard reports in the FT that the bond markets are once again back in negative basis territory, meaning that you can buy the bond of a corporate and purchase credit default swaps or CDS insurance for less than the yield on the bond. In theory, a risk free trade, assuming that party providing the protection pays.
Mayer: But the question is: What is that protection really worth? You have a claim on a counterparty. And there is a vast system of counterparties in this OTC market behind which, in theory, the Federal Reserve now stands. It's not a stable situation. People are still hiding losses. The notion that the Fed is taking junk paper from dealers and swapping Treasury debt so that these guys have something to repo is outlandish. This is one reason why I am not sure whether Ben Bernanke knows what he is doing.
If the markets actually valued wisdom and sound judgement Martin Mayer would be a household name and it would be Cramer who? (Same applies to Jim Grant IMHO.) Happy Father's Day Mr. Mayer.
http://us1.institutionalriskanalytic...ry.asp?tag=287
The whole piece is a gem but a couple of things stood out:
I have never seen the problem with bank deregulation - i.e., the repeal of Glass-Steagall or the breaking down of the barriers between Investment and Commercial Banking - so clearly laid bare as here:
"The way I like to put it is that the commercial banker wants to know how am I going to be repaid, the investment banker asks how am I going to sell the paper. These two attitudes really do not coexist well together."
Or on the OTC markets and innovation as a codeword for regulatory arbitrage:
Mayer: One of the problems I have with the OTC markets and the arguments that we mustn't cramp innovation is that a lot of what is called innovative is simply a way to find new technology to do what has been forbidden with the old technology.
The IRA: Yes, techno-regulatory arbitrage. What a lovely thought; using new technology as a means for committing financial fraud. It's kind of like the affordable housing and innovative financing games.
Mayer: Yes. Innovation allows you to go back to some scam that was prohibited under the old regime. How can you oppose innovation? The fact that the whole purpose of the innovation is to get around the existing regulation never seems to occur to regulators or members of congress.
Or on the seriousness of our current predicament:
Mayer: What is happening on this LIBOR business? That is a very strange story that the five big banks are cooking their books on reporting LIBOR.
The IRA: Well, with many banks now struggling to fund themselves, the larger banks don't want to be seen as aggressively bidding in the funds markets for fear of starting a reputational issue a la Bear, Stearns (NYSE:BSC) or Lehman Brothers (NYSE:LEH). LIBOR is a manifestation that global investors don't want to lend to US or even EU banks.
Mayer: That is a very serious statement.
The IRA: Meanwhile, our friend John Dizard reports in the FT that the bond markets are once again back in negative basis territory, meaning that you can buy the bond of a corporate and purchase credit default swaps or CDS insurance for less than the yield on the bond. In theory, a risk free trade, assuming that party providing the protection pays.
Mayer: But the question is: What is that protection really worth? You have a claim on a counterparty. And there is a vast system of counterparties in this OTC market behind which, in theory, the Federal Reserve now stands. It's not a stable situation. People are still hiding losses. The notion that the Fed is taking junk paper from dealers and swapping Treasury debt so that these guys have something to repo is outlandish. This is one reason why I am not sure whether Ben Bernanke knows what he is doing.
If the markets actually valued wisdom and sound judgement Martin Mayer would be a household name and it would be Cramer who? (Same applies to Jim Grant IMHO.) Happy Father's Day Mr. Mayer.
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