Bloomberg – Bond desks shrink

September 24, 2014

Interesting Bloomberg article on disappearing profits in the bond trading world as bond trading volumes increase, due to increased transparency in the market. The framing is of the poignancy of a dying breed of bond traders and an industry in decline. However, it is not clear that world has been made a bleaker place due to the decline of bond trading as a way to make big money.

From the article:

“While the size of the U.S. bond market ballooned by more than $5 trillion since 2008 to $37.8 trillion at year-end, trading in the debt has slumped, according to data from the Securities Industry & Financial Markets Association. Average daily turnover fell to $809 billion last year from $1.04 trillion in 2008.

That’s partly because banks have pulled back from making markets in bonds as higher capital requirements make it less profitable. The business — where buyers and sellers are primarily matched over the telephone or through e-mails — has also suffered shrinking margins because of regulator-mandated price transparency and the rise of electronic trading.”

…and this…

“Since the credit crisis, jobs and compensation have declined as Wall Street retrenched. Total pay at the biggest banks has fallen as much as 50 percent for high-yield and investment-grade traders and up to 25 percent for distressed-debt traders since 2010, according to New York-based recruitment firm Options Group. (OPMG)….The decline of the profession matters because it’s become harder for everyone to buy and sell debt as banks cut the amount of capital they’re devoting to trading.”

How “economic recovery” is affecting haves and have-nots

May 6, 2013

Tom Keene on Bloomberg Surveillance: Interview with The Conference Board’s Kathleen Bostjancic, May 6, 2013

TK: Your chart on net worth, we’ve got to come back and talk about this.  It’s all been about the equity markets – real estate makes a little bit of a comeback – how does that skew to the “Haves”?  It’s a huge skew, isn’t it?

KB: Yeah.

TK: I mean what is it? It’s like ten percent of the public?

KB: Well, you know it’s only the top 50 that even directly or indirectly own equities, so it skews very heavily to the top, and it’s fair to say it would probably be the top ten percent, and that unfortunately exacerbates maybe the largest economic problem that we have, is the growing inequality in America, and that just continues, as you said, to push that further and further.  The income gains that we have seen so far have not gone to the average worker.  Higher income workers, higher skilled workers are doing a bit better, holders of capital and assets have done better, but as the employment data showed on Friday, we get surprisingly maybe moderately better numbers, but average hourly earnings are stuck at 1.9% year on year.

The cardinal maxim (from Bagehot)

July 8, 2012

“The cardinal maxim is, that any [government] aid to a present bad Bank is the surest mode of preventing the establishment of a future good Bank.”

Walter Bagehot, Lombard Street

Incredible move by B of A to make FDIC (and taxpayers) liable for derivatives losses

October 18, 2011

Why the German government cannot resolve the European financial crisis quickly

October 18, 2011

“If you try to get to the European crisis with economic rationality you will be mistaken.  What you have to do is you need to look at the legal framework, and you have to understand the legal framework.  And unfortunately the German constitution is very different when it comes to flexibility when compared to the US or to the French constitution, and that has a lot to do with Germany’s past.  So they have written a constitution in 1948 to avoid that [in] the course of emergency laws you can take a democracy back into dictatorship, therefore the hurdles are very high and that implies as well for the current situation.  And therefore I am afraid we will have to deal with this constitution, and that is going to make the process of European integration quite slow.”

Hans Guenter Redeker, head of foreign-exchange strategy at Morgan Stanley in London, speaking on Bloomberg Surveillance on Oct. 17, 2011

The ESFS is a mechanism for increasing the debt burden of European taxpayers

October 15, 2011

“The expanded powers of the 440 billion-euro ($600 billion) EFSF would allow the fund to buy the debt of stressed euro-area nations, aid troubled banks in the region and offer credit lines to governments. The EFSF’s current role is to sell bonds to finance rescue loans.”

read the full article at:



It appears as though financial markets are breathing a sigh of relief in the belief that the European Financial Stability Facility (EFSF) will be able to stanch the threat of “disorganized” default in Greece and beyond.  The ESFS is a remarkable mechanism.  It is widely referred to as a rescue fund.  But what kind of rescue is it really?  The ESFS provides a resource for European governments that are tapped out, and could not on their own borrow more money, to borrow from.  The money is provided to allow the borrowing country to  make sovereign debt (bond) payments, bail out their banks and, by extension, bail out the counter-parties of their banks, many of which are other European banks.  The money is absolutely not provided for the purpose of providing fiscal stimulus – government spending – that might stimulate the economy and (if properly deployed) generate new wealth.  No, the money is provided to pay prior debts, and it itself must be paid back.  Ponzi scheme, anyone?  What it all amounts to is adding yet more debt to the public tab while protecting the financial markets and investors from losses…for now.  The rationale for doing so is the carnage that would be created by “disorderly” defaults, and that a “Lehman-like” freeze-up of the financial system would wreak havoc on the global economy.   Thus, the economy is held hostage, and the governments (read: taxpayers) are being ransomed.  And make no mistake, the economy is genuinely hostage.  Defaults would, and will, cause severe and unpredictable economic damage.  Of course, it is hard to believe that the system will be able to make any eventual default “orderly.”  Default will be disorderly thanks to the impossibility of understanding the chain of exposures created by credit default swaps (CDS) and synthetic securities constructed from them.  Since CDS are contracts between two parties, there is no way the outside world can predict the chain of failures that a “credit event” (read: default) would unleash.  Presumably European regulators (and those in other countries) have been demanding that banks come clean and show them all the contracts to give them some idea of the chains of relationship.  Maybe that is the justification for raising the debt still further just to buy time.  Who knows.  One can only hope.  But chains is the right word…the new chains of servitude are paper chains.

The debt trap of trying to join the rentier class

September 14, 2011

“The distinguishing characteristic of economic rent is that earning it requires no effort whatsoever. Indeed, the regular rent tenants pay landlords becomes economic rent only after subtracting whatever amount the landlord actually spent to keep the place standing. Most members of the rentier class are very rich. One might like to join that class. And so our paradox (seemingly) is resolved. With the real estate boom, the great mass of Americans can take on colossal debt today and realize colossal capital gains—and the concomitant rentier life of leisure—tomorrow. If you have the wherewithal to fill out a mortgage application, then you need never work again. What could be more inviting—or, for that matter, more egalitarian?  That’s the pitch, anyway. The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.”

Michael Hudson, in The New Road to Serfdom, An Illustrated Guide to the Coming Real Estate Collapse, published May 2006 in Harper’s


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