It would appear hedge funds have hired an insufficient number of ex-regulators! Geithner wants to change this:
Treasury Secretary Timothy Geithner will ask Congress to bring large hedge funds, private- equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules.
…
Geithner’s framework would set up an independent overseer for systemically vital firms. While the Bush administration had proposed that the Federal Reserve take on that authority, Geithner won’t specify which agency should have the job. Bernanke has also called for a systemic-risk regulator, and said the central bank should have some role.
…
The administration’s framework would make it mandatory for large hedge funds, private-equity firms and venture-capital funds to register with the Securities and Exchange Commission, subjecting them to new disclosure requirements and inspections by the agency’s staff.
I will certainly agree that enormous bets by the shadow-banking system have had huge knock-on effects. However, I will note that:
- enormous bets by the banking system itself – and the equally regulated large brokerages – had effects that didn’t need to be transmitted.
- if a system can be destabilized by an outside force, it has too much exposure too that outside force
It is well within the purview of extant regulators to clean up their acts and impose concentration limits – by asset class and by counterparty – on their future employers. While they’re at it, they can also impose collateral requirements on these firms trading desks that would have required these firms to have collateralized their AIG exposure themselves, if there was insufficient money at AIG. This would have forced AIG to go under – or to cease writing new business – long before it became a systemic threat.
It would appear the biggest of AIG’s counterparties were brokerages, regulated by the SEC:
Lenders owed money from AIG’s derivative contracts were led by Paris-based Societe Generale with $11 billion, followed by Goldman Sachs with $8.1 billion; Frankfurt’s Deutsche Bank, with $5.4 billion; Merrill Lynch, at $4.9 billion; and Zurich-based UBS, which received $3.3 billion. The totals exclude amounts from securities-lending programs.
Of the biggest U.S. banks, JPMorgan Chase & Co. received $400 million from AIG, and Morgan Stanley got $200 million. Both are based in New York. Bank of America was given $700 million.
While the amounts for banks were large and total write-off could have spoiled a quarterly report, to call them a systemic risk seems a bit of a stretch. But what were the brokerages doing, having that kind of concentration risk? What was the SEC doing, allowing them to have that kind of concentration risk?
To address the problem this way, however, would force the regulators to give up their touching faith in the sanctity of a Credit Rating Agency’s opinions; and it would force regulators to admit that their response to the rise of systemic risk was inadequate. Ain’t gonna happen.
It’s looking like the UK may be heading for a financial crisis:
Brown, who had the backing of 30 percent of the electorate in a ComRes Ltd. poll last week, must now cope with what amounts to a vote of no confidence by investors in his ability to end the recession. Bank of England Governor Mervyn King, his ally for much of the past decade, warned a day earlier that there’s no more money for further spending.
…
The European Commission this week forecast Britain’s budget deficit would touch 9.6 percent of gross domestic product in the year ending March 2010, triple the EU limit.When the 1995 gilt auction failed, investors were concerned that John Major’s Conservative government was on course to lose the general election and was about to announce tax cuts it couldn’t afford. Now, it’s low interest rates that are to blame, according to Robert Stheeman, the head of the Debt Management Office, which manages gilt sales for the Treasury.
The Bank of England cut its benchmark lending rate to 0.5 percent this month, the lowest ever, and started a program to boost the money supply.
“Yields at these levels are not at all attractive,” Stheeman said yesterday. Opposition lawmakers seized on the comments from Stheeman and King to suggest Brown’s reputation for smooth handling of the economy is in tatters.
This evening’s seminar on SplitShares went quite well, I thought, despite going about fifteen minutes overtime. Geez, you know, I spend all my prep time worrying that I’ll only have fifteen minutes’ worth of material, and the last half of the seminar trying desperately to get back on schedule! The video will, eventually, be available on the Internet for your viewing pleasure.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0347 % | 868.5 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0347 % | 1,404.5 |
| Floater | 4.56 % | 5.41 % | 66,526 | 14.81 | 3 | -0.0347 % | 1,084.9 |
| OpRet | 5.25 % | 5.06 % | 130,597 | 3.88 | 15 | -0.1652 % | 2,063.9 |
| SplitShare | 6.75 % | 9.32 % | 49,036 | 4.78 | 6 | -0.3225 % | 1,645.8 |
| Interest-Bearing | 6.06 % | 9.05 % | 34,757 | 0.73 | 1 | 0.5076 % | 1,937.5 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1742 % | 1,505.0 |
| Perpetual-Discount | 7.20 % | 7.33 % | 156,235 | 12.16 | 71 | -0.1742 % | 1,386.0 |
| FixedReset | 6.13 % | 5.80 % | 620,969 | 13.75 | 31 | 0.1131 % | 1,810.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| LFE.PR.A | SplitShare | -3.40 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 7.39 Bid-YTW : 14.96 % |
| NA.PR.M | Perpetual-Discount | -2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 7.43 % |
| HSB.PR.D | Perpetual-Discount | -1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 16.40 Evaluated at bid price : 16.40 Bid-YTW : 7.68 % |
| CM.PR.E | Perpetual-Discount | -1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 7.58 % |
| SLF.PR.B | Perpetual-Discount | -1.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 14.89 Evaluated at bid price : 14.89 Bid-YTW : 8.13 % |
| BMO.PR.H | Perpetual-Discount | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 19.26 Evaluated at bid price : 19.26 Bid-YTW : 6.99 % |
| BNS.PR.N | Perpetual-Discount | -1.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 19.17 Evaluated at bid price : 19.17 Bid-YTW : 6.99 % |
| CM.PR.A | OpRet | -1.54 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2011-07-30 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 5.09 % |
| ELF.PR.G | Perpetual-Discount | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 13.40 Evaluated at bid price : 13.40 Bid-YTW : 9.13 % |
| RY.PR.A | Perpetual-Discount | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 6.65 % |
| MFC.PR.B | Perpetual-Discount | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 15.73 Evaluated at bid price : 15.73 Bid-YTW : 7.47 % |
| RY.PR.G | Perpetual-Discount | -1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 6.86 % |
| GWO.PR.I | Perpetual-Discount | -1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 14.80 Evaluated at bid price : 14.80 Bid-YTW : 7.66 % |
| RY.PR.F | Perpetual-Discount | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 16.41 Evaluated at bid price : 16.41 Bid-YTW : 6.89 % |
| MFC.PR.C | Perpetual-Discount | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 15.00 Evaluated at bid price : 15.00 Bid-YTW : 7.58 % |
| ELF.PR.F | Perpetual-Discount | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 14.76 Evaluated at bid price : 14.76 Bid-YTW : 9.25 % |
| BNS.PR.P | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 22.71 Evaluated at bid price : 22.81 Bid-YTW : 4.37 % |
| DFN.PR.A | SplitShare | -1.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.30 Bid-YTW : 9.32 % |
| CM.PR.G | Perpetual-Discount | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 18.01 Evaluated at bid price : 18.01 Bid-YTW : 7.51 % |
| PWF.PR.A | Floater | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 13.16 Evaluated at bid price : 13.16 Bid-YTW : 3.35 % |
| TD.PR.O | Perpetual-Discount | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 18.45 Evaluated at bid price : 18.45 Bid-YTW : 6.70 % |
| IAG.PR.C | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 21.51 Evaluated at bid price : 21.51 Bid-YTW : 6.22 % |
| POW.PR.C | Perpetual-Discount | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 18.82 Evaluated at bid price : 18.82 Bid-YTW : 7.74 % |
| PWF.PR.F | Perpetual-Discount | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 7.62 % |
| GWO.PR.F | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 19.45 Evaluated at bid price : 19.45 Bid-YTW : 7.65 % |
| BNS.PR.Q | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 21.86 Evaluated at bid price : 21.90 Bid-YTW : 4.28 % |
| TD.PR.R | Perpetual-Discount | 1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 21.45 Evaluated at bid price : 21.45 Bid-YTW : 6.66 % |
| SBN.PR.A | SplitShare | 1.57 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.41 Bid-YTW : 8.96 % |
| BMO.PR.M | FixedReset | 1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 22.20 Evaluated at bid price : 22.26 Bid-YTW : 4.11 % |
| PWF.PR.I | Perpetual-Discount | 1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 20.90 Evaluated at bid price : 20.90 Bid-YTW : 7.33 % |
| BNS.PR.R | FixedReset | 1.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 21.62 Evaluated at bid price : 21.66 Bid-YTW : 4.52 % |
| BAM.PR.B | Floater | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 8.10 Evaluated at bid price : 8.10 Bid-YTW : 5.41 % |
| PWF.PR.H | Perpetual-Discount | 1.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 17.80 Evaluated at bid price : 17.80 Bid-YTW : 8.27 % |
| BAM.PR.H | OpRet | 1.95 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2012-03-30 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 8.05 % |
| PWF.PR.G | Perpetual-Discount | 2.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 7.78 % |
| GWO.PR.G | Perpetual-Discount | 3.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 16.90 Evaluated at bid price : 16.90 Bid-YTW : 7.76 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.P | FixedReset | 51,994 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 25.29 Evaluated at bid price : 25.34 Bid-YTW : 5.96 % |
| TD.PR.I | FixedReset | 48,560 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 24.94 Evaluated at bid price : 24.99 Bid-YTW : 5.97 % |
| TD.PR.E | FixedReset | 45,550 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 25.21 Evaluated at bid price : 25.26 Bid-YTW : 6.11 % |
| TD.PR.G | FixedReset | 36,575 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 25.25 Evaluated at bid price : 25.30 Bid-YTW : 6.09 % |
| BNS.PR.X | FixedReset | 30,325 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-26 Maturity Price : 25.27 Evaluated at bid price : 25.32 Bid-YTW : 6.14 % |
| LFE.PR.A | SplitShare | 28,755 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 7.39 Bid-YTW : 14.96 % |
| There were 31 other index-included issues trading in excess of 10,000 shares. | |||