Now raising intellectual capital

What Agnes forgot to say

My colleague Agnes Crane has a good post up about the Justice Department’s investigation into potential pricing irregularities in the credit default swaps market. And she’s right in questioning whether this investigation will add up to much.

But there’s one other thing I would point out, which is that the investigation is a civil matter being led by the Justice Department’s antitrust division. If this were a criminal investigation, it would be a more serious matter.

The antitrust team at the Justice Department has an uneven track record. Often that depends on the political philosophy of the person sitting in the White House. Under the Bush administration, anti-trust was almost a four-letter word. However, it does appear that Obama administration plans to be more vigilant in cracking down on monopolistic practices.

But that being said, anti-trust investigations have a history of leading nowhere. That’s in part because the best enforcement lawyers at Justice tend to be on the criminal side.

What’s the Justice Department’s angle on derivatives?

Lots of posts and articles are circulating about the Department of Justice’s investigation into the derivatives market and specifically the dealers that own Markit – the administrator of popular credit default swaps indexes and aggregator of CDS prices.

Yet, I must say I’m not sure what the investigation hopes to turn up. Instead, it looks more like the Obama Administration flexing its muscle to let banks know that it’s serious about derivatives regulation just in case they didn’t get the point when the government released its white paper on regulatory overhaul last month.

Indexing the elite’s creditworthiness

This isn’t such a good sign for developed nations. Markit, the administrator of popular credit derivative indexes, has created another long-winded index, the Markit iTraxx SovX G7, to track the ups and downs in default risk perceptions of elite industrialized nations.

Sure, the index is part of a suite of indexes that will track the sovereign risk of other nations, but its inclusion is symbolic of how far developed nations like the US have fallen. I remember one journalist being heckled after he raised even the prospect of the US losing its AAA status a few years back. Now you can’t get away from the back and forth debate of ”is it or isn’t it worthy.”