Felix Salmon

Why we should ban reverse converts

June 18, 2009

I had no idea what a can of libertarian worms I was opening when I suggested that the sale of reverse convertible bonds should be banned. I dealt with one line of objections last night — the silly idea that since reverse convertibles are basically a put-writing strategy, and since Warren Buffett writes puts, then reverse convertibles must be kosher.

UK banks are too big

June 18, 2009

Peter Thal Larsen picks up on a potentially-explosive quote from Bank of England governor Mervyn King last night: that “if some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big”. King, of course, is the UK’s top bank regulator, which means that some of the biggest banks in the world ought to be feeling rather worried right now: too-big-to-fail banks dominate the UK banking system.

Wednesday links translate quite well

June 17, 2009

Chittum reviews Tett

Translate the white paper! Mike O’Sullivan’s Financial Reform Glossary

Kedrosky calls California “Latvia by the Pacific“: “while California won’t default, for practical purposes it should”

More on the reverse-convert scam

June 17, 2009

Nick Schulz and Philip Guziec are both pushing back against my assertion that reverse convertible bonds are a scam, and they’re both wrong.

The recipe for effective regulation

June 17, 2009

There’s no doubt that Barack Obama gives a good speech:

Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators lacked accountability for their inaction.

Introducing prize-based savings to the US

June 17, 2009

Matthew Bishop is tweeting from the Global Financial Literacy Summit in Washington today, featuring not only Ben Bernanke but also Sheila Bair. This is particularly intriguing to me:

How much do chief risk officers talk to each other?

June 17, 2009

Algonaut asks whether the Financial Services Oversight Council will have a direct line to banks’ chief risk officers; I’m sure the answer is yes. But I also think that won’t be enough. What I’d love to see — and this could be put in place directly by the major banks, without the need for any legislation at all — would be a regular formal meeting of all the big banks’ chief risk officers, where they can talk about all the systemic risks they’re worried about which require coordinated response. Does anything like that exist? Is there some way in which the FSOC or the Fed could use its moral suasion to make it happen?

Why the SEC won’t merge with the CFTC

June 17, 2009

David Sunstrum emails with an interesting idea:

I know the big surprise of the last couple weeks was how the SEC would survive Obama’s regulatory shakeup. But the paper repeatedly states (bottom of p. 6 for instance) an intention to harmonize regulation between futures and securities. Could they be paving the way for a merger of the CFTC and the SEC in the not-too-distant future? Did he not want “Obama abolishes SEC” headlines?

The US move to principles-based regulation

June 17, 2009

Remember the regulatory arbitrage whereby clever use of securitization could reduce the amount of capital that banks needed to hold without reducing the amount of risk on their balance sheet? Well, the white paper wants to put an end to such shenanigans: