This isn’t the first time that George Soros has wheeled out this particular argument against credit default swaps:
The UK government has finally published — in the waning days of the Brown government — its take on vulture funds, and whether there should be legislation trying to ban their activities. It’s not clear whether the report has the backing of the Conservatives, but it is clear that a lot of good-faith hard work has gone into it, and that it’s not in any way a knee-jerk piece of populist financier-bashing, a la Maxine Waters.
Tyler Cowen has a copy of Gary Gorton’s new paper, and likes it. The excerpt he gives us raises a serious point about fragilities in the banking system: banks fund themselves in the repo market so much that they need about $12 trillion of collateral just to keep ticking over. So if you implement a 20% haircut on repos, banks would need to raise $2 trillion, which is impossible.
Memo to Lucas van Praag and the rest of the Goldman Sachs communications machine: you are broadly considered to be out of touch, living large on Planet Billions while the rest of us struggle in one of the harshest economic environments of the post-war era. You might want do something about that. Characterizing €2.367 billion as being “a rather small” amount of money is not going to help.
Are you still working your way through that 10,600-word Paul Krugman profile in the New Yorker? If you haven’t finished it yet, I strongly suggest you give up — you’re not going to learn much, beyond the names of his cats — and go read Jed Rakoff’s ruling in SEC vs Bank of America instead. It’s much more trenchant, much better written, and much more interesting.
The outcome of this suit — if it’s ever made public — is going to be very interesting. JP Morgan advised Consolidated Minerals when it received a series of takeover offers: as the adviser to the target company, it was pretty much guaranteed a fee, no matter who ended up buying the company. The question is just how much of a fee it was going to get.