Comments on: Why banks shouldn’t trade A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: ExaminerCarter Wed, 10 Oct 2012 20:00:24 +0000 BTW, you probably also ought to read “How Basel 2.5 beached the London whale” jpm.pdf

I thought this was the money quotes:
“There is a danger that banks shift from controlling risk to controlling RWAs. They are not the same thing. It’s a logical response to new regulation, but it’s not prudent risk management,” says Alistair McLeod, head of portfolio analytics at Barclays in London. “If you have an environment where return on capital is a principal, perhaps even the main driver of profitability, which is definitely what we are moving towards, then the motivations and priorities of an individual trading desk don’t necessarily result in an optimal risk management strategy for the whole of the house. If you pursue a strategy that controls or limits a specific risk target,
and you can do that independently of the impact that strategy has on other risk measures, or the principles of common sense risk management, then that creates a huge problem.”

By: ExaminerCarter Wed, 10 Oct 2012 19:55:30 +0000 I thought Matt Levine’s take over at Dealbreaker on this same paper was better: what-ails-banks-may-be-less-securitizati on-and-trading-or-much-more-securitizati on-and-trading/

By: MrRFox Wed, 10 Oct 2012 05:53:17 +0000 Hmmm … >12 hours and not a single comment – let’s make up for lost time ….

Jamie Dimon set up the London CIO operation and gave it the expressed mandate to earn big money trading the giant pot of capital he endowed it with. Like he had a choice – the Fed has dumped so much money on banks there’s no alternative; what would you have them do – go back to lending to ‘Alt-A and ‘sub-prime’,non-English-speaking deadbeats, Señor?

Every CEO seems to think his traders are going to hit home runs every time up, and nothing pays better than prop trading except prop trading on inside info. The traders actually know better, but what do they care? If they score they get a cut and if not, oh well … not like it was their own money that Abodoli, Leeson, Hamanaka and The Whale lost, is it?

All these guys keep shooting the dice until they lose. They sort of have to – as long as anyone can prop trade and appear to score for a while, then everyone else has to or they’ll appear to be poor performers (not ‘big, swinging dicks’) in comparison. It was no different in substance when ‘The Kosher Kowboys’ – Freeman, Siegel, Boesky, Levine and Milken – were in the saddle, back in the 80s. That generation learned fast that inside info was the only way a trader can survive; this generation is learning it now.

As you say, FS – ending prop trading by insured deposit-taking institutions, and seriously keeping watch on ‘hedges’ to make sure they aren’t disguised prop trades, is the right answer, and it goes by the name – The Volcker Rule. Banks hate it and will spend freely to defeat it, and defeat it The Kowboys will.

OBTW: About this – v v – even justified ‘grave-dancing’ is unbecoming. Just sayin’ ….

“felixsalmon @Jack_Welch no longer writing for Reuters. Can’t say I’ll miss him. 12 hours ago · reply · retweet · favorite “