The Macro-Micro Conflict

Crisis, financial policy was dominated by microprudential regulations, the implicit assumption being that a successful micro policy was sufficient to maintain the efficient operation of the financial system, just as a successful anti-inflation policy was all that was required from monetary policy.

The limitations of both approaches became very clear during the Crisis and since then, macro has been a major part of financial policy. However, while the ultimate objectives and implementation tools of macro and micro are closely aligned, their intermediate objectives are not, setting the scene for conflict.

→ VoxEu

Regulators Bring a Strange Spoofing Case

When spoofing isn’t really spoofing :

One possibility is that Oystacher saw that the market didn’t look especially weak, and switched to being a buyer instead, betting that the price would go up. This story would not be about spoofing; it would be the opposite. In this story, Oystacher put in a big sell order, and then switched to being a buyer not because he saw tons of other sellers come in behind him, but because he saw so few sellers come in behind him (and so few buyers clear out in front of him). There weren’t that many sellers at the current offer (other than him), and there were a lot of buyers at the current bid, so he figured the price would go up.

→ Bloomberg View

How Much Money Does the 1% Have Hidden in Tax Havens?

Hard to tell how much, but according to Gabriel Zucman, the combined increased of tax havens is 25% since 2009 — when countries of the G20 held a summit in London and decreed the “end of banking secrecy.”

Accepting the status quo seems irresponsible. Each country has the right to choose its forms of taxation.But when Luxembourg offers tailored tax deals to multi-national companies, when the British Virgin Islands enables money launderers to create anonymous companies for a penny, when Switzerland keeps the wealth of corrupt elites out of sight in its coffers, they all steal the revenue of foreign nations. And they all win—fees, domestic activity, sometimes great influence on the international stage—while the rest of us lose. In the end, the taxes that are evaded have to be compensated for by higher taxes on the law-abiding, often middle-class households in the United States, Europe, and developing countries.

→ Naked Capitalism

Why Do High-Speed Traders Cancel So Many Orders?

Of course, honest traders change their minds all the time and cancel orders as economic conditions change. That’s not illegal. To demonstrate spoofing, prosecutors or regulators must show the trader entered orders he never intended to execute. That’s a high burden of proof in any market. One helpful fact is if most of a trader’s (canceled) orders were on one side (say to buy) when he was mostly actually trading on the other (selling). For instance Sarao allegedly put in huge orders to sell, so that he could buy a few contracts: All his trading was on one side, but most of his orders were on the other. Then he’d switch a little while later. That seems like a bad sign.

→ Traders Magazine

Ben Bernanke: More Execs Should Have Gone to Jail for Causing Great Recession

Bernanke has been interested in the Great Depression since his grandmother told him stories about it from her front porch in Charlotte, N.C., during quiet summer evenings. Her family had been living in Norwich, Conn., where some children went to school in worn-out shoes or even barefoot because their fathers lost their jobs when the shoe factories closed. That meant their families didn’t have enough money to buy shoes — which presumably would have kept the factories in business and their fathers employed.

I agree for the most part with the following, but how do you distinguish between human actions and a process, the securitization to name it, that once pushed to its limits and at a fragile moment gives birth to monsters all around?

And didn’t Bernanke knew about the unprecedent levels and untested territories of loan originations that were about to be pooled into CDOs ?

I doubt he was unaware.

He would have favored more individual accountability. “While you want to do everything you can to fix corporations that have bad cultures and encourage bad behavior — and the Fed was very much engaged in doing that — obviously illegal acts ultimately are done by individuals, not by legal fictions.”

→ USA Today