Deutsche Bank - They think its all over.....

[Derek Chevalier]

BigLion said:

Derek Chevalier said:

BigLion said:

sidicks said:

FredClogs said:

Right... So people are using massive amounts of money (that presumably doesn't actually pysically exist) to make very small amounts of money by hedging their bets all over town in a seires of complex transactions... And the Whale at the table (possibly more like a giant squid) is juggling dozens of hands whilst playing Craps and Roullette at the same time all in the aim to reduce his exposure to any one particular loosing bet...

What could possibly go wrong?

Why is this even a thing?

Wouldn't investing directly in companies, industry and infrastructure be a more constructive way of risking your money than bullst fancy gambling schemes designed to use massive capital to turn teeny profits?

(I realise this may be somewhat outside the scope of the thread OP - but I do wonder)

No you're very wrong. This is a bank entering into derivative transactions to help other counterparts manage their risks.

But as usual, your tone suggests that you don't actually want a sensible discussion, you just want to demonstrate how little you understand about the subject under discussion.

And people wonder why people like you get short shrift on this forum.

Edited by sidicks on Tuesday 27th September 21:08

Derivatives are all very well, but when the market starts to operate outside of the risk model parameters that's when problems occur and Lehman type scenarios develop. Investment banking will support in-house treasury and corporate divisions to mitigate risk for their own parent retail business and their larger external corporate clients, but the bit where the investment bank takes punts on the market is where issues arise.

You probably need to be more specific on which type of derivatives. Options on futures quoted on a liquid exchange is very different to a CDO^2 or even ^3 on dodgy underlyings. I' be surprised if there was that much of the latter still in existence.

If you can tell me what derivative exposure DB has across the different classes then go ahead, remembering counter party subsequent risk of default is largely opaque - have a read about Wells Fargo, these things are very well hidden under various names and often not even reported against (if memory serves me correctly DB stopped reporting so overtly on derivatives in its last couple of accounts)?

I would really hope the various regulators have ensured that over the last 8 years there is very little that they aren't aware of and are making the banks make allowances for. Very frustrating if not.

[sidicks]

Derek Chevalier said:

I would really hope the various regulators have ensured that over the last 8 years there is very little that they aren't aware of and are making the banks make allowances for. Very frustrating if not.

Their is a massive amount of derivative reporting required by banks now, this will also apply for bank counterparties later this year

[Ali G]

The 'Multiplier Effect' of the Banking system - for better or worse.

https://www.tes.com/teaching-resource/banking-4-mu...

Not endorsing the above link - just the first reasonable visual demo I came across.

[anonymous-user]

stongle said:

...LCR and NSFR potentially creates dangerously immobile bank balance sheet...

Why do the new ratios make the balance sheet immobile?

Harris_I said:

These are not only heavyweight commentators, they are insiders.

Doing what you're saying no one does and engaging the general public in plain english. (The BoE is actually quite good at that if you look at their website). Unfortunately all this talk of banks 'creating money', regardless how heavyweight the commentator is extremely misleading and the accurate alternative ("banks are able to initiate the process of expanding deposit balances via lending without first obtaining any additional assets that might be needed to handle the added payment obligations and withdrawal claims that the additional deposit liabilities might impose on the bank."*) doesn't exactly help further most peoples understanding.

'* http://neweconomicperspectives.org/2013/06/do-bank...
Worth 15 minutes of your time.

As the author of that blog points out "There is a lot to complain about with regard to banking; lots of people in the banking system are making completely unwarranted profits from a massively bloated and exploitative financial system. But the wrongness here comes from the banking system’s ability to suck, squeeze and swindle assets from others; not from its simply conjuring these assets out of nothing."

Edited by anonymous-user on Wednesday 28th September 23:57

[stongle]

fblm said:

stongle said:

...LCR and NSFR potentially creates dangerously immobile bank balance sheet...

Why do the new ratios make the balance sheet immobile?

Harris_I said:

These are not only heavyweight commentators, they are insiders.

Doing what you're saying no one does and engaging the general public in plain english. (The BoE is actually quite good at that if you look at their website). Unfortunately all this talk of banks 'creating money', regardless how heavyweight the commentator is extremely misleading and the accurate alternative ("banks are able to initiate the process of expanding deposit balances via lending without first obtaining any additional assets that might be needed to handle the added payment obligations and withdrawal claims that the additional deposit liabilities might impose on the bank."*) doesn't exactly help further most peoples understanding.

'* http://neweconomicperspectives.org/2013/06/do-bank...
Worth 15 minutes of your time.

As the author of that blog points out "There is a lot to complain about with regard to banking; lots of people in the banking system are making completely unwarranted profits from a massively bloated and exploitative financial system. But the wrongness here comes from the banking system’s ability to suck, squeeze and swindle assets from others; not from its simply conjuring these assets out of nothing."

Edited by fblm on Wednesday 28th September 23:57

Apologies, I wasn't trying to be a dick. But anyway. As has been explained, banks build leverage or lend money by having a balance sheet. The regulators are putting term ratios around liabilities that are aysmetric to asset tenor. If you push out one side of balance sheet the other side has to follow. Lend a $ to a hedge fund overnight, you need to cover it with 1 yr money. So say the regulators to protect the system.

[anonymous-user]

stongle said:

Apologies, I wasn't trying to be a dick. But anyway. As has been explained, banks build leverage or lend money by having a balance sheet. The regulators are putting term ratios around liabilities that are aysmetric to asset tenor. If you push out one side of balance sheet the other side has to follow. Lend a $ to a hedge fund overnight, you need to cover it with 1 yr money. So say the regulators to protect the system.

Didn't think you were. Dont really know anything about Basel 3. I'm just a humble ex rates trader Ok so in order to reduce liquidity risk you now have to deliberately take several hundred times more interest rate and counterparty risk? Textbook.

[limpsfield]

Harris_I said:

If we truly took an objective look at what our industry does, a reasonable person might reach the conclusion - as Adair Turner, the former head of the FSA did - that much of what the industry does is "socially useless".

So when Fred rages against casino bankers, I think what he is really raging against is the disconnect that exists between what we might call the real economy and the financial economy.

I though Harris_I made some excellent points and am surprised by some of the nitpicking, although it does appear the PH way of late. I think for the layman, which is 9x% of the population, the words of Adair Turner above will ring true whether finance "insiders" believe it it or not.

[stongle]

fblm said:

Didn't think you were. Dont really know anything about Basel 3. I'm just a humble ex rates trader Ok so in order to reduce liquidity risk you now have to deliberately take several hundred times more interest rate and counterparty risk? Textbook.

Yup, it's a circle jerk of epic proportions. Reducing synthetic leverage or notional is not a bad idea, but post 07/08 GFC reform is a f**king joke of epic proportions. Dicking around with bank balance sheet, when central banks are running QE, ZIRP etc is nuts. Fail to do it globally or Big Bang introduces more (regulatory) arbitrage into the system. French banks are the biggest players in UST repo today because they do not observe balance sheet in the same way US banks do - ramping their books and then unwinding sheet every quarter end. Massive cliff and liquidity risk.

Whilst there are (less today given Volker) prop trading activities of banks and client flow; 2 of the main functions of banks has not changed for decades:

Maturity transformation
Extend balance sheet

Derivatives are often hedges for this activity, required to reduce modelled and market risks. Whilst gross notional looks huge, it's nowhere like real balance sheet and a lot of the derivative notional can be easily compressed (if you can be bothered).

A lot of banking mystique is actually built up by service industry such as accounting and consultancy firms. Nothing sells their services like fear and complexity, the banks have to engage them for legitimacy purposes. I was an equity finance trader till Dec, which whilst that makes me a bit simple in trader terms (although I could generate a Reg or tax arb in my sleep) - even I could spot over egged idiosyncratic risk models.

[loafer123]

limpsfield said:

Harris_I said:

If we truly took an objective look at what our industry does, a reasonable person might reach the conclusion - as Adair Turner, the former head of the FSA did - that much of what the industry does is "socially useless".

So when Fred rages against casino bankers, I think what he is really raging against is the disconnect that exists between what we might call the real economy and the financial economy.

I though Harris_I made some excellent points and am surprised by some of the nitpicking, although it does appear the PH way of late. I think for the layman, which is 9x% of the population, the words of Adair Turner above will ring true whether finance "insiders" believe it it or not.

I agree he made some interesting points.

I also agree that much of the City is "Socially Useless".

It is, however, a significant contributor to the economy and we need a diverse source of revenues to pay for the socially useful side of the economy like nurses and policemen.

[Mrr T]

limpsfield said:

Harris_I said:

If we truly took an objective look at what our industry does, a reasonable person might reach the conclusion - as Adair Turner, the former head of the FSA did - that much of what the industry does is "socially useless".

So when Fred rages against casino bankers, I think what he is really raging against is the disconnect that exists between what we might call the real economy and the financial economy.

I though Harris_I made some excellent points and am surprised by some of the nitpicking, although it does appear the PH way of late. I think for the layman, which is 9x% of the population, the words of Adair Turner above will ring true whether finance "insiders" believe it it or not.

When you said nit pickers you might have meant me. I agree I nit picked about the use of the words "banks create money". This is because it gives such a bad impression of banks. I can even point you to the "Austrian" group of economists who all say the same and reject any explanation which say different, with the old "I know better" excuse. The fact that others in the industry use the words also just confuses the issue. Banks cannot create money; what they can do is a) blow up bank balance sheets by lending to each other - multiplier effect, and b) monetising assets - this is why the growth in money should be a measure of potential inflation.

As for the comments of Adair Turner. Can I suggest you look up his CV my question would be is Adair Turner socially useful. As for banks they get a bad press and some times that is justified. However, banks also do a lot of useful things but no one takes the time to explain. For example I commented above about how banks help corporates raise money via bond issues and then help the corporate swap the debt obligations from fixed rate to floating. This help corporations reduce costs and helps reduce the prices we pay for the goods those corporation sell. To me that is socially useful.

[sidicks]

Mrr T said:

When you said nit pickers you might have meant me. I agree I nit picked about the use of the words "banks create money". This is because it gives such a bad impression of banks. I can even point you to the "Austrian" group of economists who all say the same and reject any explanation which say different, with the old "I know better" excuse. The fact that others in the industry use the words also just confuses the issue. Banks cannot create money; what they can do is a) blow up bank balance sheets by lending to each other - multiplier effect, and b) monetising assets - this is why the growth in money should be a measure of potential inflation.

As for the comments of Adair Turner. Can I suggest you look up his CV my question would be is Adair Turner socially useful. As for banks they get a bad press and some times that is justified. However, banks also do a lot of useful things but no one takes the time to explain. For example I commented above about how banks help corporates raise money via bond issues and then help the corporate swap the debt obligations from fixed rate to floating. This help corporations reduce costs and helps reduce the prices we pay for the goods those corporation sell. To me that is socially useful.

Don't you mean 'gambling'?

[sidicks]

lawless50 said:

You can hardly blame "the layman" for comparing banks to casinos, when every explanation of complex banking activities makes them sound more like casinos than before the explanation.

"We accept money from multiple parties, each entering into a complex financial arrangement. The arrangements are regulated, and the rules can be studied beforehand. Through a combination of skill and luck, one or more parties may benefit financially at the expense of others. We take a small fee from each involved, but have no material interest in the outcome."

It's not a bad thing to be compared to a casino, lots of fun memories...

1) the bulk of the transactions are not actually that complex, even if the public like to think they are
2) the bank is still counterparty to all of those trades so does have a material interest in each trade, even if those 'material interest' are designed to offset each other economically

[FN2TypeR]

lawless50 said:

You can hardly blame "the layman" for comparing banks to casinos, when every explanation of complex banking activities makes them sound more like casinos than before the explanation.

"We accept money from multiple parties, each entering into a complex financial arrangement. The arrangements are regulated, and the rules can be studied beforehand. Through a combination of skill and luck, one or more parties may benefit financially at the expense of others. We take a small fee from each involved, but have no material interest in the outcome."

It's not a bad thing to be compared to a casino, lots of fun memories...

Edited by lawless50 on Thursday 29th September 11:22

That doesn't sound like a casino to me.

[sidicks]

lawless50 said:

sidicks said:

1) the bulk of the transactions are not actually that complex, even if the public like to think they are
2) the bank is still counterparty to all of those trades so does have a material interest in each trade, even if those 'material interest' are designed to offset each other economically

I agree with the first point. It's the second point that makes the layman angry.

Why should the layman be angry about banks being involved in these transactions as outlined above? This is exactly the value they add to the 'real economy'.

lawless50 said:

No matter what the scandal, the overwhelming perception is that everyone "gets away it".

I'm sorry, but I've no idea what the relevance of banks' (essential and useful) involvement in interest rate swaps is with "scandals and banks getting away with it"

lawless50 said:

Even if the bank collapses and is resigned to a wikipedia page, did they really "lose"? Did anyone involved go through a personal financial crisis?

People losing their jobs tends to be a crisis situation.
People getting paid in shares which become near worthless is also a significant crisis situation

Edited by sidicks on Thursday 29th September 12:52

[Harris_I]

Sidicks, I think you underestimate the depth of ill feeling towards the banking industry. In a sense, it doesn't really matter how much of the criticism is deserved or otherwise. A point by point refutation of the criticisms you've responded to will go unheard. The first step is to have empathy with their point of view.

[sidicks]

Harris_I said:

Sidicks, I think you underestimate the depth of ill feeling towards the banking industry.

10mins on PH is enough to understand that!

Harris_I said:

In a sense, it doesn't really matter how much of the criticism is deserved or otherwise.

Much of it isn't, that's my point.

Harris_I said:

A point by point refutation of the criticisms you've responded to will go unheard.

My point was that the OP aligned two things which are entirely unrelated to each other.

Harris_I said:

The first step is to have empathy with their point of view.

Only where that point of view is justified!

Edited by sidicks on Thursday 29th September 12:58

[Crackie]

sidicks said:

Harris_I said:

The first step is to have empathy with their point of view.

Only where that point of view is justified!

?????

A point of view doesn't have to be justified or agreed with for you to have empathy with it.......

Empathy is a fairly broad term but one of the definitions is being able to discern what another person is thinking or feeling; irrespective of whether you agree with their point of view.

[sidicks]

Crackie said:

?????

A point of view doesn't have to be justified or agreed with for you to have empathy with it.......

Empathy is a fairly broad term but one of the definitions is being able to discern what another person is thinking or feeling; irrespective of whether you agree with their point of view.

It's hard to have empathy with someone when their opinions are based on a lack of understanding which has already been explained to them on numerous ocassions.

[Thorodin]

sidicks said:

....tons of subjectivity

I think I've found why. Said by you several times about OP confusing two unrelated items. You are looking for trouble where there was none, at least non-intended. Also any excuse to parade your rudeness. The OP was referring to and comparing the fatuous and misleading statements of chairmen in relation to their respective industries and fields of so-called expertise. I think you misunderstood the context in your aggressive response.

[sidicks]

Thorodin said:

I think I've found why. Said by you several times about OP confusing two unrelated items. You are looking for trouble where there was none, at least non-intended. Also any excuse to parade your rudeness. The OP was referring to and comparing the fatuous and misleading statements of chairmen in relation to their respective industries and fields of so-called expertise. I think you misunderstood the context in your aggressive response.

The OP explicitly referred to my second point which was about bank involvement in interest rate swaps (directly linked to what the OP had previously said). Their comment related to scandal etc which was seemingly totally unrelated to my point 2, hence my confusion.

Edited by sidicks on Thursday 29th September 13:58