Deutsche Bank - They think its all over.....
Discussion
fblm said:
Welshbeef said:
So these Fines are by the USA where do those fines go? -why not to the country govt where it is based?
I mean why cannot the U.K. Govt nail Bank of America or JP Morgan etc
By far the biggest are by us authorities on us banks for conduct in the us mortgage mkt. The fines go to the country doing the fining. You've fined a few for libor, fx, ppi etc...I mean why cannot the U.K. Govt nail Bank of America or JP Morgan etc
Second point because you need to prove they did something wrong in the uk and harmed the uk somehow. Then you can go after them if you like but hen the US will spit roast one of yours just cos... Do you not think the size of the Deut fine, a week after the EU Apple/Ireland 'fine' was an incredible coincidence?
The US can fine any bank simply because if you ever deal in dollars you must use the US banking system. If you use their system you sign up to their laws/regs. If you break those laws you get punished severely. The banking laws are so broad they can snag you for anything dishonest or perceived to be sailing a bit too close to the wind. You can be done for 'abuse' of the banking system. Quite a far reaching one. The EU has similar powers but is a pussy cat in comparison when it comes to dolling out fines.
Welshbeef said:
I wonder how much GDP upside/consumer spending is down to PPI and then these fines shared around the consumer base? Is that masking underlying economic performance?
Interesting point. In theory, about 1% of GDP according to Peston, but also difficult to measure how much gets spent. http://www.bbc.co.uk/news/business-25635819
limpsfield said:
Welshbeef said:
I wonder how much GDP upside/consumer spending is down to PPI and then these fines shared around the consumer base? Is that masking underlying economic performance?
Interesting point. In theory, about 1% of GDP according to Peston, but also difficult to measure how much gets spent. http://www.bbc.co.uk/news/business-25635819
klmhcp said:
desolate said:
klmhcp said:
I've been quoted so I can't edit it but apologies for the tone : too much wine.
What were you trying to say?
king blah, I'm sure you can guess the rest.Soov535 said:
BUT THEY ARE ALL THE SAME. BANKSTERS STEALING AND LINING THEIR OWN POCKETS. THEY SHOULD ALL BE IN PRISON EXPECIALLY STACEY WHO WORKS IN THE BRANCH IN SURBITON.
i did not say that. you obviously failed to read the off topic and ill/un informed bit of my post. where did i say they should all be in prison ?regarding the main topic. are you suggesting the only people that will take a hit should db fail (in the unlikely instance the german government do not intervene ) will be people/companies that took a risk with their investments/services in line with advice given ? genuine question, as you can see, what i know about banking you could write on the inside of a mouse ear.
Mrr T said:
He is and I am afraid the entry as so many others do not understand money. This is one of my pet topics.
So heres how it really works.
In mylittlecountry MLC we decide to create an monetary economy based on the bong.
As a start the central bank of MLC prints 400 bong notes which it loans equally to Bank A and Bank B.
.....
Bank A
Liabilities
Loan from Central Bank 200
Assets
Bong notes 195
Loan to fred 5
Now let's say you change the scenario to being step 1) Ann deposits B5 with Bank A. Step 2) "Fred borrows B5. Fred doesn't do anything with that B5, it sits in his new account with Bank A. Generally you seem clued up with this stuff, but here I believe you are wrong (and note there are a number of different thoughts on this stuff). So heres how it really works.
In mylittlecountry MLC we decide to create an monetary economy based on the bong.
As a start the central bank of MLC prints 400 bong notes which it loans equally to Bank A and Bank B.
.....
Bank A
Liabilities
Loan from Central Bank 200
Assets
Bong notes 195
Loan to fred 5
Once you do the journals with Ann deposting B5 and then Fred just borrowing the money, and not using it, you'll see that actually the Fish is not what created the extra money, it's the debt that did (all the money in this system is debt anyway). The bank has the following "money": B200 (central bank), and B5 (Ann), and now actually another B5 that has been loaned to Fred.
The physical cash is less than the money in the system. The velocity of money is what keeps things going; not everyone has to be paid at the same time.
This is fundamental to fractional reserve banking, and is not really in dispute.
gumshoe said:
Mrr T said:
He is and I am afraid the entry as so many others do not understand money. This is one of my pet topics.
So heres how it really works.
In mylittlecountry MLC we decide to create an monetary economy based on the bong.
As a start the central bank of MLC prints 400 bong notes which it loans equally to Bank A and Bank B.
.....
Bank A
Liabilities
Loan from Central Bank 200
Assets
Bong notes 195
Loan to fred 5
Now let's say you change the scenario to being step 1) Ann deposits B5 with Bank A. Step 2) "Fred borrows B5. Fred doesn't do anything with that B5, it sits in his new account with Bank A. Generally you seem clued up with this stuff, but here I believe you are wrong (and note there are a number of different thoughts on this stuff). So heres how it really works.
In mylittlecountry MLC we decide to create an monetary economy based on the bong.
As a start the central bank of MLC prints 400 bong notes which it loans equally to Bank A and Bank B.
.....
Bank A
Liabilities
Loan from Central Bank 200
Assets
Bong notes 195
Loan to fred 5
Once you do the journals with Ann deposting B5 and then Fred just borrowing the money, and not using it, you'll see that actually the Fish is not what created the extra money, it's the debt that did (all the money in this system is debt anyway). The bank has the following "money": B200 (central bank), and B5 (Ann), and now actually another B5 that has been loaned to Fred.
The physical cash is less than the money in the system. The velocity of money is what keeps things going; not everyone has to be paid at the same time.
This is fundamental to fractional reserve banking, and is not really in dispute.
Money is debt, debt for labour or services rendered... Come the apocalypse we shall see whose labour skills are valued and whose are not.
sidicks said:
Adenauer said:
I'm not closing our DB account, but what I am doing for my own piece of mind more than anything else is opening a few other accounts with different banks not affiliated with DB and spreading the money around a bit. That's got to be the safest realistic option for a business over here in Germany, surely?
Spreading your exposure is always good!
gumshoe said:
Mrr T said:
He is and I am afraid the entry as so many others do not understand money. This is one of my pet topics.
So heres how it really works.
In mylittlecountry MLC we decide to create an monetary economy based on the bong.
As a start the central bank of MLC prints 400 bong notes which it loans equally to Bank A and Bank B.
.....
Bank A
Liabilities
Loan from Central Bank 200
Assets
Bong notes 195
Loan to fred 5
Now let's say you change the scenario to being step 1) Ann deposits B5 with Bank A. Step 2) "Fred borrows B5. Fred doesn't do anything with that B5, it sits in his new account with Bank A. Generally you seem clued up with this stuff, but here I believe you are wrong (and note there are a number of different thoughts on this stuff). So heres how it really works.
In mylittlecountry MLC we decide to create an monetary economy based on the bong.
As a start the central bank of MLC prints 400 bong notes which it loans equally to Bank A and Bank B.
.....
Bank A
Liabilities
Loan from Central Bank 200
Assets
Bong notes 195
Loan to fred 5
Once you do the journals with Ann deposting B5 and then Fred just borrowing the money, and not using it, you'll see that actually the Fish is not what created the extra money, it's the debt that did (all the money in this system is debt anyway). The bank has the following "money": B200 (central bank), and B5 (Ann), and now actually another B5 that has been loaned to Fred.
The physical cash is less than the money in the system. The velocity of money is what keeps things going; not everyone has to be paid at the same time.
This is fundamental to fractional reserve banking, and is not really in dispute.
Managing liquidity is as important as managing capital, as we are seeing with Deutsche at the moment.
The premise that banks can just create money is wrong in the way most people use that phrase. They have to get the cash from somewhere, whether interbank lending, central banks, deposits or any other source.
In your example you say Fred borrows 5 Bong, then puts it in his account unused. In the same way he might desposit it in another bank's account or their customers might do it in return, so this simple example doesn't show the complexity involved.
Where it is right is in showing that Banks don't have to fund all the credit lines they have all the time, particularly due to undrawn credit lines.
However, the issue is that they must have the capital and the standing to do so if they were drawn.
In the GFC, most large companies fully drew they credit lines and deposited them to ensure they had access to cash, and that liquidity crunch was the first stage of the crisis, well before losses on NPL's started to eat away at capital.
loafer123 said:
Managing liquidity is as important as managing capital, as we are seeing with Deutsche at the moment.
The premise that banks can just create money is wrong in the way most people use that phrase. They have to get the cash from somewhere, whether interbank lending, central banks, deposits or any other source.
In your example you say Fred borrows 5 Bong, then puts it in his account unused. In the same way he might desposit it in another bank's account or their customers might do it in return, so this simple example doesn't show the complexity involved.
Where it is right is in showing that Banks don't have to fund all the credit lines they have all the time, particularly due to undrawn credit lines.
However, the issue is that they must have the capital and the standing to do so if they were drawn.
In the GFC, most large companies fully drew they credit lines and deposited them to ensure they had access to cash, and that liquidity crunch was the first stage of the crisis, well before losses on NPL's started to eat away at capital.
Then there's the whole complexity surrounding reserve and capital rations etc.
It IS as you say a whole load more complex than a simple example can relay, but I do agree with those that say it is creation of money (credit) and not cash (not M0 money).
Makes some interesting reading, I love a good graph too
Not used the site before, so can't comment on it's 'good-ness'.
Not used the site before, so can't comment on it's 'good-ness'.
Loads of debate on here (a lot is nonsense), so in response to the comment on not enough regs let me explain how poor understanding, law of unintended circumstances and simplistic use of metrics is no longer appropriate or why DB isn’t as shaky as some imply.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
stongle said:
Loads of debate on here (a lot is nonsense), so in response to the comment on not enough regs let me explain how poor understanding, law of unintended circumstances and simplistic use of metrics is no longer appropriate or why DB isn’t as shaky as some imply.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
stongle said:
Loads of debate on here (a lot is nonsense), so in response to the comment on not enough regs let me explain how poor understanding, law of unintended circumstances and simplistic use of metrics is no longer appropriate or why DB isn’t as shaky as some imply.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
Spread = hazard rate*(1-recovery), so changing recovery rate from 40% to 30% only raises CDS spread by ~16% (appreciate that maths is simplified) - what am I missing?DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
stongle said:
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
That's somewhat missing out the practical side of things. I work in the oil industry - if we had an accident I can't really say "it was the customers that wanted the oil, so it's their fault". In a simplistic sense then the banking industry can't really say it wasn't their fault when the industry had a big shock that then meant people (both idiots and those who had nothing to do with the stock market apart from perhaps pensions) had to bail them out.
From what I see you're either faced with:
a) Staying out of complicated banking systems which are pretty much impossible to understand properly for someone not working in the industry. However then you lose out because your money will be losing a lot of value as interest rates are so low. So it's not exactly a good option
b) Trust the advice you are given by bankers/ financial advisors etc. In which case a lot of people were advised to buy crappy things. Yes, people should take a certain amount of personal interest in what they are investing in, but when it is clear it a complex system that is not easy to understand even if you work there then how much chance do people really have of doing this properly? The other thing is where the money is invested may well be not clear to people people (for example in pension schemes).
c) Just try and get lucky with your own investments while having no idea what you are doing.
d) Don't give a crap and spend all your money and a lot more and hope things somehow work out in the future.
Edited by NRS on Monday 3rd October 13:11
Derek Chevalier said:
Spread = hazard rate*(1-recovery), so changing recovery rate from 40% to 30% only raises CDS spread by ~16% (appreciate that maths is simplified) - what am I missing?
As mentioned there are other factors at play (valid point though)- sentiment especially - all European banks CDS make for unpleasant reading. Also, CDS is not ideal to hedge CVA and probably hedged in other ways (Swaptions), which may also have an amplified affect on CDS price - but as with most regulations as the implementation of BRRD is not uniform; the pricing swings become more pronounced and seeing the wood for the trees is more difficult.NRS said:
That's somewhat missing out the practical side of things.
I work in the oil industry - if we had an accident I can't really say "it was the customers that wanted the oil, so it's their fault". In a simplistic sense then the banking industry can't really say it wasn't their fault when the industry had a big shock that then meant people (both idiots and those who had nothing to do with the stock market apart from perhaps pensions) had to bail them out.
Those working in the oil industry don't get treated with the same vitriol that anyone whom works in a bank does. Sure there are casino like operations, particularly in the shadow banking sector (which is barely touched by regulations directly); but the culpable areas for GFC were tiny (a few k) in comparison to the sector as a whole (100s of K). There are areas of banks that are socially useful, particularly given Monetary Policy (banks are the on/off ramp). Sure that's a whole different area of debate; and perhaps we need to move to a fiscal base (its arguable that using leverage to acquire assets has driven a schism between the rich and poor in society - think BTL - I digress!).I work in the oil industry - if we had an accident I can't really say "it was the customers that wanted the oil, so it's their fault". In a simplistic sense then the banking industry can't really say it wasn't their fault when the industry had a big shock that then meant people (both idiots and those who had nothing to do with the stock market apart from perhaps pensions) had to bail them out.
Edited by NRS on Monday 3rd October 13:11
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