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    (Original post by Antzlck)
    I support Obama. Obviously the exact details will have to be thrased out but at least he's doing something concrete. The rest (other politicians) just seem to talk a good game with no real action.

    Some of you are taking issue with Obama. So like the above poster has said, what do you propose? Or you just want things to remain as they are, unchanged and await the next bailout?
    ditto

    whilst he continues the now-even-more-impossible task (i.e. kennedy's seat...) of pushing through health reform, Obama will take every political 'photo-op' he can lay his hands on. punishing bankers is an easy win, and whilst it also makes economic sense (through at least certain schoools of thought....) to have better capitalized banks and less 'excessive' speculation, he has nothing to lose. bar the votes of a few prop desks (and probably aston martin dealerships and cristal importers)
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    Because prop trading is the reason we had a credit crunch. Give me a ******* break.

    This whole crisis occured because banks lent too much money to people who couldn't pay it back. It was a standard, old-fashioned banking crisis. It had nothing to do with hedge funds or prop trading, it had nothing to do with Private Equity or short-selling or any of the other rubbish that's become the easy target for politicians.

    Banks lent money to people for houses they couldn't afford, and to companies for takeovers and capital expansion they would never recoup. They are paying the price for that now. But to try and ban proprietary positioning is as illogical as it is impossible.

    What this actually means is unclear as things stand, but most likely it will mean GS and MS leave the discount window behind and return to being Investment Banks. Prop trading will still exist under new names (most banks have already renamed their prop desks "cross-market trading" or something similar). The biggest losers will be the multi-platform banks like JPM and BOAML. Bank lending will decrease, liquidity will decrease, volatility will jump, stocks will fall, the wider economy will suffer, the dollar will get even weaker, Obama's approval rating will bounce and then fall back again.

    What it means for the industry as a whole is unclear as yet. The devil will be in the detail.
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    (Original post by dpb23)
    ditto

    whilst he continues the now-even-more-impossible task (i.e. kennedy's seat...) of pushing through health reform, Obama will take every political 'photo-op' he can lay his hands on. punishing bankers is an easy win, and whilst it also makes economic sense (through at least certain schoools of thought....) to have better capitalized banks and less 'excessive' speculation, he has nothing to lose. bar the votes of a few prop desks (and probably aston martin dealerships and cristal importers)
    I agree with this pretty much.

    On an off topic note, when I saw the title of this thread as "Obama and the return of..." a little bit of me was hopping it would continue on to say "the jedi". Although how that would relate to Investment Banking is questionable.
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    (Original post by crazyb)
    The End of Prop Trading as the Glass-Steagall returns.

    The end of speculation and market destabilisation, the return of a truly free and efficient market. May the world finally prosper!

    It'll be that much harder for trading 'wanabees', anyone reconsidering their career options?
    OP you might be disappointed. It's true that for now, we don't know how far the regulations might go, but I have the feeling that they won't be as radical as you think. Anyway this is an interesting article I read.

    http://business.timesonline.co.uk/to...cle6997746.ece
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    Under Obama’s plans, banks that take deposits will not be allowed to carry out proprietary trading activities. They will also be banned from running hedge funds and making private equity investments.

    Banks with deposits (all the big firms) will be banned from trading on their own account (though will still be able to take positions on behalf of clients). They will be barred from “owning, investing in or sponsoring” hedge funds and private equity groups. No bank can have more than 10 per cent of total deposits; this would be extended to other assets too.

    But wait a minute. Was the financial crisis due to the fact that some banks own private equity firms? No. Would Lehman have been saved by the restriction on size or any other of the proposals? No. Just one firm, Bear Stearns, a pure investment bank which would not therefore be covered by the new rules, was destroyed because of its ownership of a hedge fund which invested in sub-prime mortgages. Would any of these rules have protected

    Northern Rock or HBOS? No. Did the losses racked up by the state-sponsored Fannie Mae and Freddie Mac mortgage giants have anything to do with prop trading or hedge funds? No – and neither did the failure of Wachovia, Washington Mutual, Countrywide or the over 100 US banks and many others around that world that have gone bust.

    In truth, banking losses were caused by bad property loans – and the purchase of this sub-prime debt by other banks and funds in the belief that they were safe.
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    (Original post by dpb23)
    well serves you right for still being massively overweight financials then approaching election season following a huge rally with enormous political pressure on banking legislation ... doesn't lend itself to a portfolio full of banks!
    I think you'll find global indices fell across the world yesterday, so to assume I am 'massively overweight financials' is just plain stupid and shows a considerable lack of financial knowledge.

    (Original post by Antzlck)
    Some of you are taking issue with Obama. So like the above poster has said, what do you propose? Or you just want things to remain as they are, unchanged and await the next bailout?
    I think Roussell has said most of what is relevant here, but I just want to say that your argument here is completely ridiculous. What you are implying is that there should be legislation of any sort, but it doesn't matter what kind it is, or whether it is stringent or credible etc, just as long as something is done. People with this view piss the hell out of me.

    Prop trading is the single most profitable activity for investment banks, within their single most profitable division, sales and trading. It wasn't responsible for the crisis, in fact, you can even argue that it provided some counter-cyclical profit for banks when things started getting ugly in 07. Even if you accept it was to blame, how the hell do you propose banning it? Does Obama really think he's superman? Is he gonna have someone stand over every trader in the world and check if the guy is doing a flow trade or prop trade? Please. This is a waste of Congress's time, they should be sorting their fcking healthcare system out instead.

    The other issue is that we're all pretty young on this forum and so this is the first banking crisis we've seen properly in our lifetimes. But anyone over the age of 25 will tell you a banking crisis is, in the words of Jamie Dimon last week, "something that happens every 5 to 7 years". Banks have been getting bailed out since the beginning of time. Fact.

    The bottom line is, yes sensisble legislation should be implemented and I think counter-cyclical capital adequecy ratios are a good start, but as long as people want banks to provide optimal financial intermediation services (i.e. lending) in the good times (as any rational person does), bailouts are a fact of life. And every generation of politicians eventually realises that.
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    It's not about the cause of the crisis though (mainly making loans to bad customers), I'm sure that doesn't need legislating against, banks should/would have learned their lesson and changed their business in respect to that.

    The problem is that certain institutions were and still are 'too big to fail'. Obama's proposals is attempting to change that situation. So that should there be another need fo a bailout, which there will be, the tax payer would not be held to ransom by a bank or other institutions that is so fundamental to the financial system that we cannot let it go under. The tax payer cannot afford another bailout any time soon, government deficits will be sky high for years to come.

    Interesting times.
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    (Original post by Antzlck)
    It's not about the cause of the crisis though (mainly making loans to bad customers), I'm sure that doesn't need legislating against, banks should/would have learned their lesson and changed their business in respect to that.

    The problem is that certain institutions were and still are 'too big to fail'. Obama's proposals is attempting to change that situation. So that should there be another need fo a bailout, which there will be, the tax payer would not be held to ransom by a bank or other institutions that is so fundamental to the financial system that we cannot let it go under. The tax payer cannot afford another bailout any time soon, government deficits will be sky high for years to come.

    Interesting times.
    Like the rest of his administration he doesn't seem to understand the issue that size isn't the biggest problem it's interconnectivity. The idea that if you just limit each bank to 10% max and everything will be fine is ridiculous; given the size of the modern financial system the collapse of such an institution would have a tremendous ripple effect. You can't hide from these things be just trying to divide it.

    To address the too big to fail issue you need a resolution trust setup or a fundamental change in the chapter 7. bankruptcy process for banks. This current plan will do nothing to resolve that.
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    (Original post by ibd_haunter)
    Under Obama’s plans, banks that take deposits will not be allowed to carry out proprietary trading activities. They will also be banned from running hedge funds and making private equity investments.

    Banks with deposits (all the big firms) will be banned from trading on their own account (though will still be able to take positions on behalf of clients). They will be barred from “owning, investing in or sponsoring” hedge funds and private equity groups. No bank can have more than 10 per cent of total deposits; this would be extended to other assets too.

    But wait a minute. Was the financial crisis due to the fact that some banks own private equity firms? No. Would Lehman have been saved by the restriction on size or any other of the proposals? No. Just one firm, Bear Stearns, a pure investment bank which would not therefore be covered by the new rules, was destroyed because of its ownership of a hedge fund which invested in sub-prime mortgages. Would any of these rules have protected

    Northern Rock or HBOS? No. Did the losses racked up by the state-sponsored Fannie Mae and Freddie Mac mortgage giants have anything to do with prop trading or hedge funds? No – and neither did the failure of Wachovia, Washington Mutual, Countrywide or the over 100 US banks and many others around that world that have gone bust.

    In truth, banking losses were caused by bad property loans – and the purchase of this sub-prime debt by other banks and funds in the belief that they were safe.
    WOAH!! Way to copy & paste Allister Heath from City A.M
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    (Original post by FoSho)
    WOAH!! Way to copy & paste Allister Heath from City A.M
    i don't think he was trying to pass it off as his own somehow....
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    http://news.bbc.co.uk/1/hi/business/8476013.stm
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    (Original post by ghostrider88)
    I think you'll find global indices fell across the world yesterday, so to assume I am 'massively overweight financials' is just plain stupid and shows a considerable lack of financial knowledge.

    ooooh buurn

    i think that given you had 4.5% wiped off your portfolio this was not a misguided assumption. 4.5% in a day is pretty huge. unless your portfolio is just a selection of random spread-bets, I think you would have struggled considerably to lose 4.5% on the day (without some serious unluck) unless you had significant exposure to financial stocks. please correct me if i'm wrong - i'm here to learn like everyone else :p: just perhaps not about investment strategies

    (it was a light hearted comment. dont let it hurt too deep)
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    (Original post by ghostrider88)
    I think Roussell has said most of what is relevant here, but I just want to say that your argument here is completely ridiculous. What you are implying is that there should be legislation of any sort, but it doesn't matter what kind it is, or whether it is stringent or credible etc, just as long as something is done. People with this view piss the hell out of me.

    Prop trading is the single most profitable activity for investment banks, within their single most profitable division, sales and trading. It wasn't responsible for the crisis, in fact, you can even argue that it provided some counter-cyclical profit for banks when things started getting ugly in 07. Even if you accept it was to blame, how the hell do you propose banning it? Does Obama really think he's superman? Is he gonna have someone stand over every trader in the world and check if the guy is doing a flow trade or prop trade? Please. This is a waste of Congress's time, they should be sorting their fcking healthcare system out instead.

    The other issue is that we're all pretty young on this forum and so this is the first banking crisis we've seen properly in our lifetimes. But anyone over the age of 25 will tell you a banking crisis is, in the words of Jamie Dimon last week, "something that happens every 5 to 7 years". Banks have been getting bailed out since the beginning of time. Fact.

    The bottom line is, yes sensisble legislation should be implemented and I think counter-cyclical capital adequecy ratios are a good start, but as long as people want banks to provide optimal financial intermediation services (i.e. lending) in the good times (as any rational person does), bailouts are a fact of life. And every generation of politicians eventually realises that.
    Mr Rider. You have a substantial anger management problem. If someone 'pisses the hell out of you' for voicing a 2-line opinion on a public forum, I hate to think what would happen if you actually met them.

    For someone telling me I have no financial knowledge, you certainly don't fail to unimpress. The PROFITABILITY of prop trading is IRRELEVANT to the man on the street. There is no question that in itself it has little economic value (if a communist government would never utilise it themselves that's a pretty good indicator - and i'm betting no commies would prop trade in their own economies). If it has little economic value, and poses potential to add IMMENSE volatility to markets (which of course it does, and has), then these activities are not advisable for an economy - from a 'social planner's' perspective. These activities are fabulously profitable for some but there is a net economic COST to society.

    Now I'm not some human rights activist and I would happily prop trade given the chance. But the argument against prop trading is not hard to understand. And if you genuinely think it would be hard for a (developed market's) government to limit or end prop trading, you are out of your tree. If the SEC and FSA banned prop trading, it would stop.

    I love this line:
    'bailouts are a fact of life'
    Where precisely do you see yourself working. Enron isn't hiring much these days.
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    (Original post by jjpp)
    Like the rest of his administration he doesn't seem to understand the issue that size isn't the biggest problem it's interconnectivity. The idea that if you just limit each bank to 10% max and everything will be fine is ridiculous; given the size of the modern financial system the collapse of such an institution would have a tremendous ripple effect. You can't hide from these things be just trying to divide it.

    To address the too big to fail issue you need a resolution trust setup or a fundamental change in the chapter 7. bankruptcy process for banks. This current plan will do nothing to resolve that.
    I see your point, and it makes sense to an extent - but limiting size would indeed limit risk to the taxpayer. Rather than 10 IBs, if there were 1000 IBs (to use a ridiculous figure), not only would individual exposures be far more easily absorbed into a system (however interconnected they may be) on failure, they would also be cheaper to bail out when necessary.

    Without knowledge of the legal framework I cant comment on your last comments, but I can certainly accept that dividing banks into smaller entities would make both the RISK and IMPACT of future credit events (and I fully accept they WILL occur) much lower. Obama is a politician, not a banker. And the FSA/SEC are risk managers, not gamblers (or so they would have us believe).

    Whatever the optimal outcome for us as <potential/wannabbe> bankers, it does not tie in with society's optimal outcome and there is no point trying to engineer ourselves to the answer we personally want to be true. Certain activities of large investment banks, and having any business entity so vast that its failure can bring the world to its knees, is NOT a foregone conclusion, nor is it correct, nor is it fair on the typical taxpayer.
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    (Original post by dpb23)
    I see your point, and it makes sense to an extent - but limiting size would indeed limit risk to the taxpayer. Rather than 10 IBs, if there were 1000 IBs (to use a ridiculous figure), not only would individual exposures be far more easily absorbed into a system (however interconnected they may be) on failure, they would also be cheaper to bail out when necessary.

    Without knowledge of the legal framework I cant comment on your last comments, but I can certainly accept that dividing banks into smaller entities would make both the RISK and IMPACT of future credit events (and I fully accept they WILL occur) much lower. Obama is a politician, not a banker. And the FSA/SEC are risk managers, not gamblers (or so they would have us believe).

    Whatever the optimal outcome for us as <potential/wannabbe> bankers, it does not tie in with society's optimal outcome and there is no point trying to engineer ourselves to the answer we personally want to be true. Certain activities of large investment banks, and having any business entity so vast that its failure can bring the world to its knees, is NOT a foregone conclusion, nor is it correct, nor is it fair on the typical taxpayer.
    Firstly - define prop trading? The argument against it is not hard to understand, you're correct. It doesn't mean it's appropriate however.

    It is impossible to run a flow book without taking a prop position - we all know that. Do you in turn expect traders to fire-sell positions in order to limit their "proprietary risk"? Lets go further and consider the likes of low-latency trading. Even something as trivial as index arb. That's not a client focused transaction, however the risk is minimal - did that bring the world to it's knees?

    We're not just talking about prop trading as a generalised entity, we're talking about it purely with regards to IBs. Last time I checked I didn't see Obama and Osborne waving fingers at the D.E.Ss or Citadels of this world. At the most fundamental level, they prop trade. This is about "securing" retail deposits.

    The increase in the cost base of banks through the separation of banks through the loss of economies of scale will result in as you say a "net economic cost to society". Last time I checked the recession was caused by bad loans. Financial institution regulation failure, ratings agency failures, mortgage regulation failure, mortgage thrifts, Greenspan; and last but not least, the single unemployed mother with 3 children dependant, taking out a 90% mortgage. They were all complicit. No one is denying that the banks held an intrinsic part in the downfall, but at least point yourself in the right direction before taking a position.
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    (Original post by dpb23)

    For someone telling me I have no financial knowledge, you certainly don't fail to unimpress. The PROFITABILITY of prop trading is IRRELEVANT to the man on the street. There is no question that in itself it has little economic value (if a communist government would never utilise it themselves that's a pretty good indicator - and i'm betting no commies would prop trade in their own economies). If it has little economic value, and poses potential to add IMMENSE volatility to markets (which of course it does, and has), then these activities are not advisable for an economy - from a 'social planner's' perspective. These activities are fabulously profitable for some but there is a net economic COST to society.

    Now I'm not some human rights activist and I would happily prop trade given the chance. But the argument against prop trading is not hard to understand. And if you genuinely think it would be hard for a (developed market's) government to limit or end prop trading, you are out of your tree. If the SEC and FSA banned prop trading, it would stop.

    I love this line:
    'bailouts are a fact of life'
    Where precisely do you see yourself working. Enron isn't hiring much these days.

    I actually don't know how to respond to this post! So to fellow readers, this idiot is arguing that:

    - A communist government would never trade prop (oh dear...i don't even know where to start with this one).

    - Prop trading adds 'immense volatility' to markets (i think you'll find fast $ flows are the main source of vol... how on earth you can suggest bank prop trading which accounts for between 1-10% of all trading revenues depending on the bank is the main source of vol is pretty stupid).

    - 'If the SEC and FSA banned prop trading it would stop'. Haha this one is the most revealing, because clearly you have never set foot on a trading floor and probably never will. If you had, you'd realise it's not is easy to do this (see my earlier post). Also stupid that you only mention 2 financial regulators... there's nothing to stop me spinning off my prop trading activities to Singapore as a separate entity.

    - And finally, he reckons that if bailouts were a fact of life, we wouldn't have anywhere to work. Look around you idiot.


    I think the bottom line is that you're really struggling to keep up with this argument. The points you make are so poor they're funny. And falling back on economics ('costs' and 'losses' to society and all that bullsht) isn't really going to help you. I'm also pretty bored of responding to your posts (which incidentally I'm doing so readers don't accept your points as valid, when they are almost entirely invalid, although pretty funny). Bye.
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    (Original post by dpb23)
    And the FSA/SEC are risk managers, not gamblers (or so they would have us believe).
    Well I'm buggered.

    For someone telling me I have no financial knowledge, you certainly don't fail to unimpress. The PROFITABILITY of prop trading is IRRELEVANT to the man on the street. There is no question that in itself it has little economic value (if a communist government would never utilise it themselves that's a pretty good indicator - and i'm betting no commies would prop trade in their own economies). If it has little economic value, and poses potential to add IMMENSE volatility to markets (which of course it does, and has), then these activities are not advisable for an economy - from a 'social planner's' perspective. These activities are fabulously profitable for some but there is a net economic COST to society.
    Shoot me in the face, shoot me right now.

    I thought TSR had reached its troughs.
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    (Original post by CityMonkey)
    Well I'm buggered.



    Shoot me in the face, shoot me right now.

    I thought TSR had reached its troughs.
    It was a deeply hypothetical analogy take it with a pinch of salt. I'd be very interested to hear your thoughts, aside from the suicidal ones?
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    (Original post by dpb23)
    It was a deeply hypothetical analogy take it with a pinch of salt. I'd be very interested to hear your thoughts, aside from the suicidal ones?
    No, it was a comically absurd analogy.

    Think about what 'true' Communism means, and what that means for prices and how they're reached. Then revisit your answer. Think about does liquidity generally add vol or reduce it. On all other counts, ghostrider88 is on the money.

    Btw, not many people believe that the FSA/SEC have much credibility remaining, coming out of this crisis. Plenty of examples online for you to research and read.

    One more tip: if you're ever on a bank trading floor and you feel that something you're about to say may sound as silly as what you wrote, STFU or you'll piss away your career in an instant.
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    (Original post by CityMonkey)
    No, it was a comically absurd analogy.

    Think about what 'true' Communism means, and what that means for prices and how they're reached. Then revisit your answer. Think about does liquidity generally add vol or reduce it. On all other counts, ghostrider88 is on the money.

    Btw, not many people believe that the FSA/SEC have much credibility remaining, coming out of this crisis. Plenty of examples online for you to research and read.

    One more tip: if you're ever on a bank trading floor and you feel that something you're about to say may sound as silly as what you wrote, STFU or you'll piss away your career in an instant.
    I think comic absurdity has its place, and I'm a big fan. Also thanks for the tip, but in anonymity around these parts I can live with that

    As far as the CREDIBILITY of the FSA/SEC are concerned - this isn't what I was getting at. They have proven themselves to be all but absent for the past decade. What I was suggesting is that contrary to what was suggested above, if it got to the stage where prop trading was 'banned' (in whatever form this may take), I believe you would find that most of the big name banks would indeed stop very quickly.

    Edit: you also seem to be assuming I have a career. Very dangerous assumption.
 
 
 
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