tag:blogger.com,1999:blog-7905515.post6327504597219086621..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Banks Still in Negative Vega ZoneEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-7905515.post-68614104283124980352012-10-09T02:34:24.817-05:002012-10-09T02:34:24.817-05:00Q: How much intermediation does a "modern&quo...Q: How much intermediation does a "modern" economy need?<br /><br />Thought provoking post, btw. Thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-63470652811532944792012-10-03T13:05:03.823-05:002012-10-03T13:05:03.823-05:00excellent post, thought this was a very interestin...excellent post, thought this was a very interesting theoryAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-84887477141098837992012-10-01T21:56:39.058-05:002012-10-01T21:56:39.058-05:00I'm with anonymous at 5:42 PM.
Reserves are ...I'm with anonymous at 5:42 PM. <br /><br />Reserves are used by banks to transfer deposits between each other and between them and the central bank, not between themselves and their customers. Many central banks don't even call them reserves any more because they are interbank transfer accounts. <br /><br />Unless the population starts withdrawing trillions of dollars in physical cash (which are claims on the government, rather than claims on the banks as deposits are), there isn't really any way for banks as a whole to run down their reserves. Central bank purchases of government bonds increase bank reserves and deposits of the former owners of the bonds, so they add to the money supply (the total amount of deposits held by the non-government sector) and to bank reserves. <br /><br />So given central bank policy, the reserves are as would be expected under any economic situation. Still, I think Eric's main point probably holds, because it's really an argument about risk rather than reserves.Unanimousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-79035753242045699672012-10-01T19:06:58.619-05:002012-10-01T19:06:58.619-05:00Down and out calls don't have negative vegaDown and out calls don't have negative vegaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-19623073177955292862012-10-01T17:42:28.858-05:002012-10-01T17:42:28.858-05:00Reserves are not "monetary stimulus". En...Reserves are not "monetary stimulus". End of story. They do increase bank profits because the Fed is paying interest, but that's a side issue.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-57339079821136113152012-10-01T15:31:33.327-05:002012-10-01T15:31:33.327-05:00opps didn't see that this is a call so it is a...opps didn't see that this is a call so it is a ko option. which makes quite a lot of sense. although i'm puzzled as to why equity owners are like owners of call options. if volatility goes up, they can make money from vega although they would lose on the delta aspect which might mean that they can make money from declining share prices... even though they own the equity<br /><br />i like the ko analogy. too many things in life we only have 1 shot at.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-23656882863874106842012-10-01T15:22:43.670-05:002012-10-01T15:22:43.670-05:00Is this a call or a put? If it is a put we would h...Is this a call or a put? If it is a put we would have a RKO which following the analogy would have really horrible risks at the barrier. If it is just a KO it won't be that bad.<br /><br />Barriers are also tempting targets to take out. Liquidity hole there.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-41646032350139372942012-10-01T13:48:07.273-05:002012-10-01T13:48:07.273-05:00"Has HFT changed the barrier options market? ..."Has HFT changed the barrier options market? It seems like algos could be used to very briefly whip the underlying around to the barrier point"<br /><br />LOL... as if `algos' possess some sort of special magic... Buying is buying and selling is selling, whether `algo' or point/click driven.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-64920845757610942212012-10-01T10:43:44.861-05:002012-10-01T10:43:44.861-05:00Has HFT changed the barrier options market? It se...Has HFT changed the barrier options market? It seems like algos could be used to very briefly whip the underlying around to the barrier point and knock in/out certain options unless the definition of the barrier event has been adjusted accordingly.<br /><br />I think the TBTF banks are more like the Knights Hospitaller in this story however. It is they who end up with hoards of unearned wealth.<br /><br /> You could have a lot of morbid fun with this analogy in several concurrent areas. But generally the dwindling but proud American middle class are the owners of the much coverted "fabled riches", we all know who King Phillip IV is and The part of Clement V is played by the Amercian institutions and authorities that should know better.Mercurynoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-45250732774744934022012-10-01T04:19:15.307-05:002012-10-01T04:19:15.307-05:00I would have said it simpler. Banks lend based on ...I would have said it simpler. Banks lend based on their balance sheet, not reserves sitting at the Fed. Looking at bank stock prices, the current price to book ratios tells you the market does not believe the accounting is honest and that they are all capital impaired, which of course they are.<br /><br />Fed policy is aimed at beefing up bank earnings and helping banks repair the balance sheet over time, so the Fed pays banks interest on reserves, announces some for of QE instrument such as treasuries or mortgages that the banks can front run, buy and then sell to the Fed at a profit. Additionally the whole meat of QE is to lower risk premiums and raise the price of risk asset which of course is how the banks are reporting their earnings aided by removing previous additions to loan loss reserves. Conscience of a Conservativenoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-15128201029005072942012-10-01T03:05:08.012-05:002012-10-01T03:05:08.012-05:00Citizen's viewpoint
Near 99% loss of confiden...Citizen's viewpoint<br /><br />Near 99% loss of confidence in the financial "industry". Banks deserve to be scared after all the criminal gambling they have done with "our" money. <br /><br />Banks are NOT an industry. They don't PRODUCE anything.<br /><br />One issue, to be fair, is that if enough citizens emptied their accounts then international trade - oil, shipping - would be mightily affected and those countries depending on trade for food and energy would be mighty uncomfortable for their inhabitants.<br /><br />Perhaps _THIS_ is the debate we should be having.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-71378023334502274072012-09-30T20:41:47.177-05:002012-09-30T20:41:47.177-05:00I'm all for letting banks fail, but if we deci...I'm all for letting banks fail, but if we decide not to wipe them out, we should then leave what's remaining free. A wounded bank industry, forever defensive, is the worst solution.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-28983668554954495592012-09-30T20:02:00.548-05:002012-09-30T20:02:00.548-05:00Eric, I'm a big fan of your blog, but I can...Eric, I'm a big fan of your blog, but I can't help but think your assertions about how big banks are being persecuted by governments seems misguided from a longer-term perspective.<br /><br />While it's true that healthy economies require healthy banks that are incentivized to take risks, the choice by governments to paper over bad bets introduces gargantuan moral hazard. If we unshackle banks without first wiping out shareholders then banks have no incentive to NOT execute the same bad choices all over again, which means we are back in the same situation again in 10 years, but with more government debt and outstanding derivatives.<br /><br />That doesn't sound like a constructive trajectory to me...Anonymousnoreply@blogger.com