Fairytale Capitalism

Derivatives and Systemic Risk: It’s Also About Jobs

[This research was posted to the New York Society of Security Analysts’ Finance Professionals’ Post on August 24th, 2014.] Derivatives are the least understood component of systemic risk. Derivatives pose issues of size, measurement and behavior unlike loans. They string the biggest banks together in ways unseen three decades ago and even undermine job creation.…

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Larry Summers, President Obama and the Fed Chairmanship

President Obama will make one of the most important decisions of his second administration when he nominates the next Fed Chairman. Election politics are the norm, but does the fate of the nation recede into the background as Larry Summers’ star rises? Is President Obama more comfortable with Treasury officials who helped build the financial…

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Derivatives and Systemic Risk: Jobs Reducers

Mitt Romney got one thing right and one thing wrong about systemic risk, regulation and job creation. He was right that small- to mid-sized banks are the lenders to small businesses, the major creators of new jobs. But he was wrong in saying we don’t need to break up the biggest banks. The biggest banks are about trading. Before…

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Is the Fed Playing Favorites with Too Big To Fail Banks?

“Don’t fight the Fed!” That’s the second-best known maxim in financial markets after “buy low, sell high.” But if market participants “don’t fight the Fed,” Federal Reserve actions that differentiate between Too Big To Fail banks may add to systemic risk. What makes these huge banks systemic is their interconnectedness, particularly through derivatives. Weakness in one can be transmitted…

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The Fed and the FDIC: Building Goldman Sachs’ Fortress

Jamie Dimon, CEO of JPMorgan Chase, claimed his big bank has a “fortress balance sheet.” JPMorgan Chase’s balance sheet was managed better than others over the past decade. But a mighty fortress isn’t quite what the world’s top regulators would call the biggest banks’ derivatives portfolios — contractual promises of future performance that are booked OFF their…

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