Jump to content
House Price Crash Forum
Sign in to follow this  
Dave Spart

Mobius Says Derivatives, Stimulus To Spark New Crisis

Recommended Posts

You get to a point where you're so battered by appallingly bad news you don't even react; you just keep staring down, long-faced and emotionless.

Link

Mobius Says Derivatives, Stimulus to Spark New Crisis (Update2)

Share | Email | Print | A A A

By Bloomberg News

July 15 (Bloomberg) -- A new financial crisis will develop from the failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said.

“Political pressure from investment banks and all the people that make money in derivatives†will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,†he said in a phone interview from Istanbul on July 13.

Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. Global share markets lost almost half their value last year, shedding $28.7 trillion as investors became risk averse amid a global recession.

The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13.

Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product.

Looming Crisis

“Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency,†he said.

A “very bad†crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said. Governments have pledged about $2 trillion in stimulus spending.

The Justice Department’s antitrust division sent civil investigative notices this month to banks that own London-based Markit to determine if they have unfair access to price information, according to three people familiar with the matter.

Treasury Secretary Timothy Geithner last week urged Congress to rein in the derivatives market with new U.S. laws that are “difficult to evade.†He said strong capital requirements were the key.

Geithner repeated President Barack Obama’s call to force “standardized†contracts onto exchanges or regulated trading platforms, and regulate all dealers.

Credit Freeze

The plan to regulate the derivatives market is part of a wider overhaul of financial industry rules meant to prevent any possibility of a repeat of last year, when the collapse of Lehman Brothers Holdings Inc. and American International Group Inc. froze credit markets and worsened the global recession.

In the Senate, Agriculture Committee Chairman Tom Harkin, an Iowa Democrat, is pushing for legislation that would require all over-the-counter derivatives trades be traded on regulated exchanges, not just standardized ones as the Obama administration is seeking.

U.K. banks will be forced to curb trading activity that helped cause the global financial crisis, Britain’s top financial regulator said last month, while stopping short of seeking to separate their lending and securities units.

“Banks have lobbied hard against any changes that would make them unable to take the kind of risks they took some time ago,†said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore. “Regulators are not winning the battle yet and I’m not sure if they are making a strong case yet for such changes.â€

Mobius also predicted a number of short, “dramatic†corrections in stock markets in the short term, saying that “a 15 to 20 percent correction is nothing when people are nervous.â€

Emerging-market stocks “aren’t expensive†and will continue to climb, Mobius said. He said he favors commodities and companies such as London-based Anglo American Plc, which has interests in platinum, gold, diamonds, coal and base metals.

In China and India, Mobius sees value in consumer-oriented stocks and banks, he said.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net

Last Updated: July 15, 2009 06:02 EDT

Share this post


Link to post
Share on other sites

You get to a point where you're so battered by appallingly bad news you don't even react; you just keep staring down, long-faced and emotionless.

Link

Don't worry, "it's contained" and "won't affect the real economy."

Share this post


Link to post
Share on other sites
You get to a point where you're so battered by appallingly bad news you don't even react; you just keep staring down, long-faced and emotionless.

Link

Don't worry, "it's contained" and "won't affect the real economy."

Britain is well placed to weather the storm.

Share this post


Link to post
Share on other sites
You get to a point where you're so battered by appallingly bad news you don't even react; you just keep staring down, long-faced and emotionless.

Link

"Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency"

Do they?

"Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. Global share markets lost almost half their value last year, shedding $28.7 trillion as investors became risk averse amid a global recession.

The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13. "

Are they proposing that there is a link?

Share this post


Link to post
Share on other sites
"Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency"

Do they?

"Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. Global share markets lost almost half their value last year, shedding $28.7 trillion as investors became risk averse amid a global recession.

The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13. "

Are they proposing that there is a link?

Yes, they make a ton of money on OTC derivatives and are not going to give it all up without a monumental fight behind the scenes which they will eventually win IMO. The $1.5 trillion figure is a bit misleading, how much of that is losses on their plain vanilla loan portfolios and how much of that is losses on RMBS or CMBS? Also derivatives are zero sum games so someone (e.g Goldman) is making that money on the other side of that trade.

They try to furtively link the investigation of Markit but it has nothing to do with the losses experienced. Markit provides market data on single name CDS and indexed CDS and is majority owned by the banks. They are being investigated because there is the belief that they have used their ownership of Markit to gain an unfair advantage in the market having first access to index prices in particular.

Share this post


Link to post
Share on other sites
Yes, they make a ton of money on OTC derivatives and are not going to give it all up without a monumental fight behind the scenes which they will eventually win IMO. The $1.5 trillion figure is a bit misleading, how much of that is losses on their plain vanilla loan portfolios and how much of that is losses on RMBS or CMBS? Also derivatives are zero sum games so someone (e.g Goldman) is making that money on the other side of that trade.

They try to furtively link the investigation of Markit but it has nothing to do with the losses experienced. Markit provides market data on single name CDS and indexed CDS and is majority owned by the banks. They are being investigated because there is the belief that they have used their ownership of Markit to gain an unfair advantage in the market having first access to index prices in particular.

"Yes, they make a ton of money on OTC derivatives and are not going to give it all up without a monumental fight behind the scenes which they will eventually win IMO"

Bid/ask is a lot tighter than a few years back - will they get much tighter if put on an exchange?

"They are being investigated because there is the belief that they have used their ownership of Markit to gain an unfair advantage in the market having first access to index prices in particular."

But still lagged by an hour when I checked (admittedly a year ago)

Share this post


Link to post
Share on other sites
"Yes, they make a ton of money on OTC derivatives and are not going to give it all up without a monumental fight behind the scenes which they will eventually win IMO"

Bid/ask is a lot tighter than a few years back - will they get much tighter if put on an exchange?

"They are being investigated because there is the belief that they have used their ownership of Markit to gain an unfair advantage in the market having first access to index prices in particular."

But still lagged by an hour when I checked (admittedly a year ago)

Yes, that's partly it - the spreads will get tighter because of the increased transparency. However what is more important to the banks is that they do not lose their distribution monopoly i.e hedge fund A can trade direct with hedge fund B on an exchange rather than having to go through bank / prime broker as they do now.

As for Markit, it is this lag that creates the opportunity for the banks that own Markit to gain an advantage if they wanted to. I haven't seen any evidence that this is the case so far, we shall see from the outcome of the investigation.

Share this post


Link to post
Share on other sites
Yes, that's partly it - the spreads will get tighter because of the increased transparency. However what is more important to the banks is that they do not lose their distribution monopoly i.e hedge fund A can trade direct with hedge fund B on an exchange rather than having to go through bank / prime broker as they do now.

As for Markit, it is this lag that creates the opportunity for the banks that own Markit to gain an advantage if they wanted to. I haven't seen any evidence that this is the case so far, we shall see from the outcome of the investigation.

"As for Markit, it is this lag that creates the opportunity for the banks that own Markit to gain an advantage if they wanted to. I haven't seen any evidence that this is the case so far, we shall see from the outcome of the investigation."

I think everyone has the lag, shareowner or not

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   288 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.