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Here's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future: Require the banks to report each and every line
by T_S_ 16y ago
Here's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future:
Require the banks to report each and every line item that they are long and short. A line item is simply there aggregate position in any security, loan or derivative.
The banks already have this information, obviously. All they need to do is publish it--daily. In the past this would have been "infeasible". Now it would cost them little to release it electronically and it would be feasible for a small shop to analyze the risk for an entire bank. If available, the information would lead to an industry of small analyst/investors buying and selling bank stocks, eventually providing better information about the bank's risk than the banks themselves. Under this regime, the regulators can go back to sleep or continue surfing the web.
Until now many would claim this information is the banks' by right and not ours. Is it? You and I effectively disclose this information for our houses and loans. It is deemed necessary for credit markets to function. We have no inherent right to keep it a secret. Banks are just bigger versions of us with thousands of assets and liabilities, playing with taxpayers' money it turns out. Their rights are determined by us and not nature.
- megablast 16y agoThere are a couple of companies that already do this for the banks. They get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snaphshot. One of these companies is called Dataexplorers. You can pay money to get this data now. I am not sure how this would stop anything?
- bd_at_rivenhill 16y agoDataexplorers appears to be focused on the securities lending business, which is a tiny segment of the market compared to what the parent is proposing. Also, I see nowhere on the site where they claim to "get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snapshot", can you please provide a reference to the place where this claim, or a similar one, is made? Most likely they are simply analyzing all long and short trades in the market on a given day to provide information about expected lending fees, which is a far cry from being able to assemble an accurate picture of the securities held by various financial institutions for their own accounts.
- megablast 16y agoI used to work for them. We would recieve a huge list of the millions of trades that the big investment houses did, every single day. They only show a market snapshot, and try to make it impossible to determine what any individual company was doing - that was very important, for obvious reasons.
- T_S_ 16y agoBanks take risk through their positions. I am arguing that they should disclose what they own to the public--not disclose aggregated risk to a sleepy regulator. Banks would take less risk if required to do so.
- bd_at_rivenhill 16y agoThis suggestion would be the equivalent of requiring that all software firms provide all of their source code for free public viewing. The information about the aggregate positions that a bank holds for its own account can be used by a trading firm to make tremendous amounts of money at the bank's expense. In fact, Goldman was basically accused of doing this to Long Term Capital management in the book "When Genius Failed".
- T_S_ 16y agoNot exactly. It would require them to release the terms of every deal. The methodology to evaluate these would not be required. In many sectors of the markets such services are alrady provided to the banks by vendors so the bank would merely have disclose the name of the security and just a few other bits. And yes, this would have a profound effect on proprietary trading. That's the whole point. It would disperse prop trading to smaller entities not subject to disclosure.