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What's nonsense is Basel III using market capitalization as fulfilling capital reserves. Those asset classes are heavily collateralized. If you want to get tec

by than3 3y ago

What's nonsense is Basel III using market capitalization as fulfilling capital reserves. Those asset classes are heavily collateralized. If you want to get technical, what really happens when you convert the same underlying asset to be collaterilized multiple times and aggregate it in a single security or several steps removed so no one is the wiser?

JumpCrisscross 3y ago
> Basel III utilizing leveraged market capitalization as fulfilling capital reserves Are you referring to SLR? In America, this is a second test [1]. Also, this is a total non sequitur. [1] https://www.newyorkfed.org/medialibrary/media/banking/international/10-08-15-Tilghman-Hill.pdf https://www.newyorkfed.org/medialibrary/media/banking/intern...
- than3 3y ago
  Yes, that is insufficient, reporting is opaque, and creates many more additional threats to the health of the banking sector. Bank of International Settlements has a more accurate rundown. Most of the requirements are only applied to G-Sibs, which are only classified as such if they hold over 200 or 250B in assets (off the top of my head). If you were paying attention to what happened with FRC, that was a trial run of things to come. There's an option's mechanism to cause the market maker to create synthetic shares. In volatility spikes they have two options to recoup losses, write/sell options and receive preferential treatment for clearing in receivership, or purchase shares. The latter in the face of significant shorting in addition to gamma squeeze causes a short squeeze (Gamestop), the former causes aggregate indebtness violations forcing delisting within 30-60 days which aren't usually announced (FRC). Market mechanics say when there are more sellers than buyers the price goes down. If you can indirectly trigger more shares than are in existence being sold, the market can be tanked at a profit with sufficiently obfuscated capital. Anytime you have over a 100% leverage ratio, its no longer fractional. Given the complexity of collateralization and the lack of any single clearing house for collateralized debt. You have no way of proving that the underlying capital reserve won't suddenly vanish in a contagion crisis. At any time there are tens of thousands of floating contracts that influence the market capitalization/stock price.
  - JumpCrisscross 3y ago
    > Most of the requirements are only applied to G-Sibs All banks are subject to capital requirements. Large banks have extra testing; that doesn’t mean “most” capital requirements are waived for small banks. > an option's mechanism to cause the market maker to create synthetic shares Former options market maker. All market makers can do this, it’s called naked shorting, and it has little to nothing to do with capital requirements in general. > you have no way of proving that the underlying capital reserve won't suddenly vanish in a contagion crisis Capital isn’t cash in a vault. It’s risk-weighted assets minus liabilities. Public equities are heavily weighted; that disincentivises using them significantly for capital. The only proof one needs that capital won’t vanish is the Fed’s discount window. > Anytime you have over a 100% leverage ratio, its no longer fractional This is the definition of fractional reserve. 10% reserve requirement means 9 parts debt to 1 part reserves, a 900% debt ratio.
    - than3 3y ago
      > Has nothing to do with bank capital requirements in general. We'll have to disagree. The moment the framework allowed market exposure in lieu of a capital reserve (in whole or part) it became inseparably linked as it impacts the basis of the capital reserve asset potentially misclassifying the asset as reserve instead of debt. > This is the definition of fractional reserve. It is the definition so long as all debt and reserve are segmented correctly into debt and reserve. The moment you have obfuscation such as multiple separate levels of collateralization or leverage being misclassified as assets; this definition fails, and the only time you'd find out about it given current frameworks is in a deleveraging (after the money is suddenly gone). You have the same exact characteristics in a ponzi scheme. I'm aware you think this is a simple double-entry accounting misunderstanding. Its not. The moment assets change hands between a third party it becomes an exponential expansion issue with regards to fraud. Double-entry accounting is limited to within a single organization. Boundaries are where things slip past, that and footnotes. Unfortunately its not letting me respond to your latest response so here's an example. You (Bank A) loan out 9 parts per 1 of reserves. That's a 9x expansion. The person you loaned 9 out to goes to multiple banks, secures the loans with the same 9$ it just received multiple times (fraudulently, we'll say 9x), he/she receives 81 dollars back. Then they take those 81 dollars in deposits into their bank account at bank A. That 81 dollars is counted as reserves. The bank loans out 723 more dollars. You see where this is going? Eventually this fails, but not before a large chunk that which was created out of thin air simply ceases to exist (when this is discovered as being the equivalent of a naked contract). The main problem is, the person doing this has the control because only they know what's going on. The point is, market exposure provides the attack surface to allow this, the capitalization is an aggregate that counts as reserves which impacts what you can loan out, because debt/leverage is commingled with its asset value indeterminably and it changes with the whims of the market where many bad actors play, this previous example is possible right up until a precipitating event. When something is possible but bad, particularly in finance and banking, and there are profit incentives, this will happen as it has many times before only on a grander scale with more systemic risk. Imagine a top 4 bank with this exposure doing a Madoff through an intermediary via the stock market. Who is left holding the bag. Payouts from FDIC/Fed don't come out of thin air, the value is unwound in inflation as all fraud in aggregate are at the upper levels of the banking system. The game is bail-out. Regarding gold, take a close look at the COMEX, its never been independently audited. Compare the eligible contracts vs. Registered. What percentage are they. COMEX disclaims responsibility for eligible contract reporting but that in large part dictates spot for the future month given percentages. If they were collusive the fix would be in right? What would you see if in addition to Dealer A's selling a gold contract to Dealer B, and back again the following month, they have a private repurchase agreement and vice versa to guarantee and deviations in the market can be capitalized on by either side at a profit (as a strangle). Its all paper (a warrant) after all until you have a load-out policy.

by than3 3y ago

JumpCrisscross 3y ago

> Basel III utilizing leveraged market capitalization as fulfilling capital reserves Are you referring to SLR? In America, this is a second test [1]. Also, this is a total non sequitur. [1] https://www.newyorkfed.org/medialibrary/media/banking/international/10-08-15-Tilghman-Hill.pdf https://www.newyorkfed.org/medialibrary/media/banking/intern...

than3 3y ago
Yes, that is insufficient, reporting is opaque, and creates many more additional threats to the health of the banking sector. Bank of International Settlements has a more accurate rundown. Most of the requirements are only applied to G-Sibs, which are only classified as such if they hold over 200 or 250B in assets (off the top of my head). If you were paying attention to what happened with FRC, that was a trial run of things to come. There's an option's mechanism to cause the market maker to create synthetic shares. In volatility spikes they have two options to recoup losses, write/sell options and receive preferential treatment for clearing in receivership, or purchase shares. The latter in the face of significant shorting in addition to gamma squeeze causes a short squeeze (Gamestop), the former causes aggregate indebtness violations forcing delisting within 30-60 days which aren't usually announced (FRC). Market mechanics say when there are more sellers than buyers the price goes down. If you can indirectly trigger more shares than are in existence being sold, the market can be tanked at a profit with sufficiently obfuscated capital. Anytime you have over a 100% leverage ratio, its no longer fractional. Given the complexity of collateralization and the lack of any single clearing house for collateralized debt. You have no way of proving that the underlying capital reserve won't suddenly vanish in a contagion crisis. At any time there are tens of thousands of floating contracts that influence the market capitalization/stock price.
- JumpCrisscross 3y ago
  > Most of the requirements are only applied to G-Sibs All banks are subject to capital requirements. Large banks have extra testing; that doesn’t mean “most” capital requirements are waived for small banks. > an option's mechanism to cause the market maker to create synthetic shares Former options market maker. All market makers can do this, it’s called naked shorting, and it has little to nothing to do with capital requirements in general. > you have no way of proving that the underlying capital reserve won't suddenly vanish in a contagion crisis Capital isn’t cash in a vault. It’s risk-weighted assets minus liabilities. Public equities are heavily weighted; that disincentivises using them significantly for capital. The only proof one needs that capital won’t vanish is the Fed’s discount window. > Anytime you have over a 100% leverage ratio, its no longer fractional This is the definition of fractional reserve. 10% reserve requirement means 9 parts debt to 1 part reserves, a 900% debt ratio.
  - than3 3y ago
    > Has nothing to do with bank capital requirements in general. We'll have to disagree. The moment the framework allowed market exposure in lieu of a capital reserve (in whole or part) it became inseparably linked as it impacts the basis of the capital reserve asset potentially misclassifying the asset as reserve instead of debt. > This is the definition of fractional reserve. It is the definition so long as all debt and reserve are segmented correctly into debt and reserve. The moment you have obfuscation such as multiple separate levels of collateralization or leverage being misclassified as assets; this definition fails, and the only time you'd find out about it given current frameworks is in a deleveraging (after the money is suddenly gone). You have the same exact characteristics in a ponzi scheme. I'm aware you think this is a simple double-entry accounting misunderstanding. Its not. The moment assets change hands between a third party it becomes an exponential expansion issue with regards to fraud. Double-entry accounting is limited to within a single organization. Boundaries are where things slip past, that and footnotes. Unfortunately its not letting me respond to your latest response so here's an example. You (Bank A) loan out 9 parts per 1 of reserves. That's a 9x expansion. The person you loaned 9 out to goes to multiple banks, secures the loans with the same 9$ it just received multiple times (fraudulently, we'll say 9x), he/she receives 81 dollars back. Then they take those 81 dollars in deposits into their bank account at bank A. That 81 dollars is counted as reserves. The bank loans out 723 more dollars. You see where this is going? Eventually this fails, but not before a large chunk that which was created out of thin air simply ceases to exist (when this is discovered as being the equivalent of a naked contract). The main problem is, the person doing this has the control because only they know what's going on. The point is, market exposure provides the attack surface to allow this, the capitalization is an aggregate that counts as reserves which impacts what you can loan out, because debt/leverage is commingled with its asset value indeterminably and it changes with the whims of the market where many bad actors play, this previous example is possible right up until a precipitating event. When something is possible but bad, particularly in finance and banking, and there are profit incentives, this will happen as it has many times before only on a grander scale with more systemic risk. Imagine a top 4 bank with this exposure doing a Madoff through an intermediary via the stock market. Who is left holding the bag. Payouts from FDIC/Fed don't come out of thin air, the value is unwound in inflation as all fraud in aggregate are at the upper levels of the banking system. The game is bail-out. Regarding gold, take a close look at the COMEX, its never been independently audited. Compare the eligible contracts vs. Registered. What percentage are they. COMEX disclaims responsibility for eligible contract reporting but that in large part dictates spot for the future month given percentages. If they were collusive the fix would be in right? What would you see if in addition to Dealer A's selling a gold contract to Dealer B, and back again the following month, they have a private repurchase agreement and vice versa to guarantee and deviations in the market can be capitalized on by either side at a profit (as a strangle). Its all paper (a warrant) after all until you have a load-out policy.