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Central banks do funnel money into the real economy via their monetary policy (Congress can only provide fiscal stimulus). And lack of liquidity to the extent

Central banks do funnel money into the real economy via their monetary policy (Congress can only provide fiscal stimulus). And lack of liquidity to the extent that it prevents current liabilities to be serviced causes insolvency - something which a Central Bank does guard against. By "bankers", I meant to include the markets guys along with the IBD/M&A/ECM/DCM people. PE people come from the higher echelons of the latter category - which isn't too poorly paid. PE/HF people get the rewards for the risk they take, that's their business - this isn't true for bank-based traders who rely on cheap funding enabled by implicit guarantees from the taxpayer and non-transparent bid-ask spreads and collateral funding rates due to them always having more info than their clients about the market they trade in because, at the end of the day, they are the source for the bid-ask spread and they are the source for the collateral - there's no other conduit - in my book, it's called an oligopoly. They are not reaping returns commensurate to the value they actually provide. Also, a top-notch Google/MS engineer isn't nearly as highly paid as a top HF/bank-prop(yes, the species still exists) trader unless they have equity upshot. As for emerging markets - they aren't trying too hard. It's the western world which wants them to do that so that they can tap into returns more easily which isn't that easy to do with just off-shore/non-deliverable instruments. Emerging economies such as China and India often rely on capital controls for their competitiveness and continued ability to import commodities. Their domestic corporate funding still relies on bank loans. Granted, having more capital markets leads to more transparent pricing and probably cheaper funding - but saying cheap funding is more valuable than the contribution of engineers and doctors and others who translate that funding into real, physical growth is naive, at best.

JumpCrisscross 14y ago
Sorry, I was speaking of central banks within their capacity as lenders of last resort. Monetary policy works through multiple financial intermediaries, not just the banks. I agree that federally insured banks shouldn't have prop desks - but that probably means they won't be making markets, either. The emerging markets are very ambitiously trying to develop capital markets. Singapore issues domestic debt explicitly for the purpose of nurturing a domestic bond market. Shenzen has dangled, in front of me and colleagues, heroic sums to build an equities market making operation. What is your source for saying EMs aren't pursuing a more sophisticated financial system?
- photon137 14y ago
  Singapore is a different sort of "emerging-market", to be honest - it's economy has historically been far too open (and too small) to disallow that sort of thing from happening. A similar theme applies to South Korea - which probably has the most sophisticated bond market in Asia (ex-Japan). Even for Japan as well, the most sophisticated market in Asia, the keiretsu system drives most of the inter-corporate funding and credit. The equity capital markets in both China and India are peanuts as compared to the bank-lending market for corporate funding and that's likely to remain the case for the foreseeable future - a crash in the HSI or the Sensex doesn't spell doom for the economy. The fact that we see China willing to allow RMB-trading in the London markets or to build an equity market-making operation implies a tactical funding alternative - not wholesale market "liberalization" as we perceive it. As far as the debt-markets are concerned, these countries have been extremely wary of the implications - especially post the credit-crisis and the disastrous impact on high-yield names in the developed world. Non-performing corporate loans are a big problem as it is in both these nations and unsafe leverage is avoided at all costs. Foreign-currency bond issuances are strictly controlled by their respective central banks and domestic-currency corporate issuance is virtually non-existent. For a recent example of strict capital controls: to safeguard the Indian economy against commodity inflation and INR weakness on general growth concerns, the RBI imposed strict conditions on importers/exporters specifically and on FII transactions generally.
deleted 14y ago
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JumpCrisscross 14y ago

Sorry, I was speaking of central banks within their capacity as lenders of last resort. Monetary policy works through multiple financial intermediaries, not just the banks. I agree that federally insured banks shouldn't have prop desks - but that probably means they won't be making markets, either. The emerging markets are very ambitiously trying to develop capital markets. Singapore issues domestic debt explicitly for the purpose of nurturing a domestic bond market. Shenzen has dangled, in front of me and colleagues, heroic sums to build an equities market making operation. What is your source for saying EMs aren't pursuing a more sophisticated financial system?

photon137 14y ago
Singapore is a different sort of "emerging-market", to be honest - it's economy has historically been far too open (and too small) to disallow that sort of thing from happening. A similar theme applies to South Korea - which probably has the most sophisticated bond market in Asia (ex-Japan). Even for Japan as well, the most sophisticated market in Asia, the keiretsu system drives most of the inter-corporate funding and credit. The equity capital markets in both China and India are peanuts as compared to the bank-lending market for corporate funding and that's likely to remain the case for the foreseeable future - a crash in the HSI or the Sensex doesn't spell doom for the economy. The fact that we see China willing to allow RMB-trading in the London markets or to build an equity market-making operation implies a tactical funding alternative - not wholesale market "liberalization" as we perceive it. As far as the debt-markets are concerned, these countries have been extremely wary of the implications - especially post the credit-crisis and the disastrous impact on high-yield names in the developed world. Non-performing corporate loans are a big problem as it is in both these nations and unsafe leverage is avoided at all costs. Foreign-currency bond issuances are strictly controlled by their respective central banks and domestic-currency corporate issuance is virtually non-existent. For a recent example of strict capital controls: to safeguard the Indian economy against commodity inflation and INR weakness on general growth concerns, the RBI imposed strict conditions on importers/exporters specifically and on FII transactions generally.

deleted 14y ago

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