The Periscope Post

Financial Times

Derivatives reform
Echoing their colleagues across the Atlantic, European regulators have dropped proposals to force non-financial companies to use clearing-houses to trade “over-the-counter” derivatives. The main reason for this exemption has been the frantic lobbying by non-financials, both in the US, where it successfully scuppered that kind of regulation in the Dodd-Frank bill, and in Europe. “Exemptions for non-financial companies are a bad idea,” warned the FT. “The original proposal to force most OTC derivatives on to clearing houses was sound. Clearing-houses reduce systemic risk by cutting out intermediaries and netting exposures. They also enhance market transparency, allowing regulators to identify dangerous accumulations of systemic risk.”

The Wall Street Journal

Tony Blair on the Panic
Tony Blair’s memoirs, out this week, have received far more attention for the more gossipy bits – what Blair thinks of President George Bush (a lot) and former Prime Minister Gordon Brown (not much) – than for what The Journal thinks is important: Blair’s views on the financial meltdown. Blair, the paper argued, gets it: One part of one sector of the market failed, along with government, regulation, politicians and monetary policy – a “consequence of the apparently benign confluence of loose money policy and low inflation”. His views on the Keynesian school of stimulus are similarly in line with The Journal’s. The paper quoted Blair: “Ultimately the recovery will be led not by governments but by industry, business, and the creativity, ingenuity and enterprise of people. If the measures you take in responding to the crisis diminish their incentives, curb their entrepreneurship, make them feel unsure about the climate in which they are working, the recovery becomes uncertain.” We have a feeling we may be reading this again from The Journal, perhaps worked in cross-stitch on a sampler pillow.

Reuters

Housing double-dip threatens banks
“Another dip in U.S. housing looks likely, bringing with it difficulties for banks and for their government guarantors,” Reuters columnist James Saft predicted. “What is perhaps worse: having chucked money at supporting asset markets in order to support banks the past two years, the policy options for handling another housing downturn and banking crisis would be greatly circumscribed. If you think the debate about more fiscal stimulus is heated, wait until you see the venom which the prospect of another housing and banking bailout brings.” American banks are not prepared for another dip in the housing market, especially as banks’ ratio of reserves to total loans and leases actually fell in the last quarter and as the US has not addressed the fundamentals that lead to the last one. The real risk, Saft claimed, is that should the housing market need a bailout, the political will is not there. “It will be interesting to see what Plan B is.”