John At The Center

Derivatives, Ms. Schapiro said, “allow parties to hedge and manage risk, which itself can promote capital formation.”

For some derivatives, that is true. But the generalization is not always accurate, and there needs to be consideration as to whether some derivatives deserve to exist at all.

“Simply put,” said Richard Bookstaber, one of the pioneers of financial engineering on Wall Street, “derivatives are the weapon of choice for gaming the system.”

Mr. Bookstaber wrote one of the best books about the causes of the financial crisis, “A Demon of Our Own Design,” and did so before the crisis erupted. This month, his testimony to a Senate subcommittee provided a stark lesson in the uses to which derivatives have been put.

via High and Low Finance – Derivatives Tug of War Takes Shape – NYTimes.com.

Traders are using software developed by US-based technology StreamBase to monitor “tweets” for price sensitive information.

The software plugs into Algorithm-based automated trading platforms that have been used by traders for years. But rather than searching Reuters or Bloomberg the software now scans Twitter.com.

via Hedge fund managers betting Twitter will give them an edge in rapid trading – Telegraph.

From Rick Bookstaber, the Seven Habits of Highly Suspicious Hedge Funds:

1. No independent risk reporting

2. A change for the worse in the critical risk numbers

3. Increased use of derivatives

4. High level of secrecy

5. Growth in headcount and lifestyle

6. Decline in assets under management

7. Lackluster recent performance

via The Seven Habits of Highly Suspicious Hedge Funds.

Record credit card losses are pushing big US banks to come to the rescue of off-balance sheet vehicles they use to transform hundreds of billions of dollars in consumer loans into securities sold to investors.

via naked capitalism: Banks Rescue Credit Card Trusts, Yet Keep Them Off Balance Sheet.

From Reuters:

The U.S. monthly credit card chargeoff rate surpassed 10 percent and hit a sixth straight record high in May, Moody’s Investors Services said on Wednesday, as unemployment grew to a 26-year high.

via naked capitalism: Credit Card Chargeoffs Rise to Over 10%.

I have no problem with innovation. But it is very important for free market types to understand that financial innovation is often not of the Silicon Valley type, but of “how can I steal $10 from this guy and make it look like random market risk” type.

via Innovative Knock-Ins « Rortybomb.

or evidence that the Federal Reserve is still a long way off raising interest rates, look no further than the U.S. money supply, Westpac Banking Corp. said.

The CHART OF THE DAY shows that while the Fed’s balance sheet has grown, the so-called money-multiplier, the proportion of newly printed money that passes on to consumers, has dropped. M2, a gauge that includes savings and checking accounts, is 4.7 times the base cash supply, down from 9.3 times a year ago.

Of the $2.1 trillion that the Fed is injecting into the financial system, more than half, or 51 cents per dollar, is being posted back at the central bank by financial institutions in the form of excess reserves, a record high, according to Robert Rennie, head of currency research at Westpac in Sydney. That’s likely to ensure that the Fed’s Open Market Committee, which starts a two-day rate-setting meeting today, won’t be concerned about inflation, he said.

via Cash Supply Shows No Green Shoots for Fed Rates: Chart of Day – Bloomberg.com.

key was to have the compensation committee chaired by someone older and richer than you

via Felix Salmon » Blog Archive » Actual candor from Jack Welch Blogs .

It’s true that the money made from proprietary trading strategies is sometimes put into pure research, as Jim Simons is doing at Stonybrook or David Shaw is doing at DE Shaw Research. But it’s hard to make the case that Wall Street technology has any track record of making the world a better place. Indeed, quite the opposite; Roth goes so far as to say that “a new flowering of creativity on Wall Street would be a very bad thing”. I suspect he’s right.

via Felix Salmon » Blog Archive » Welcoming the Wall Street brain drain Blogs .

“China will have overtaken America as our biggest market by the end of 2010.”

via Zegna Explores New Markets in Face of Downturn – NYTimes.com.