Financial crisis

What is going on at ISDA, the International Swap and Derivatives Association, guardian of the best interests of the derivative markets for a generation?

ISDA has a proud but little celebrated role building the plumbing of the derivatives markets, designing and negotiating the templates which frame all of the trillions of derivatives which have been at the heart of the financial crisis.  But ISDA has not had a good crisis. Thrust into the spotlight to defend the role of OTC derivatives in the financial crisis, ISDA’s technical experts have found it hard to get traction with legislators looking for quick and easy answers.

A tactical decision not to  bend with the wind of regulatory change has left ISDA defending some positions long abandoned by other derivative believers. Consequently ISDA’s wise and well-informed voice has been much less influential in shaping the post crisis settlement than many of its supporters had hoped.

It is against this background that chairman Eraj Shirvani has asked long time staffer Bob Pickel to make room in the executive suite for a new CEO, industry veteran Conrad Voldstad. The industry needs a strong ISDA, and ISDA needs a stronger management team.

Connie certainly brings vision, determination and experience. This is good news. ISDA knows it needs to reach out beyond its traditional supporters amongst the major derivative dealers to embrace the more nuanced interests of the buy side of the derivative industry. it has made some progress in this respect in recent years. If it is not to be seen as another voice of JP Morgan and Goldman Sachs, Connie will need to continue Bob Pickel’s outreach programme. Crustacea beware.

Related links:

Trading Room FT

How derivatives can survive regulatory change and thrive FT

ISDA queries doubts cast on CDSs FT

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.

After failing to worry sufficiently in the bubble years, bankers are trying to make up for lost time. We have to find something to worry about. Faced with a global economy in much better shape that any of us expected this time last year, and market conditions conducive to positive returns (steep yield curves, cheap money) the best we can do for a worry is government deficits.

You can’t read the FT without getting sweaty palms about the immense deficits in the US and the UK.  Is this the biggest worry we have? I think we have to do better than that. Investors positively demanded government bonds in 2009, driving rates down to record lows. Of course it makes sense for governments to issue bonds, and lots of them.

If Bill Gross’ appetite for gilts is satiated and Chinese state agencies have had enough treasuries, then they will sell their bonds and buy something else. That is not a bad thing. If their flows into the equity markets, corporate investment and bank recapitalisation will be stimulated, this is a good thing. If Chinese money is repatriated, the renminbi will tend to appreciate, and that is a good thing.

Some bond vigilantes see themselves as fighting back, “yanking the chain” of government officials who have been giving bankers a hard time lately, using dire warnings of funding crises as a way of encouraging officials to speed their exit strategies, not only from support mechanisms but from holding equity stakes in banks themselves.

Banquo is paid to worry, but my worry isn’t government deficits, it is why so many investors can’t think of anything better to invest in than another government deficit.

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.

One banker who still seems very comfortable in London, indeed who seems to be planning to spend even more time in the City of London in the years ahead, is Jean-Claude Trichet, European Central Bank president. The very epitome of the charming, urbane central banker, Monsieur le President spoke at the Economist lecture at the Haberdashers’ Hall on Friday.

Here is the full text of Mr Trichet’s speech.

Dealing with threats to financial stability, Mr Trichet warned us that “snow on mountain slopes can be meta-stable, looking pristine and tranquil yet turning into an avalanche after only a minor disturbance”. Colourful language for a central banker best know for his banalities.  Combine that chilling illustration with his observation that “there has been a surge in provisions for loan write-offs” and  ”the crisis in securitisation and structured products are not yet behind us” and Banquo feels he has been warned…

Related reading:

Money Supply blog FT

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.

For the second time in a year Gordon Brown has demonstrated decisive leadership on an issue of import, making an unpopular, mould-breaking decision, and then had the satisfaction of seeing others follow him.

In the spring he “saved the world” by rejecting the complex US approach to bailing out the banking system in favour of straightforward and direct state-backed recapitalisation.  “I saved the world” is poignant because it is only a small exaggeration of the reality.

No wonder the UK prime minister feels righteous indignation that bankers plan to cash big bonuses riding the bailout wave that he created, and no wonder that he feels he has the moral authority to tax them.

For the second time others seem to be following Gordon’s lead. France plans a copycat measure on bank bonus tax and Goldman Sachs and the German banking industry (of about equal import in the global banking industry) appear to be planning preemptive measures.

It must be very hard being Gordon Brown.  Sometime master of the universe, a hero to his wife, but those pesky voters just don’t seem grateful.

Related reading:

Pre-Budget report 2009 FT

Investment banking industry FT

Westminster blog FT

Banquo is still an active investor so will declare his financial interest where appropriate in any blog post.


This blog is no longer updated but it remains open as an archive.

Banquo has spent more than 20 years in investment banking and the hedge fund industry, splitting his time between London, New York and Geneva.

Why is Banquo anonymous? Because he operates at a senior level across the financial markets, advising and investing, buying and selling, hiring and firing. He's still in the game but if he has a relevant financial interest in the subject of his posts, you'll know about it. Being anonymous keeps things simple. Banquo will never betray a confidence although he is privy to many.

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