Michael “Moneyball” Lewis was the first one to, er, expose us to the term Big Swinging Dick. His his first novel, Liar’s Poker, was full of them. The BSDs were the guys on the trading floor who brought more rain than El Niño.
But the BSDs have gone a little soft now. Even the famous Wall Street bull has been caged. And some, like number one banking fanboi Dick Bove, say that bankers have been “castrated” altogether by new regulation. Regulation which many argue does not go far enough.
Regardless, the Masters of the Universe suddenly find themselves feeling the pain that many of the rest of us have been feeling for the past four years. Only their ways of coping with it are a little different than what you might expect. Continue Reading
Check out our most popular posts from the past week.
- OWS? Here’s who the banks should really be scared of. Occupy Wall Street’s making big news, but we should be paying attention to another fast-spreading movement that can do a lot more direct damage to the big banks.
- No time for tax reform. It’s amazing how much (or how little) can be accomplished within two months.
- Federal Reserve: anybody else see a problem with this? This little diagram from the GAO’s audit of the Fed speaks for itself.
- Hard questions continue to haunt the Federal Reserve. Why reading the GAO report on Fed governance made me want to tear up the Federal Reserve Act.
- PIG-Sity, here we come.The U.S. banks’ third-quarter earnings releases gave us a look at how exposed they are to the eurozone crisis.
This week the big U.S. banks released their 3rd quarter earnings. The information provided stood out for two reasons:
- The banks juiced their earnings by using a perfectly legal accounting rule known as
CVADVA, or creditdebt value adjustment. CVA allows the banks to look at how their own debt is trading and to book a gain if the price of that debt has gone down. All because the banks could theoretically buy their own bonds back at a price lower than what they originally sold it for. With this trick all 4 of the big banks–Bank of America, Citigroup, JP Morgan Chase and Morgan Stanley–actually benefitted from investors’ worries about whether they’ll be repaid. One report claims that CVA accounted for 54% of the profits reported across the 4. A bit perverse, no?
- The other interesting bit about the 3Q releases is that it gave us a good look at how exposed the banks are to eurozone crisis that started at the edges but has steadily been creeping into the core. Let’s call this group PIG-Sity, for Portugal, Ireland, Greece, Spain and Italy. Here’s a graph of the U.S. banks’ exposure to PIG-Sity: