Juggling Dynamite

We live in a time where so many have been extracting hidden profits without any scrutiny, scruples or penalty via unfair advantage and opaque business models designed to dupe others, that it has literally become the systemic norm, with many actors unable to even recognize or admit what is unethical or wrong with their actions. They are indignant at being questioned.

Brad Katsuyama,IEX; William O’Brien, BATS Global Markets president, “Flash Boys” author Michael Lewis; and CNBC’s Bob Pisani, debate high-frequency trading and the perceived unfairness in the public exchanges. Here is a direct video link.

BREAKING NEWS APRIL 3, 2014: NY Attorney General forces BATS President to correct erroneous representations made on CNBC:

“BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.

BATS President William O’Brien, during a CNBC interview Tuesday, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.

The distinction matters because high-speed traders can use powerful computers and superfast links between markets to outpace traders and trading venues that rely on slower market data, such as the SIP.”

No wonder he was so hot headed and angry in his exchange with Brad and Michael in the CNBC clip. He was called out in a lie on national television…

For a while there the world was acknowledging the peak of sub-prime, levered loan issuance in the 2007 credit bubble as the zenith of crazy, reckless behavior. Well that was then. Today memories are evidently blank once more. Courtesy of the Financial Times, see: Growth of ‘cov-lite’ loans sparks debate.”

“Sales of “cov-lite” loans that come with fewer protections for lenders have become the norm in the US rather than the exception.

“It’s death by a thousand cuts,” says a syndicate banker who is responsible for selling such loans to investors. “If an issuer sees one deal close successfully, they’ll ratchet the leverage and lower the covenants on the next one.”

Almost two-thirds of the leveraged loans now sold into the US market contain fewer covenants than traditional deals, according to data from S&P Capital IQ – eclipsing the 29 per cent proportion reached at the height of the LBO boom in 2007.”

Apparently the financially devastating game of credit roulette is back on with a vengeance. This is what happens when the perpetrators last go round were bailed out and granted a free pass to continue…round and round we go.

As we listen to this very lucid discussion of what Chinese policy makers need to do in order to allow a necessary re-balancing in the world’s second largest economy, we should realize that precisely the same revelation and new approach is needed in the world’s largest economy today as well.

Patrick Chovanec, Chief Strategist at Silvercrest Asset Management, says the buildup of bad debts in China is leading to less available credit to grow the economy. Here is a direct video link.