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Next time you buy an airplane ticket check the fine print. What you probably won’t find: language to the effect of, ‘the purchase of this ticket fully and without restraint entitles the ticketholder to the recline function of his seat for the duration of the flight’. That doesn’t mean one can’t recline. (It also doesn’t say you can breathe while on the flight…) It does mean however that claims like “I paid for the right to recline!” are made-up. No, you paid for an airplane ticket. There are some things explicit (we’ll take you from point A to point B, at such-and-such time, we kinda-sorta promise) and many things implicit. It didn’t specify a ‘right’ to recline just like it didn’t specify a ‘right’ to occupy such-and-such volumetric cylinder of space extending from the tip of your seat up to the ceiling, and along the bisecting midpoints of the armrests on either side of you. Not all things are ‘rights’ and not all of those are spelled out. When it comes to reclining, the simple fact is that reclining reduces the space available to the person behind you, touches them, involves their personal space and body. Whether that is ok involves at minimum you and that person, it’s not something you can just assert is ‘my right!’ and ignore the effect on others. “But if the airplanes don’t want us reclining why do the seats have that function.” Well maybe they shouldn’t but that’s beside the point. Some seats still have old ashtrays from the days before smoking was banned. Again, beside the point, if you want to ‘recline’ maybe that’s ok but you still need to confront & justify the fact that you’re affecting the person behind you, and how, and have good solid reasons for being ok with that effect. Do you? By the way I use the word ‘recline’ advisedly here because it is barely anything resembling ‘reclining’ that we are even talking about and continues to strike me as utterly bizarre that anyone from any walk of life would ever value that physically-imperceptible 4-degree difference so much they will defend their ‘right’ to it to the death. If no one were able to ‘recline’ starting tomorrow what would be lost, utility-wise? Nothing measurable. The supposed gigantic comfort gain you get from such a tiny ‘recline’ is all in your head, if you thought about this rationally you’d acknowledge I’m right, and you should let yourself be convinced to stop wanting it. Meanwhile the bruises on the knees of the person behind you is not in his head, I promise. Oh, but bruising some other person is ‘your right’ because you ‘paid for’ that right, right? Yeah no.
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Barry Ritholtz got some charts from a DB analyst to say that concern about student loans is all hype. Which, according to my Law Of Ritholtz™, of which no violations have ever been observed in captivity, must therefore mean that this is, likewise, the consensus conventional wisdom of Smart Wall Street. Indeed I have no doubt whatsoever that it is. But I still have some questions.
Now, I’m prepared, in fact happy to believe student loans are much ado about nothing but I just don’t understand how the data or charts he brings to bear show that. One is the idea that the average loan balance is small and (at <$25k for the 70th percentile) 'manageable'. This seems to me a relative term. Manageable for whom? In what situation? Compared to what? And what if we all agree they're manageable for most, like 90 percent, but there's still some sizable 10 percent tail that struggles with them? What is the effect of their struggle on the overall economy? Wouldn't that require some oh what's the word an-al-y-sis? (I mean I'm sure $25k is a drop in the bucket to Barry Ritholtz, but…)
And oh yeah if they’re so manageable, what’s with the delinquency rates? You at least gotta acknowledge them, if only to explain them away with some just-so story, in a piece like this…no?
Second he argues with/debunks the Zero Hedgeland notion that student loans are the ‘next subprime’ and will ‘tip the economy into crisis’ or something, which seems to be a case of picking the most extreme possible extrapolation of what a rational person might legitimately worry about re: student loans so it’s easier to argue against. But are we not allowed to worry about anything short of the ‘next subprime’ from now on? What if they’re just a major drag on/headwind against the economy – on ‘demand’, if that helps all the Keynesians among my gigantic readership – isn’t that bad enough? Bad, at least? Worth noting? A little?
Now, there is the observation that larger loan balances should correlate with graduate school, and that’s a good point, except: couldn’t it just be indicative that increasingly too many people are going to graduate school and (therefore – because more people chasing not-more jobs) won’t exactly reap the returns historical experience might lead one to associate with the extra degree? Of course it could. In which case, that’s bad not good. But I guess we don’t really know, here.
He closes with some ‘context’, that student loans outstanding were some $1.3 trillion while credit cards were some $900mm. Huh, so the ‘context’ is that student loan balances are one-third…higher than card balances? And this is supposed to illustrate what? Moreover, a peek at the data he linked to shows that student loans have exploded some 50% in 5 years during a time of, otherwise, national deleveraging (e.g. card balances decreased over that same time). Notice those 5 years coincide, coincidentally, with federal direct involvement in student loans (as opposed to merely wrapping them). So if nothing else we have an unprecedented program to try to grapple with and integrate into our forward-looking views; wouldn’t a hype-debunking article try to do so instead of just citing static-snapshot numbers?
Finally, the methodology. It’s based on comparing, er, balances. Raw principal amounts, unadjusted for anything. Get one simple big number, compare it to another big number, throw them in a chart maybe, that’s all you gotta think about. (Smart Wall Street!) But what does it mean to say there are $X student loans out there ‘and’ $Y credit card balances anyway? Not all that much. It’s kind of apples/oranges. Credit cards are a different animal. Big fractions of those balances turn over every month. Credit cards are dischargeable in bankruptcy. They don’t sit on the taxpayers’ balance sheet as an asset with big fat future carry gains priced in. There is not the everpresent poltical risk (perverse incentive?) posed by the Elizabeth Warrens of the world constantly whining about them and musing about ‘cleverly’ restructuring them, and writing them down somehow without recognizing any losses thus hiding the problem elsewhere. Etc. etc.
There’s also no concept of leverage or risk-adjustment anywhere in this discussion. Is the economy levered to student loans in a way that makes the effect of that ~$25k/per not exactly 1-to-1, dollar-for-dollar? I don’t know, but couldn’t it be? Hard to find clean data, but I believe at their max, subprime mortgages outstanding were maybe $2-3 trillion. Hey, which is only twice as big as the student loan market right? So it was only twice as big a problem? Equivalently: student loans are ‘half a subprime’ already – and rising? Oops, this debunking just imploded on itself.
But of course that’s silly. The raw numbers don’t tell the whole story, you need to bring in some appreciation of the risk and the leverage. You know, with the subprime loans being made to bad credits (and fraudsters), then those loans being securitized, and unplaced tranches of those deals being re-securitized into CDOs, and those CDOs wrapped by bond insurers and AIG, and people selling CDS on AIG, and CDS on AIG going into synthetic CDOs, and people stuffing levered super-senior synthetic CDOs into ABCP vehicles, and pensions buying that ABCP, and….etc. etc. etc. As everyone knows, it wasn’t really only a “$2 trillion” problem.
The point being that you just can’t really learn or understand very much about the world just by looking at the unadjusted raw amounts outstanding of things, you also have to grapple with the overall market structure and how whatever you’re looking at actually feeds into some bigger picture, maybe even drill into the micro details. Well, same goes for student loans: who takes student loans? who leaves them outstanding? what’s their likely life arc? how will these balances change their behavior/outcomes? Obviously there is nothing directly analogous to CDOs in the student loan world playing anywhere near the same role as was in subprime but mightn’t there still perhaps be some mechanisms by which the effect of student loans is magnified or otherwise not-well-encapsulated by merely looking at things like aggregate balances and individual balance histograms?
Again: I don’t know. But I think there could very well be. However, you won’t identify such mechanisms if you don’t even look for them because it’s much easier just to dismissively ‘debunk hype’. With some charts. So just saying, if you want to convince me that you’ve ‘debunked’ the ‘hype’ around student loans, you now know exactly what sort of piece not to write.
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Econlog is known for policing its comments section quite heavily. That’s fine. Elevates the discourse, and all. (The discourse is so elevated that I never have to read it anymore.) It does make it ironic, however, that something like this passes muster as an actual blog post, since it’s based entirely on snark and lacks anything resembling any actual argument.
To be sure, I would agree that some of the anti-open-borders arguments hinted at in Art Carden’s “Open Borders Bingo” indeed are not very good. Some though, I would protest and say they are fine. Many more though are merely debatable or, more to the point, are sketches of larger points thus would open up larger, deeper conversations, for those so interested.
Or if not you could, of course, just play “Bingo”. Because ha ha!
“EconLog aims to educate, entice, and excite readers into thinking about economics in daily analyses.”
Obviously, what’s I’m getting at here is that I’ve taken the liberty of drafting entries for a hypothetical “Argument-For-Open-Borders Bingo” game. One that I might put forth if, instead of being banished from Econlog, I were deemed fit and civil enough to be an Econlog blogger like Art Carden, that is.
ARGUMENT FOR OPEN BORDERS BINGO
Put one of these on each square of a 5×5 grid and mark each you hear.
- We have no right to interfere with the sacred, inalienable freedom of association between this immigrant and the nonexistent domestic employer that I am pretending has extended a job-offer to him.
- From now on you can just blindly extrapolate the likely outcome of pretty much any future group-mixing dynamic from the experience of circa-1900 Irish- and Italian-Americans.
- Admitting an immigrant is just like having a baby. Same thing. Limit one, gotta limit t’other.
- Someone in your ancestry must have been an immigrant, therefore it must be ok to allow infinitely.
- It will help our economy, according to this first-order, unauditable black-box economic model that some guy made and which I choose to believe sight-unseen because I read a blog post [LINK].
- You say there can be frictions and troubles between people from drastically different cultures, but I get along with my fellow faculty members just fine.
- There is an inalienable Freedom Of Movement that I just made up.
- It will improve, oh, let’s say, employment on average, and aggregates are all that matter – you are not allowed to think about or take into account any micro or distributional effects, especially those upon yourself. (Why should you as a member of a democratic society be allowed to take into account how your government’s policy would affect you?)
- I’ve seen no ill effects from immigration from where I sit, at my home in, like, Chevy Chase Maryland. And I’ve seen stats that suggest there are lots of immigrants in some town I barely ever go to somewhere near me, let alone would I ever even think of living there. (“Bad Schools”). But it’s close. So you see I have a lot of immigrant experience, I mean I really know whereof I speak.
- Those complaints you have about the unfairness inherent in the fact that some people (say, your loved one) did all the proper procedures & paid the costs (which can mean you yourself literally paid those costs), whereas those who came illegally did and paid none of that? They’re dumb. I spit on them, and by extension, on you.
- The nation-state doesn’t literally own the land within it, so it must have no right whatsoever to impede movement across borders, and there’s no excluded middle whatsoever in my saying that.
- I had the most fascinating conversation with my immigrant cab driver on the way from LaGuardia to my downtown conference at the Hilton in New York, and from there I just extrapolated a bunch of stuff, let me tell you all about it. P.S. Open borders
- Racist! (Center square – free space)
- We are a ‘nation of immigrants’ in some kind of metaphorical albeit not really even close to literal sense, so that beautiful platitude trumps everything.
- Look at these econ stats – that’s effectively a dividend we’ve received by exploiting illegal immigrants’ second-class status; don’t you want that to continue indefinitely like I do in all my generosity?
- It is paranoid to think that other humans might have diseases that could spread to your community. That’s never happened! Certainly not here, in, er, America.
- Look at how many Indians we have to import for IT jobs to do stuff like write SQL queries, a thing no American could possibly do** (**at the same wage you can pay someone when you have them under H-1B indentured servitude).
- It is stupid and ignorant to think some individuals might be different than other individuals in any way, so distinctions are impossible between would-be immigrants and we therefore must admit them all if we admit any.
- Immigrants buy stuff too, like magazines and sandwiches, which circulates around and multiplies, thus boosting the economy, because I’m suddenly a Keynesian for some reason?
- There are ‘jobs Americans won’t do’. Price mechanisms don’t work and markets don’t clear. I’ve never even heard of such things, and I’m often even an actual economist or at least an ‘econo blogger’ with no meaningful econ training who likes to fancy myself as being somehow econ-savvy.
- Oh come on, open borders doesn’t literally mean open borders. It just means that everyone who wants to be is admitted.
- We mathematically need more immigrants to pay into our national pyramid-schemes, which I suddenly care about even though I’m often a libertarian. Anyway, that’s literally my only idea to address them: more levels in the pyramid, regardless of other effects.
- Jose Antonio Vargas. Need I say more??
- More immigration would increase the World Utility Function, and isn’t that why the federal government of the United States was constituted and given power over Americans? To tax them, tell them what to do, and then use those resources to go out and try to help The World (=mostly non-Americans)? the process of taxing Americans but basing actions on what helps The World to recur indefinitely and without end?
- The lettuce will wither. You like your salads don’t you? WHAT ABOUT THE LETTUCE?
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By now it should be clear that in the minds of Smart People the text of the statute that begat Obamacare is absolutely irrelevant. It literally does not matter. You can scrape out and point at some of the text, and they themselves will scoff. You’re being stupid. State doesn’t mean State, they say. You have to read it all in the larger ‘context’.
What is this context? Whatever they say it is.
This was, of course, obvious from the time the law was first put forth and shoved through. Legislators voted on it without knowing what was in it. Millions of lefties supported it without knowing what was in it. To the extent they did know what was in it, some of them even purported to have problems with it – but insisted the law be passed anyway, and then rabidly defended it afterward against all attack.
What was in the law, textually, was never important. What was important was simply that it was some sort of National Health Care Thing. That was enough. That sufficed. That’s all that mattered. From that point, game on.
In the mind of a run of the mill lefty Smart Person, once a Health Care Thing was passed, it was as if we had amended the Constitution. Scratch that; it was as if we had, instead, adopted a new, unwritten Constitution. It was a sort of infinite enabling-act allowing for a complete overhaul of our society, to do whatever it takes to cause it to have a National Health Care Thing. Having a National Health Care Thing, in other words, represented a sort of phase transition from our previous, nominally Constitutional arrangement, to our new, glorious National Health Care Thing-having arrangement.
What are the rules of this arrangement? None! There are none. There are no actual rules. You will search in vain for them, to identify them logically, the parameters or boundaries governing what government has now been empowered to do. There are no limitations on what government can or cannot do in the service of building a National Health Care Thing. Rules and limitations are a thing of the past. Now it’s the future. Now, the only rule that matters is to make the National Health Care Thing ‘work’.
What does ‘work’ mean exactly? We’re not quite sure, but we’re working on it. Top men are working on it. Top. Men.
Oh yes, they’re working on it. Figuring it out. Crunching numbers. Wonking. Voxsplaining. Commentating. Tweeting each other. Writing memos. Issuing interpretations and ‘rules’. Giving contracts to each other. All in the service of Making Our National Health Care Thing Work. Because remember, that – and that alone – is the guiding principle of our nation now.
I know, it didn’t seem like any of this was part of the text of the statute of PPACA, or Obamacare. You didn’t think this is what was being agreed to at the time. Nothing like this appears in the actual statute. But remember: text doesn’t matter. What matters is what people thought we were agreeing to when ACA was
shoved up our asses democratically passed. What who thought? What Smart People thought of course.
Mind you, I’m not saying it matters what I thought or what you thought. We don’t count. We’re not Smart. No; what matters is what Smart People thought. You know. Smart People. Ezra Klein. Josh “The Journalist Formerly Known As Joshua Micah” Marshall. Sarah Kliff, the “healthcare journalist” (like, that’s literally what she says her job is, a “healthcare journalist”, she “reports on healthcare”, and as far as I can tell that’s like an actual valid career now, like for all we know she’ll do that for the next 50 years, be a “healthcare journalist”).
Notice what all these people are saying now. They’re saying, Wait! None of us who did our noble Work (because it is totally a real job totally worthy of respect) of Talking About Obamacare On Websites thought it limited tax credits to state-exchange-users!
And notice that they actually think that’s a trump card. They think that should settle matters. What they thought. There’s your first clue. It’s not what’s in the bill that’s important. Indeed, that entire talking-point is nothing more than an admission that none of these people actually read the bill, because if they had – if these “healthcare journalists” had actually read the thing they were supposedly doing so much ‘work’ ‘reporting on’ – they’d have seen and understood the problem with the disputed section and, well, actually reported on it.
But why should any of these people read a National Health Care Thing law merely in order to ‘report on’ it? The text itself doesn’t matter. It’s what they and their friends and people they had lunches with thought that’s important. They. Not you. Not me. Not conservative-minded lawyers who might (in what can only be described, in retrospect, as a silly waste of time) actually read the text of the statute. No; what matters is they. Smart People. The Sarah Kliffs of the world.
So what does the law mean, then? We’ll just have to let Smart People tell us. From now on. They’ll figure it out, they’ll make stuff up in their heads, they’ll reverse their prior decisions, they’ll fling money around at some people and tax money away from other people, they’ll come up with all sorts of arbitrary and ad hoc ideas for how our society should be run, and then they’ll kindly tell us.
It’s all part of our new National Health Care Thing that we passed. Not in the text of the thing, but in the idea of the thing, the idea that exists in the collective heads of Smart People. Obamacare was an infinite, empty vessel into which they are now all free and enabled to pour unfettered any ideas or dreams they might have about how our society, with its National Health Care Thing, should be arranged.
This was all clear, of course, from the moment Obamacare was first discussed and shrilly, ferociously, zealously advocated by throngs of people who didn’t know diddly-squat about what the hell was in it. But I’m being unfair; why should they have known what was in it? It was never what was ‘in it’ that mattered in the first place. Or rather, what’s ‘in’ Obamacare, is whatever Smart People want or need to be in Obamacare, at any particular time. That’s how things are going to be from now on.
So now you know, if you didn’t before.
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Why isn’t this being said more explicitly? MIT Professor of economics and (we are told) one of the key ‘architects’ of what became Obamacare, while also reaping reqards like a $297k grant from HHS, is obviously and clearly and transparently being a big fat fucking liar when he says that his 2012 state-exchange-subsidy comments were just a ‘mistake’.
IMHO he’s clearly just lying about that. He’s fucking lying. Lying through his teeth. Lying to the hack reporter he tells that to, who happily pretends to believe it, and (implicitly) to any of the Americans who read it and are, willingly or not, subject to the Smart policy he (we are told) helped to ‘architect’ using his Smartness.
Professor Jonathan Gruber, why are you lying? Why can’t your Smart and noble cause survive the truth? Lefties, why is it just fine and dandy with you that this guy is (as you well know) lying? Why does your Smart policy require all sorts of noble lies?
These, of course, are just some of the questions I would ask of Gruber and of Obamacare-koolaid-drinking lefties if I believed they were intellectually honest and if I had any respect for their opinions. In the event, though, I guess there’s no real point in asking them.
There is just the simple, obvious observation that this Smart wealthy influential professor man, named Jonathan Gruber, feels the need to lie to all of us.
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The statute that became ‘Obamacare’ was not generated by robots or ominously-self-aware AI. It was created by humans.
I don’t know much about the process but I have to assume these humans were people who worked in various Senators’ offices. 26 year olds named Amy with law degrees and the like. (Look, in my mind, she’s named Amy, ok?)
Here’s how it went. At some point, our pants-suited hero Amy created a Word document called Document1.doc. Then she saved-as so that she could rename it to NationalHealthCareYay.doc. Some boilerplate introductory language, the stuff about how/why Congress shall be deemed to have the authority to pass this bill and such, was copy-pasted in from a farm bill. There may be a standard template used around the office, to make sure all the sections are numbered and fonted propertly, a table of contents generated, etc.
Then the real horse-trading in Congress started. Senator so-and-so wanted a bridge to nowhere so that section was copy-pasted in. Congressman whatsherface wanted to her people to look through it so it was emailed over, and sent back. Someone somewhere had a file with Hillary Clinton’s old health plan from 1991 so some sections from that were incorporated. Numerous sharings, branchings, copy/paste, edits, emails, save-as’es took place. Basically all of these people were (D)s and were in favor of the bill, not (R)s who were somehow diabolically trying to spike the bill.
By now the document was called NationalHealthCareYay – v73 for Brenda (Copy) (Copy) (COPY) – NEW VERSION[Removed bridge funding] DO NOT SHARE (edited for sharing)[version B2].doc. The text had all those strikethroughs and red fonts and side-column notations that you see when you edit documents with the ‘history’ option or whatever it’s called turned on.
I made basically all that up but I’m pretty sure it’s basically correct, in broad strokes.
And anyway, at the end of that process, whatever it was, a part of the statute that was sent to the floor and actually got passed said this:
…through an Exchange established by the State under 1311
Someone somewhere consciously typed and/or pasted that, or the words that eventually became that – each and every word – in to our Word doc. It was not put there by a bot or an act of God.
That person, whoever he/she is (SPOILER: it’s Amy!), had a reason for typing that in, and must have done so consciously. It was not done, presumably, as an exercise in psychography or while on a vision quest under the influence of hallucinogenic mushrooms. There was a reason for writing ‘by the State’ and there was a reason for writing ‘under 1311′, the very first time each of those words were written in our ancestral .doc, the ‘Q source’ of Obamacare if you will. Those reasons had to have been conscious and deliberate ones. (After all, why 1311? Why not some random number? Why mention another section at all? Why ‘by the State’? Why not just ‘exchange’? Etc etc.)
The plaintiffs in the recent Halbig court case have a theory as to that reason: it’s because at some point, the creators of Obamacare had this idea that only offering tax-credits to state-exchange buyers would be a ‘carrot’ to induce states to create exchanges. Maybe later the whole ‘carrot’ theory was dropped or forgotten but the reason it was put there originally does indeed trace to the ‘carrot’ strategy. Now: I don’t know that this theory is true, but it’s a totally plausible one, has grounding in some actual documented discussion that did take place amongst/witnessed by at least some (D) lawmakers, and it explains literally all the facts.
The Reality-Based Community does not have a theory as to how ‘by the State’ got there. They call it a ‘drafting error’ and/or a ‘mistake’ and/or a ‘glitch’. Senators, like Pelosi et al, ‘wrote’ (nominally – I’m guessing Amy wrote this too) an amicus brief claiming that ‘by the State’ is not what they meant. But they do not actually explain how or why it got there.
But again, the statute that became ‘Obamacare’ was not generated by robots or ominously-self-aware AI. It was created by humans. And someone, somewhere, at some point in the legislative history of creating this law, wrote ‘through an Exchange established by the State under 1311′. And they had a reason for doing so.
If the Smart People’s rebuttal to this court case is correct, that reason is ‘simple, dumb, but weirdly specific mistake’. In other words, our Amy had to have written ‘by the State’ when there was no reason to and no one instructed her to. And she had to have referenced section ‘1311’ out of the clear blue sky. This seems unlikely. It is, on the face of it, far less likely than the plaintiffs’ theory of what happened. Nevertheless that’s Smart Peoples’ story and they’re sticking to it.
Very well then. Let’s hear from Amy. Let’s have her tell us, in plain English, that it was a ‘mistake’. I mean right? Amy is the one who wrote this thing (not Nancy Pelosi, gimme a break). She knows why she wrote it. And if she just made a (weird and oddly specific) ‘mistake’ then she is best positioned to attest to that fact.
This would be the simplest and easiest way to smackdown ACA’s critics and shove it in their face. Reporters like Sarah Kliff who appear to be trying to build an entire journalistic career on simultaneously reporting on and cheerleading (but I repeat myself) this law would have a nice feather in their cap if they could just track down and interview Amy. Money quote: “It was just a mistake. I wrote ‘by the State under 1311′ for no real reason. I don’t even know why. No one told me to. It’s not like it was part of the early discussions of the law or anything. I was just feeling weird that day, wasn’t getting any good matches on Tinder, so I decided to throw in a reference to 1311 for the heck of it. I didn’t even know ‘1311’ was a real section of the law”.
Take that, Obamacare truthers! Science wins again!
Well? So? Where is ‘Amy’? Why haven’t we heard from her? Remember, whoever she is, she’s some staffer with a law degree and career aspirations who works/worked for some (D) Senator or Congressman. She totally believes in Obamacare. She could totally heroically defend Obamacare against evil righties by stepping forward now and telling her side of the story. And literally all the players who would need to be involved have every incentive in the world to step forward and convey to us this crucial information, which could save the insurance plans of millions of poor Americans, that ‘by the State under 1311′ was Just A Mistake.
And they haven’t! Not for months and months! As a whole case about it has dragged through the courts!
Under the Just A Mistake theory, this is pretty inexplicable.
Under the ‘carrot’ theory, however, it makes perfect sense: there is no ‘Amy’ to find to testify to the ‘mistake’, because it wasn’t a ‘mistake’.
This is all you should need to know in order to know which way to bet. I’m not saying it’s a sure thing, mind you, I’m just saying: you know which way to bet. The ‘carrot’ theory is actually an explanation and fits the facts and raises no other problems. None of this can be said about the ‘mistake’ (non-)theory.
If you’re genuinely scientifically-minded, and ‘reality-based’, this is the part where you say QED.
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Remember how ‘prop trading’ was banned by the Volcker Rule? That was awesome. ‘Prop trading’, as we all know, is when a bank does a trade ‘for their own account’ rather than on behalf of a client. (It’s evil and bad. It caused all bad things.) We all agree. Smart People agree. Smart People are Smart for agreeing. We’re Smart.
Meanwhile, in unrelated news, a bank just went out and bought like billions of dollars worth of mostly seasoned non-agency subprime mortgage bonds, for 73 cents on the dollar. Bloomberg helpfully explains that them and a buncha other banks were asked to bid on the block of bonds directly, ‘either to hold on their own books or to fill client orders’.
Wait, what? ‘Either’? How on earth could it be that first thing, legally-speaking? Does not compute.
Or do they have literally $3 billion some-odd worth of client orders lined up that they crossed literally all these bonds to yesterday? Did all the other banks line up (different?) $3 billion some-odd worth of client orders yesterday too?
Because whichever bank won the auction would’ve had to take delivery of a bunch of bonds T+3 or whatever, and if those bonds weren’t all immediately crossed to end-clients, the remainder would then, by definition, be sitting – as Bloomberg says – on their own books. Right there in ‘their own account’, so to speak.
Do you see? Is anyone getting this yet?
Oh, why do I bother.
UPDATE 7/17: If this followup is any indication I have a heaping helping of crow to eat. Hard to tell, but it seems to imply that the entire block was sold to clients (or in part to other dealers, who sold to their clients?):
Data on market trades yesterday from the Financial Industry Regulatory Authority signal Credit Suisse placed the bonds with clients, with a similar amount of debt being bought and sold by dealers.
So…nevermind? I guess this particular auction was perhaps Volcker-kosher on its own terms after all. If so I was wrong and my snark, dumb & misplaced for a change (unlike my usual snark, which is intelligent & on point).
Dang, by my count this would mark like the 4th time I’ve been wrong while blogging. See I told you I wasn’t a very good blogger.