Filed under: Uncategorized
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.
4 Comments so far
Leave a comment