The Great Taking

[immamac 43703]

For those who don’t necessarily understand derivatives and why speculative derivatives at the current rate are what’s worrying this is actually a good video that mixes in some humor explaining it. 

 

[immamac 43703]

https://www.imf.org/en/Blogs/Articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable
 

week old post from IMF, don’t think I’m being alarmist - this shit is teetering at the brink. It’s hard to tell people to knock it the fuck off without causing panic and irrational behavior leading directly to the liquidity crisis you are trying to warn people about. It’s a weird catch 22 that you can’t exactly put in short term monetary policy to solve either because that requires a functional government and enforcing body (which the US has neither of with congress being a shitshow and the SEC actually not doing their fucking jobs) 

The major folks are watching this and tell people to please look at what you are doing and be careful and a bunch of yolo mother fuckers are pumping nvidia and AI like it’s all cool and gonna solve the problem. Shits so whack. 

[immamac 43703]

Simply saying LOL THERE WONT BE A LIQUIDITY CRISIS YOU PARANOID FUCK. isn’t really intellectually honest for this conversation. It’s reasonable to assume that there are significant risks in the current market due to the state or lack thereof of regulation in things like margin tradingp

also more people than just a few are trying to say he everyone needs to start thinking of this as a real risk. 

https://theconversation.com/why-economists-are-warning-of-another-us-banking-crisis-224092

https://mises.org/mises-wire/money-supply-fell-fifteenth-month-row-full-time-jobs-disappear

shit is fucking crazy. 

[Firemans4Horn 18339]

U ok, bro?

[immamac 43703]

Was just down a thread in this today and doing a bunch of reading. The thread is here for discussion and I’m just putting good materials here for that discussion with my opinion. 

[Neonmoon 38130]

18 hours ago, immamac said:

@Neonmoon

1) see below

2) Brokerages, institutional investors and Banks specifically

3) No, I diverge from his nefarious source of this and chalk it up to extreme complexity and a tolerance for systemic risk that non-participants get to judge for the participants. I think that corporate entities will act in the best interest for the corporation to the extent of the law, the law is set up to benefit a small set of banks and institutions. I am not a conspiracy theorist, and don’t think they are trying to take everyone’s shit, they just know they can and have shown in the past that they will (Lehman bros and JPM)

Starts here: https://www.law.cornell.edu/ucc/8/8-511

in depth analysis of the systemic risk here: 

you can also DRS your shares, but this protection is cumbersome and not used by the majority of brokerages because they can’t lend your shares out however the fuck they want.

https://www.sec.gov/about/reports-publications/investor-publications/holding-your-securities-get-the-facts

https://www.finra.org/investors/insights/know-the-facts-direct-registered-shares
 

The issue is that there is now precedent to actually have this happen, but in a bankruptcy situation the only entity protected is the broker. https://www.mondaq.com/unitedstates/commoditiesderivativesstock-exchanges/36408/the-effect-of-the-new-bankruptcy-code-on-safe-harbor-transactions

so the issue isn’t that these things are kind of possible it’s that we are so far away from the core purpose of derivatives to where now if something on a chain reaction of derivatives goes bad then it’s going to fuck everything and cause a meltdown of a liquidity crisis because there isn’t actually enough money in the derivatives contract backing bodies. 

https://www.dtcc.com/-/media/Files/Downloads/legal/financials/2023/DTCC-Annual-Financial-Statements-2022-and-2021.pdf

70B+ in liabilities and only 3.5B in assets backing it. So in the event that something fucks up or things move fast this just becomes insolvent. When this becomes insolvent then all the collateral involved starts a chain reaction because the banks aren’t going to allow themselves to be fucked. They will go after the brokerages who lent out the shares and anything not DRS will get scooped in the collapse. 

the paranoia isn’t about what causes this event, but rather that we are now so fucking crazy when it comes to what’s going on with derivatives and a stressful financial event. (See SVB run and all the treasuries which have trillions in paper losses maturing). 

basically if we had a more sane derivatives market and more transparency into wtf is actually going on this would probably not be a concern, instead there’s a pretty solid chance that if some fucks up it doesn’t mean all liquidity is halted (market stop trading etc) and government bailouts (at this scale, likely not possible without causing hyperinflation) 

individually there are ways to deal with these things, but all together a chain reaction protects only the banks and is irrelevant to those unencumbered by the banks. Right now there is too much from a derivative and swap basis out there to settle in any reasonable way with the existing liquidity in the market.

I appreciate the substantive response with links and information. It's much better than the original source material from cuckoo town. 

To you point, there is legitimate concern about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that amended the Bankruptcy laws to exempt derivatives. The reason it was enacted was there were legitimate concerns that by not allowing derivatives to close out contracts, systemically important financial institutions could not cover their positions, creating a daisy chain of collateral calls, leading to the house of cards coming down. Of course on the other side of the argument, people argue the same exact safe harbors will cause systemic risk and the house of cards coming down. (I'm not going to lie, reading about how the industry lobbied for this for a long time doesn't give me the warm and fuzzies)

These are fun reads. 
https://dash.harvard.edu/bitstream/handle/1/10985175/AdamsSafe Harbors.pdf?sequence=3&isAllowed=y

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2419460

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2351025

It appears Title II of the Dodd-Frank Act (Orderly Liquidation Authority) was created to address the Lehman Brothers situation so that mess never happens again. Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act

I haven't had time to dig into the entitlement holder thing. 

Edited March 25 by Neonmoon

[Captainant 28003]

16 minutes ago, Neonmoon said:

I appreciate the substantive response with links and information. It's much better than the original source material from cuckoo town. 

To you point, there is legitimate concern about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that amended the Bankruptcy laws to exempt derivatives. The reason it was enacted was there were legitimate concerns that by not allowing derivatives to close out contracts, systemically important financial institutions could not cover their positions, creating a daisy chain of collateral calls, leading to the house of cards coming down. Of course on the other side of the argument, people argue the same exact safe harbors will cause systemic risk and the house of cards coming down. (I'm not going to lie, reading about how the industry lobbied for this for a long time doesn't give me the warm and fuzzies)

These are fun reads. 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2419460

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2351025

It appears Title II of the Dodd-Frank Act (Orderly Liquidation Authority) was created to address the Lehman Brothers situation so that mess never happens again. Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act

I haven't had time to dig into the entitlement holder thing. 

IIRC wasn't Dodd Frank's "enhanced regulations" line increased in 2017 from $50B to $250B? The reasoning at the time was that they were "replacing micromanagement with market discipline" and that there was NO WAY that taxpayers could end up on the hook for a "too big to fail" since they are guided by the Almighty Free Market