Week InReview

Libor, Society and the Nature of Finance

"For decades Libor's function hasn't been to be an accurate representation of bank's overnight funding costs, but to be a number that people could plug into their spreadsheets to price derivatives and other products. 

"Aside from the morality of actively lying, the financial system is obviously better off with a 'fake' Libor than with no Libor. It's much more important to the financial system that there be some interest rate number that everyone agree to use as 'the interest rate' than that number be an accurate representation of what it represents itself to be.

"...is not a 'bug' but a 'feature' since finance is a way of managing promises about the future, which are inherently unpredictable. I think it was Merton who joked that it wasn't that everyone used his options pricing model because it was accurate, but that it was accurate because everyone used it. There is no 'rational' way to price options, but the financial system is made much better off by everyone pretending that Black-Scholes is a rational way of pricing options."

Pascal-Emmanuel Gobry
Jul 27th Twitter thread
Fri Jul 28, 2017
Let's recap
In case you missed it . . .
Shareholder attorney says new documents prove government theft; ex-Treasury, White House officials dispute characterization (Jul 28)

With the future of equity research looking shakier than ever, one boutique U.S. firm is betting its turnaround on getting paid by a different customer: the company being covered (Jul 27)

Cryptocurrency exchanges could be subject to SEC regulation, too
The cryptocurrency exchanges that trade those security-coins will probably be regulated too, according to an SEC's report (Jul 26)

Steven Mnuchin's bank reforms carry a warning for Europe
If some of the changes come to pass, the cost of capital for US companies could fall (Jul 24)

IMF could be based in Beijing in a decade: Lagarde
International Monetary Fund's bylaws call for the institution's head office to be located in the largest member economy (Jul 24)
The Cyber Cafe
Cybersecurity news every Friday.
Treasury using network theory to combat cyber threats
Targeted attacks and random threats call for different defenses, financial research unit finds

The latest app coding trend is a hacker's dream
As the industry rushes to adopt container technology, cybersecurity risks abound.

Tips for guarding against untraceable, 'fileless' cyberattacks
With public software increasingly less vulnerable, bad actors are utilizing legitimate tools already on users' systems - and so-called 'fileless' attack techniques that leave no trace.
Burdensome, complex regs 
Treasury to rework many of them: West
(Jul 22) -- Many of the rules identified in the Treasury Department's review of potentially burdensome or complex regulations could be reworked or re-proposed and some may ultimately be withdrawn, Thomas C. West Jr., Treasury acting assistant secretary for tax policy, said at a New York State Bar Association Tax Section meeting. "I think a lot of people perceive this list to be a list of things we are going to pull or repeal," West said. "In my mind, that is certainly not the case." Earlier this year, Treasury identified eight regulations that could be overly complex or financially burdensome for taxpayers. The list includes rules dealing with intercompany debt, partnership liabilities, and estate tax valuation.
FINRA to streamline enforcement
Stock market & member reg programs to merge
(Jul 26) -- The Financial Industry Regulatory Authority will consolidate its enforcement programs that focus on member firms and over-the-counter trading. Merging the self-regulator's two enforcement teams  - one handling disciplinary actions related to trading-based matters found through Market Regulation's surveillance and examination programs, and the other handling cases referred from other regulatory oversight divisions including Member Regulation, Corporate Financing, the Office of Fraud Detection and Market Intelligence, and Advertising Regulation  - could minimize duplicate and burdensome efforts, CEO Robert Cook said earlier this year. 
Munchin in the House
Reports on international financial system
(Jul 27) --  U.S. Department of the Treasury Steven Mnuchin testified before the House Financial Services Committee in his annual testimony on the state of the international financial system. Some highlights:
  • International Monetary Fund: Pressing the IMF for more focus on global imbalances "will help to improve prospects for U.S. jobs and exports, while holding the IMF's administrative budget largely flat in real terms."
  • Housing Finance Reform: The administration is continuing to study housing finance reform, since current system "in which the GSEs remain in perpetual Federal Housing Finance Agency (FHFA) conservatorship, is not sustainable and leaves taxpayers at risk."
  • Systemic Risk: He wants to address the SIFI threshold "quickly;" thinks the asset threshold "should be raised substantially, at least to $250 billion or $300 billion."
  • Volcker Rule: Said his biggest problem with the Volcker Rule is its complexity and regulatory overlap; Treasury has done preliminary work.
  • Prioritizing U.S. Debt Payments: If Congress fails to raise the borrowing limit, "I have no intent on prioritizing" debt payments. "That doesn't make sense. The government should honor all of its obligation and the debt limit should be raised."
  • On the Title Bestowed Upon Him by Democrats and Housing Advocates: "I take great offense to anybody who calls me the foreclosure king."
Binge reading disorder
Hand-curated, chosen with love.
The shocking doomsday maps of the world & the billionaire escape plans
Between the increase of bizarre weather patterns hitting the earth, and recent major volcanic activity, now more than ever our focus is on our planet's future.
- Forbes

Harvard magazine personal advertisements' many synonyms for "rich" or "thin"
Every single advertiser feels it is VERY URGENT to stress exactly how rich and thin they are;  everyone is concerned with making ABSOLUTELY SURE that you are picking up what they are putting down.
Transparency.
Inclusiveness.
Consensus.