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When variation margin attacks: Difference between revisions
When variation margin attacks (view source)
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“Come on, JC: I know you are a cranky old bugger. But do you really mean to say you are going to swim against the tide of all that consensus?” | “Come on, JC: I know you are a cranky old bugger. But do you really mean to say you are going to swim against the tide of all that consensus?” | ||
WHY NOT, my friends? | WHY NOT, my friends, WHY NOT? | ||
Now, if someone would kindly hold my beer: | |||
==Banking, in the good old days== | ==Banking, in the good old days== | ||
===Remember when trusted intermediaries were a thing?=== | ===Remember when trusted intermediaries were a thing?=== | ||
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===The overall vibe=== | ===The overall vibe=== | ||
The overall vibes were of prudence: clients would produce non-cash surety, but banks would lend based on the overall understanding of a customer’s position, lending would be broadly proportionate. | The overall vibes were of prudence: clients would produce non-cash surety, but banks would lend based on the overall understanding of a customer’s position, lending would be broadly proportionate. | ||
I want to set up an idea of a financial services industry with two types of participant: ''intermediaries'' and ''end users''. | |||
==== Intermediaries ==== | |||
There are various types of intermediary in the market: those that are part of the market infrastructure, like [[Exchange|stock exchange]]<nowiki/>s, [[clearing system]]<nowiki/>s, securities depositories and so on; then those agents who earn only a commission from their involvement, and take no principal risk<ref>I include here “[[quasi-agent]]” roles that are conducted on a [[riskless principal]], but (absent insolvency) are economically neutral: thse participants are remunerated by [[commission]] or fixed [[mark-up]] and do not have “[[Skin in the Game: Hidden Asymmetries in Daily Life - Book Review|skin in the game]]”.</ref> at all: [[Cash brokerage|cash broker]]<nowiki/>s, [[Investment manager|investment managers]], [[Clearing broker|clearer]]<nowiki/>s, [[Market-maker|market-makers]] and [[Intermediate broker|intermediate brokers]] and then there are those but the thing they have in common is this: their financial interest is ancillary to the performance of the instruments in which they are dealing. | |||
==Enter the swaps== | ==Enter the swaps== | ||
The [[swap history|history of swaps]] is interesting and fairly well-documented. It all started in earnest with a bright idea [[Salomon Brothers]] had to match up IBM, who needed U.S. dollars but had a load of Swiss francs and Deutschmarks, with the World Bank, which had all the dollars anyone could need but needed to meet obligations in CHF and DEM which it wasn’t able to borrow. The two institutions “swapped” their debts, exchanging dollars for the European currencies and paying coupons on them, with an agreement to return the the same values of the respective currencies at maturity. | The [[swap history|history of swaps]] is interesting and fairly well-documented. It all started in earnest with a bright idea [[Salomon Brothers]] had to match up IBM, who needed U.S. dollars but had a load of Swiss francs and Deutschmarks, with the World Bank, which had all the dollars anyone could need but needed to meet obligations in CHF and DEM which it wasn’t able to borrow. The two institutions “swapped” their debts, exchanging dollars for the European currencies and paying coupons on them, with an agreement to return the the same values of the respective currencies at maturity. | ||