Karl Denninger, “Price Discovery: Uh, No - Just More Theft”
“Price Discovery: Uh, No - Just More Theft”
by Karl Denninger
“There are two "social goods" that merit the existence of a "strong" capital market. Those are capital formation and price discovery.
But price discovery requires public markets. That is, it requires exposition of bid, offer and size where we can all see it. In addition a public market must demand that the participants be able to clear the trades they put on - that is, that if they claim they intend to buy or sell something, they have the economic power (or ability to acquire the product or service to be sold or bought) prior to entering into the transaction and for the entire period that the position remains open. As soon as you get rid of the public exposition of these elements, said market is no longer a market - it is now a mechanism to steal. And that's exactly what the banks have been doing - and continue to do - when it comes to derivatives.
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential. Strictly confidential eh? Even their names are secret?
Rather, it is set by a cartel. Cartel behavior in the United States - ala OPEC - is supposed to be broadly illegal. They wouldn't be doing that, would they? The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.
Oh I guess they might be. See, secrecy is the only way to protect outsized margins - what economists call "economic rents." If you have an open auction-style market, "rents" fall until there is nobody willing to provide the service requested at a cheaper price. Indeed, that's the point of price-discovery, in part - to discover the price at which someone will clear a transaction - not just the price of a given good or service.
But heh, what's an extra few tens of billions of dollars that is effectively stolen from consumers and producers across the economic spectrum through cartel-like behavior - behavior that, under existing anti-trust law, should be considered illegal. It's not like this is new, right, nor is buying off regulators - like The Fed, like the CFTC, like Congress...”
http://market-ticker.org/
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