"History is a wonderful thing, if only it was true"

Sunday, February 22, 2009

More posts on current affairs

I should think that there would be a great variety of instruments that could be used, rather than each deal being "individual" there could also be methods to customize deals, while still allowing the transparency that open markets can provide.

That's what options and derivatives should be about, but they must be based on clarity, not obfuscation. Truth in borrowing, not falsehoods.

In time, we'll see this and it will help bring the finance markets back to life.
Can't be soon enough ...

Jan 29th '09

Taming the unruly OTC market | Drugstore cowboys | The Economist:

"The exchanges say that by offering the flexibility of OTC markets with central clearing and automated processing, they provide the best of both worlds: customisation (within limits) coupled with reduced counterparty and operational risk. Counterparty risk is reduced since all parties work through the same clearing mechanism. That leaves less chance of gridlock when a big institution fails. Operational risks are fewer, because exchanges have been early adopters of automated processing systems, whereas OTC systems are often outdated and time-consuming. Exchanges, finally, produce a plethora of information about prices and markets, a valuable public good.

This could mark a reversal of fortune for the OTC market, where trading volumes had grown to almost $700 trillion at last count, a ninefold increase in a decade. Yet OTC products have their own blessings; they allow bankers to tailor financial products to their customers’ needs. Their relationship with exchanges need not be wholly adversarial. Financial innovations may start out in OTC markets and move to exchanges as they mature. Youth may sometimes be wild, but it should be nurtured, not suppressed."

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