Entries in regulation (18)


On the fiduciary rule

WWB strongly supports this position.

Regulations that facilitate conflicts and transacting under an overly complex body of regulation combined with poor but legalesed disclosure are what caused the problem. Together they enable, effectively, a regulatory safe harbor for operating under false color.  Its not complex... but gets so when regulatory capture holds the day. And that's where we are. 

"I do not believe a broker can act as a fiduciary to an investor seeking advice for his personal investments for one simple reason – he can’t serve two masters. A broker already owes a fiduciary duty to his client. It’s just that his client is not the public that buys his wares; his client is the issuer of securities, companies, municipalities, mutual fund companies and other investment product manufacturers. And frankly, Wall Street is already failing at fulfilling this duty. Any IPO that has a large pop on the first day of trading is a failure of the brokerage underwriter to meet his fiduciary duty to his client. What is needed is more education, not a blurring of the lines between advisers and brokers."

The Fiduciary Rule Educates The Public


FINRA's problem: arbitration, settlements, expungement & credibility

Let's say you have a legitimate complaint against a broker who behaved unethically (e.g. sold unsuitable investments or misrepresented or ommitted material facts). You go to arbitration and a settlement is offered; however, a requirement of the settlement is a release for expungement, a statement that you will not oppose the broker's request for expungement of the FINRA record of the whole matter.
So you take your money and move on, leaving the perpetrator or the public with no record of the event... about 92% of them in 2014. All the while FINRA proudly proclaims the virtue of its Broker Check function in the name of transparency and accountability.
The best regulation money can buy, and did. More here: Deleted: FINRA Erases Many Broker Disciplinary Records

The duty of an advisor vs a broker operating under color of defective & misleading regulation

This is a huge issue, and most investors are unaware of it. It is driven by the best regulation that money can buy... and did.

"many financial professionals who hold themselves out as “trusted advisers” are legally allowed to recommend investments that pay the adviser more while exposing investors to higher costs, greater risks and poorer performance than available alternatives."

The Document You Should Ask Your Advisor to Sign


WWB comments on DoL's Proposed Conflict of Interest Rule

Watson Wilkins & Brown, LLC, submitted formal comments to the Department of Labor on it's Proposed Conflict of Interest Rule.

Although the formal comment period is formally closed, we understand DoL is still accepting comments. We wanted to submit the comments by email, but after 5 phone calls to various offices in the Office of Regulations and Interpretations... well, we snail mailed it.

And that, my friends, is part of the problem.


Cochrane on Tucker and Bagehot at Hoover

A must read, probably one of the most important pieces we've seen recently on financial regulation & systemic risk.  It is concise & easy to understand and has links to all the good stuff.

Tucker and Bagehot at Hoover





Mutual funds or mutual fund companies as Systemically Important Financial Institutions (SIFI)

We strongly recommend all read Bill McNabb's piece in today's Wall Street Journal. He is the CEO of Vanguard.

Regulators prepare to declare that large funds pose a ‘systemic’ financial risk. Investors will pay the price


This is an important issue: the proposed regulations are hugely destructive to the US capital markets and investors alike. Unlike the assets of banks, mutual funds have no maturity, hence no roll-over risk therefore no risk of default. They merely have price which reflects supply and demand.

At base we can extend the terribly flawed notions implicit in this regulation: equity investors now will be the lender of last resort to (or you may read that as "owners without voting rights" of) the TBTF banks. 

Of course, consider the preferred, but politically unavailable solution (at least for now) these regulators really want: the ability to prohibit sales of mutual funds whenever the Fed so macro-prudentially deems it appropriate. We jest? The institutional money market funds already have gating mechanisms, and they are now trying to push them in a slightly different form to the equity markets.

And we haven't even mentioned the costs which present yet another taking, a confiscation & transfer, of property rights & wealth to the regulatory state.


Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound

Our readers know that we have been sharply critical of the Fed's policies. Here's one reason why.

Wu and Xia of University of Chicago Booth School of Business and University of California, respectively, have some interesting conclusions in their paper, Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound. We quote their abstract: 

This paper employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers an excellent description of the data and can be used to summarize the macroeconomic eff ects of unconventional monetary policy at the zero lower bound. Our estimates imply that the eff orts by the Federal Reserve to stimulate the economy since 2009 succeeded in making the unemployment rate in May 2013 0.23% lower than it otherwise would have been.
Now think about that for a minute in terms of the risk, magnitude, cost, and global impact of the Fed's actions. Their conclusion calls into question the entire and ethereal basis of Fed policy. And we do recall the plaintive, aspiration qua argument "Think of how bad it would have been if we had done nothing!
Turns out nothing is looking like a much better deal for all except those who borrowed to hold assets that were subsequently inflated by the Fed and, don't you know, funded by the wealth transfer from savers to borrowers implicit in the Zero Interest Rate Policy itself.
If you like your zero interest rates, you can keep 'em?



A progress report on Dodd-Frank

Davis Polk has done an excellent job of detailing the complexity of process & progress in the Dodd-Frank Progress Report. It's also commendable to see lawyers communicate with pictures.


The free citizens of the US need only look at the red stuff (late) and the blue stuff (due date unknown) and ask:"If this were my business and these were my projects, what would I do with these project managers?"

Well, the bad news is that it is your national business, and they are our collective projects.


If you have the misfortune to be regulated by the red and blue stuff, well, this is the picture financial oppression and paralysis. It is also how we manufacture systemic risk, how government transfers wealth to politicians & regulators who monetize their ability to dispense economic privilege.

Get your bids in early: it's campaign season.



Choosing the Road to Prosperity: Why We Must End Too Big to Fail –Now

If you haven't seen this you should: Choosing the Road to Prosperity: Why We Must End Too Big to Fail –Now . We commend the Dallas Fed for putting it together.

If we don't fix the issue of moral hazard (Too Big To Fail) we can't have a market oriented economy. It's that simple. Read this in connection with our very own Reforming Money Market Funds: A Response to the Squam Lake Group.

It must change.


FHFA-OIG’s Current Assessment of FHFA’s Conservatorships of Fannie Mae and Freddie Mac

We present a link to and an excerpt from a report by the Federal Housing Finance Agency, Office of the Inspector General. We believe it is important and suspect it will receive limited coverage because it is counter to the currently fashionable narratives. The short story is one we already knew: Fannie & Freddie are big time bust. And don't you know Dodd-Frank is silent on the topic. Well, why not? Both those Senators were essentially parties at interest in Fannie & Freddie.

As to the matter of large scale capital flows & macroeconomic outcomes, our country is slowly awakening to the quaint, old fashioned notion that results & outcomes matter.  They matter very much. 

White Paper: FHA-OIG's Current Assessment of FHFA's Conservatorships of Fannie Mae and Freddie Mac

"As a practical matter, however, the Enterprises’ future solvency – and, thus, emergence from the conservatorships – is unlikely without legislative action. FHFA officials have stated that the PSPAs have made it virtually impossible for the Enterprises to emerge from the conservatorships. For example, the Enterprises currently owe Treasury $183 billion, and are required to pay 10% dividends on Treasury’s outstanding investment. Merely paying the 10% annual dividend (i.e., $18.3 billion, presently) would not reduce Treasury’s outstanding investment. Moreover, the Enterprises have had to borrow from Treasury at least part of their dividend payments to Treasury, thus increasing the value of their outstanding debt. As a result, it would appear highly unlikely – if not mathematically impossible – for the Enterprises to buy themselves out of the conservatorships. FHFA’s Acting Director has stated that:

[T]he Enterprises will not be able to earn their way back to a condition that allows them to emerge from conservatorship. In any event, the model on which they were built is broken beyond repair... "

The magnitude of these losses are huge, the loss of national wealth permanant, and the burden on the US economy and younger generations of American huge... all driven by defective policy and corruption. For insight into the nature of corrupted governance & markets we recommend Reckless Endangerment by Gretchen Morgenson.

Private markets provide mechanics for change of governance in face of failure. That mechanic seems to be lacking in the political arena. The same political class continues to regulate increasing sectors of our economy by the same defective methods. The agency costs of failed political goverance are too high to sustain. Remember the wisdom that brought us here: we see it repeatedly in the regulation of financial markets, health care, and Fed policy.

 "on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero" Implications of the new Fannie Mae and Freddie Mac Risk-Based Capital Standard by Robert & Peter Orszag and Joseph Stiglitz, 2002




Reforming Money Market Funds: A Response to the Squam Lake Group

Updated on Tuesday, March 20, 2012 at 10:00AM by Registered Commenterhb

Updated on Monday, April 16, 2012 at 09:29AM by Registered Commenterhb

Updated on Friday, April 27, 2012 at 10:38AM by Registered Commenterhb

Updated on Friday, June 8, 2012 at 10:44AM by Registered Commenterhb

Updated on Thursday, June 14, 2012 at 01:36PM by Registered Commenterhb

Updated on Friday, June 22, 2012 at 10:06AM by Registered Commenterhb

Updated on Monday, June 25, 2012 at 11:40AM by Registered Commenterhb

Updated on Tuesday, November 27, 2012 at 09:28AM by Registered Commenterhb

The money markets are central to critical issues such as credit creation, systemic risk, and investor confidence. They function on a macro level to allocate globally short term credit, unsecured in the case of commercial paper, and secured in the case of repo.

Money market funds are defined in the Investment Company Act of 1940 Act and influenced by investor preferences as expressed within that regulatory framework. Historically and as a practical, functional necessity the money markets have been geared to the very lowest levels of perceived risk, which is to say very short term exposures (average maturities of 30- 45 days) to the very highest quality credits. Historically, one whiff of trouble … reputational, credit degradation, informational risk or whatever is not clear and simple… and you have investor flight, which is what happened to the TBTF’s (Too Big To Fail) in the Great Unpleasantness.

Today those same problems remain.  Money funds today operate with no capital whatsoever. They are cash repositories and warehouse massive systemic risk: broadly put, short term, rolling AA- credit & liquidity risks ... sovereign, corporate & financial.  And the nature of that risk has qualitatively changed for the worse over the last decade.

Click to read more ...


Legal & settlement considerations in various Euroland scenarios

Pillsbury Winthrop Shaw Pittman, LLP, has published an important advisory bulletin Cracks in the Eurozone.

It provides a helpful primer to understand the magnitude and uncertainty of the large scale contractual processes at work in Euroland.

More later.


Caedite eos! Novit enim Dominus qui sunt eius

Updated on Wednesday, January 4, 2012 at 09:48AM by Registered Commenterhb

Updated on Thursday, January 5, 2012 at 08:20AM by Registered Commenterhb

Updated on Friday, May 4, 2012 at 08:55AM by Registered Commenterhb

We probably should talk about investments, although what I want to do is rant about our domestic policies which are destroying so much of our economy, so much of our national value. We'll get to both, and pictures are a good place to start.

This year's markets were uninspiring at best, frightening at worst. US equites struggled to hold near even while foreign markets, both developed and emerging, suffered. As always we select broad indices for illustrative purposes and note these are graphs of prices, not total returns.

Click to read more ...


Watson Wilkins & Brown, LLC, on the debt deal

What has changed with the new debt deal?

In the debt deal we had a large scale and global demonstration that there is a fundamental, costly, and cumulative flaw in the governance process of the US. One suspects that very few people actually understand the magnitude of the problems of our debt, unfunded liabilities, and increasing macro-economic drag of the costs of regulation.

I don’t buy the notion that the debt ceiling deal is a model of American republican democracy at work.  To the contrary: it is emblematic of the problem. We don’t know if we want to be a market economy driven by innovation and freedom or a socialist economy driven by redistribution of wealth. 

The markets know that and are just going to hang out and price in, every day, the continuing drag of opportunity cost and inefficiency, until we get the major question sorted out.

As it stands now, citizens shall soon lack even the ability to buy an incandescent light bulb. This, perhaps a small thing, but one that diminishes that Shining City on the Hill.

Won’t it save the AAA ratings? Are AAA ratings important to the US?

Let me answer your question with a question. What was the economic value of the enterprise of the United States three weeks ago?  What will it be three weeks from today? The answer to both is about the same as it is today, maybe a bit less, maybe a bit more.

What do we know today that we didn’t know before? Well, we know that Lisa Jackson thinks that under the Clean Air Act "For every $1 we have spent, we have gotten $40 of benefits in return. So you can say what you want about EPA's business sense. We know how to get a return on our investment…" and that this ethos, certainly not logic, remains a driving force behind our national policies that drive capital formation, investment, and employment. There are manifold examples of other continuing policies of the administration that are even more destructive of economic opportunity which we leave to others to explore.

We boldly predict the AAA ratings of the US will not hold because we have too much debt and a decreasing ability and willingness to pay it off. The ratings are largely irrelevant except as an indicator of long term economic & cultural decay. They may be seen as an accumulation of bad policy, bad political decisions rendered by the voters, and poor leadership over time.

We do note that even if we are wrong on the ratings call, we will be right in this ken: recall GM’s paper trading at junk levels in the capital markets while carrying investment grade ratings all around?  As a capital markets issue, generally, the rating agencies are irrelevant. They are generally behind the game and even if they understand the credit, which sometimes they don’t.  And by the way, aren’t the agencies regulated as deemed systemically important institutions?

The capital markets price credit risk every day. Go look.  Last count there were about 65 entities trading better in the markets than the US government.  Probably more today.

How will this be fixed?

People will vote in November 2012.

We have to decide whether we want to be a market & innovation driven economy or an economy based on redistribution of declining stocks of wealth. Productive people and capital will decide whether to stay or go elsewhere.

In the meantime the debt will compound, the spending will compound, the demographics of the country will age, domestic capital formation will stagnate, investment will decrease, interest rates will go up (barring another recession), and investors will look for ways to mitigate financial & regulatory oppression.

How will the market be changed by this deal?

I don’t know, but this is one of the few times in modern history when retail and large scale institutional investors may come close to informational parity, largely due to the complete unpredictability of political outcomes, the lack of enforceability of political contracts (will the SOB’s do what they promise?), and the now increasingly valid questions about the sustainability of rule of law in the US.

Try to allocate capital to create wealth in that environment.

Go hire a Wall Street law firm and ask about the certainty of senior secured creditors’ rights in “systemically” important credits, like Chrysler or GM or GE. Or compare the answers to “What do you think about the possibility of something big & bad happening in the markets?”  A quant geek will talk about six sigma events, kurtosis and the like, while Joe Everyman will say, “Sure seems more likely”.  Which can you take to the bank?  And meanwhile, some Wall Street analyst demonstrates complete dis-utility while bleating that XYZ Company is $.01 over expected EPS. No one cares.

No one cares because it does not solve the problem.

Is the debt ceiling deal good thing?

No, not really. In one sense it is very destructive because it perpetuates the language and manner of a continuing fraud on the American people … by that I mean the entire construct of disinformation where by common meaning and reference are inverted and no longer have validity.  Disinformation & newspeak are working.

Material liabilities are hidden, off budget, and off balance sheet. Taxes are no longer called taxes, but ‘revenues’ and tax reductions are not tax reductions but ‘tax expenditures’. Reductions are not real reductions but reductions from some fictional abstraction called a Baseline which has no relation to actual spending except to facilitate more of it.  Debt limits don’t limit debt, but provide a forum for an increase in debt. "Investments" are not investments, but political allocation of scarce capital resouces away from highest & best use. The government wants to invest in a high speed train, you want to invest in your kid's college education. Your personal priorities as to how you want to allocate your resources count less and less every day. Same with corporations, it just takes a different form.

So we are where our governance has delivered us. No one should be surprised at bad outcomes. Most know that if an entity repeatedly consumes rather than invests, it doesn't work. Or if an entity makes lots of bad, over leveraged investments over time, it doesn't work. 

More problematic is that no one believes the process or manner of conduct of the game is effective or reputable anymore. A friend commented “I don’t know what can be done to get these guys into reality”. The reality of the political class is different: they are in the wealth transfer business, not the wealth creation business.

They are in the business of monetizing their ability to dispense economic privilege to their preferred constituencies, the costs of which are huge & borne by all of us. They extract a variety of personal commissions in currencies that are mostly alien to those in the commercial world (extortions, soft emoluments of political votes or payments for economic privilege, power or other) and create macro costs that are huge & real, but kind of hidden.  

The target has always been other peoples’ money, but now the incremental drag on GDP and force of unsustainable leverage has upped the urgency: “I’m out of money. Give me yours.”

The target is other peoples’ money, and it is a target rich environment … your firm's money, your money, your parent’s money, your kids’ money.

Tell them no.

What is your economic outlook?

WWB are not economists, and we generally don’t fare well in any forecasting. But you asked, so … from our perspective, we just locked in a huge cloud of uncertainty across all dimensions of the US economy until well after the 2012 election. That uncertainty will be transmitted to global economies.

Look for nominal growth of 0%<GDP<2%, if not a few quarters of negative numbers. We expect employment will flatline, go sideways to nominally up, but would not be surprised to see that too go negative from time to time.  We anticipate corporate capital budgets will be trimmed, limited to only near term high certainty payoffs or strategically important or competitively disruptive initiatives. Emerging markets may continue to attract new capital investments on the margin, but that goes away in a heartbeat if corporations see uncertainty in global demand: “Who shall buy these widgets?” And that likely happened today.

So our takeaway

  • Liquidity first, long term investment second. We could be sideways for a while.
  • Diversification & risk parameters run the book.
  • Now is not a good time to reach for higher expected returns or yield ("never" is a good time to reach for yield)
  • If you think you have a good macro bead on what happening, you’re likely wrong.

Look for some more big volatility, perhaps some Europigbanks go boom and get nationalized … again … and then it’s going to get really quiet. Volatility will vanish, but it will be the scary kind of quiet, when absence of volatility indicates fear.  People will have their risk books tucked away. Volatility will drop because nothing will be happening.   

The Fed’s out of ammo.  The banks are out of capital. The government’s broke. The language is false. Prices are unreliable. Things get quiet during a rebuild.  Standards of living decline. It’s a grim business, and it's slow.

Where we go from there is the issue.

If you believe that the US will be a market driven economy, equities actually look good if you have staying power.  Private investment in wealth creating businesses (non-listed, low/no regulation risk) will be increasingly more attractive IF there is a restoration of rule of law, contract rights, and sensible regulatory costs.

If you believe that the US will devolve more completely into a redistributionist economy, gold, diamonds and portables look good as do opportunities in the black market. The alternative will be to join Jeff Imeldt on the President’s Council on Employment or get a job with the government. FDIC and FINRA will be hiring. 

I’d personally not bank on the shovel ready stuff: it might be a while. So the short answer is that we have to wait until the elections for clarity and then probably another year after that to even have a clue.



GM and friends of Angelo

The WSJ writes in China's SAIC Finalizing Plans to Buy GM Stake:

The issue of foreign investors buying GM shares in the company's IPO is a sensitive one for the U.S. government, which will reduce its 61% stake in the auto maker in the IPO. Treasury also is worried about the political reaction if non-U.S. investors, such as sovereign-wealth funds or a Chinese company, are allowed to acquire a significant stake in GM after U.S. taxpayers spent $50 billion to assist the company through bankruptcy reorganization.

But like everything else with a government deal lately, you have to read the fine print and follow the money. The allocation of the IPO is just one of the long line of wealth transfers in this process, and the list and process by which it was managed should be made public. The list of sovereign investment funds and now familiar large domestic institutions would be of interest. One suspects the IPO will be carefully staged, dramatically under priced, such that it has an initial pop, thus pumped as a huge success.  Who gets the money? Check the allocation. If it does pop, you know the taxpayer has been shorted for the sake of publicity.

if that happens, it would be good news for the Obama administration, which could find itself under fire for pricing the deal too low—thus shortchanging taxpayers—if GM's post-IPO price rises sharply after the offering.

Last we heard the retail shops, the Schwabs, AmeriTrades et al, were shut out. One wonders why... perhaps if you want your ticket punched it should be suitably large and you have to hang around a bit?

The other element to follow the taxpayer's money is the special treatment accorded GM's NOL's, the net loss carry forwards. Typically these are expunged in a bankruptcy, but we understand special treatment allowed them the be carried forward into the new entity which means that the taxpayer subsidy is even greatly understated. If the new entity is profitable, it will likely pay no taxes... just another wealth transfer.

For the record, we don't like the process. We don't like it when it seems the 'fix' is in ...  bought and paid for with taxpayer's money and seemingly manipulated without regard to costs for non-economic outcomes. But that seems old hat these days.

This smells like an Angelo Mozilo friends & family deal. Just watch.


Hate to do this, but we need some disclaimers & fine print on this one:

For sake of clarity, this is an opinion, which we urge you to consider as possibly uninformed or misguided, on a process, not a security.  We make no recommendation whatsoever on this particular security nor do we express an opinion of any kind on any particular price and nothing herein shall be so construed.  We have no  position (other than that which may or may not exist in broadly based indexed product) or economic interest in the offering.  We have never subscribed to an IPO and don't intend to start, so we're not sour graping about the allocation. We make no representation or warrantee whatsoever as to the accuracy of any information posted herein. Nothing herein shall be considered to be an offering of any security; an endorsement or recommendation of any particular security; or an opinion or recommendation as to the suitability or appropriateness of any particular investment strategy. WWB does not offer legal or tax advice and nothing herein shall be so construed. No kidding.



We're all Bozo's on this bus: the wisdom of Dodd-Frank

Updated on Friday, July 23, 2010 at 11:46AM by Registered Commenterhb

Updated on Wednesday, July 28, 2010 at 02:36PM by Registered Commenterhb

At some point Congressional imbecility becomes malfeasance. The Wall Street Journal today reports: Standard & Poor's, Moody's Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law.... That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in their official documentation. That means new bond sales in the $1.4 trillion market for mortgages, autos, student loans and credit cards could effectively shut down.

Click to read more ...


No one will know...how it works

"It's a great moment. I'm proud to have been here," said a teary-eyed Sen. Christopher J. Dodd (D-Conn.), who as chairman of the Senate Banking Committee led the effort in the Senate. "No one will know until this is actually in place how it works. But we believe we've done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done." Washington Post, June 25, 2010

This pronouncement is stunning in many respects. First, it is true.  ‘No one will know…how it works’, and Senator Dodd was not even under oath.  It is also true that it took a crisis, and one of Congress’ own doing, to bring Congress to a point where it felt it had to act. With the US on its way to losing its Aaa/AAA ratings, the economy on the rocks, record deficits and the like, Congress needed to revise the mechanic by which it monetizes its ability to regulate.

Set aside for a moment the abject imbecility that ‘no one will know…how it works’.  Consider that vague law and regulation encourage rent seeking behavior from deep pocketed market participants: take a member of Congress to lunch today and it better be good. Political favor, not efficiency or customer satisfaction become the rule (GE comes to mind). Rent seeking behavior prejudices the success of smaller, more innovative market players. Worse, vague law and regulation are the means by which government diminishes our freedoms.

We again affirm that absent reform of the national, residential real estate mortgage markets any presentation or claim of financial reform is simply manifest political fraud of the highest order.


The Fed and the May 6th crash: more monkeys & darts?

Mark Spitznagel in today's WSJ piece, excerpted below, has got it exactly right.  We encourage all to read it in full and also in conjunction with our posting, No Better than Monkeys Throwing Darts, in which Larry Swedroe recounts William Sheridan's research on 'expert' economic forecasting.

Whenever markets are manipulated by regulatory fiat there are unanticipated consequences, systemic or otherwise. The wealth transfer, perhaps one of the largest of all time, from investors to borrowers effected by the artificial manipulation of low to negative real rates is having untoward consequences on market function and risk allocations.  One suspects there are many more unanticipated consequences yet to come.


"The profitability of an investment is simply its return on capital beyond the cost of that capital. It is against this spread that investors must assess risk. So when the Fed distorted the cost of capital following the 2008 collapse by lowering it for many by roughly 2% (to about 0% for banks), it had the same effect as the 2% higher aggregate dividend yield for stocks or higher credit spreads for investment grade bonds. Suddenly what was toxic looked cheap.

The Fed lured everyone to buy everything and anything that was risky—and did so itself with outright purchases of risky assets like mortgage-backed bonds. Anyone eager for easy profits fell right in line, bidding up dangerous assets like clockwork. Sensing safety in numbers, the herd quickly followed, and in no time the market had consumed the Fed's gifted 2% profit spread and then some.

The Fed has managed to align every little market fault right with each other such that they all succumb to the very same stresses at the very same time. Meanwhile—no surprise—the world remains a very seismically active place. What's extraordinary is that the Fed continues this intentional deception about the real cost of credit, even as we've repeatedly witnessed the consequences of this policy.

Left alone, the market works naturally, with waves of buy-order ruptures and waves of sell-order ruptures. Sometimes mini-ruptures coincide to form much larger ones, such as on May 6. But searching for a discrete trigger for such events is futile. To find the real source of the system's excessive fragility, the regulators will need to look much closer to home."

Do we want thin markets or thick markets? It's not a tough call.