All Articles Finance Modern Money While You Were Working - July 10

While You Were Working – July 10

On "social collateral" and interbank markets, firepower at the CFPB, firepower at the SEC, and Dr. Doom is doing his thing again

3 min read

Modern Money

CFPB Director Richard Cordray

CFPB Director Richard Cordray is not shying away from a fight. (Saul Loeb/AFP/Getty Images)

Tsk tsk, CFPB

Considering the Consumer Financial Protection Bureau is already in the cross-hairs of numerous policymakers, it sure isn’t trying to keep a low profile. Making it easier for consumers to file class-action suits against banks would be a game changer. I reckon there are some Wells Fargo customers who wish the rule would have been in effect when they were victimized by the fake account scandal.

But don’t the folks at the CFPB know that if they want to survive the next couple of years with any power at all, then the last thing they should do is keep working to protect consumers?

On “social collateral” and interbank markets

The Swiss National Bank has released a study that looks at the activity within secured and unsecured interbank markets before and during the financial crisis. Not surprisingly, it turns out trust mattered a lot in the unsecured markets.

“Market participants in the unsecured market do not trade with many different trading partners but rely on relationships with specific counterparties as well as clustered and reciprocal trading relationships.”

The author of the research chooses to describe this kind of relationship as “social collateral.” But isn’t that just a fancy phrase for trust?

America First in the exchange biz

It looks like politicians are wading their way into a move by Chinese investors to buy the Chicago Stock Exchange. This seems like the perfect storm of the SEC not having the firepower to monitor markets and there not being enough “social collateral” between Congress and China.

Speaking of the SEC not having enough firepower

 The long-awaited creation of a Consolidated Audit Trail to help regulators better police markets looks like it is going to take even longer. It seems exchanges and traders can’t quite agree on how to pay for the system. The current idea of making those who create the most data pay more for the system makes perfect sense, which is probably why it is now being challenged as unfair.

Dr. Doom forecasts departure and return to unconventional monetary policies

Nouriel Roubini is not at all confident that moves by central banks to unwind their unconventional policies will end well.  In fact, he thinks they will dive right back into those policies the second the next crisis hits.

“As the last few monetary-policy cycles have shown, even if the Fed can get the equilibrium rate back to 3% before the next recession hits, it still will not have enough room to manoeuvre effectively. Interest-rate cuts will run into the zero lower bound before they can have a meaningful impact on the economy. And when that happens, the Fed and other major central banks will be left with just four options, each with its own costs and benefits.”

Roubini then goes on to describe the 4 options; none of which are too appealing.

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