SIFMA TECH 2010: The Elevator Pitch
June 21, 2010
Right after you check in at the New York Hilton for the 2010 edition of the Securities Industry and Financial Markets Association's Financial Services Technology Expo, you get an elevator pitch. From SIFMA. In ... the elevator.
As if you might have forgotten, the serious spokesman reminds you that there was a credit crisis (in 2008 and 2009, of course; not 2010) and that the greatest round of regulation of the financial industry in 70 years (let's not mention "since the Depression") is upon us.
Ultimately, the pitch is for the captive audience in the elevator to speak out, presumably to their Senators and Congressmen. It's the "your voice needs to be heard now" incantation.
But we'll soon be commiserating the second anniversary of the bankruptcy of Lehman Brothers and the implosion of the American International Group, etc. Isn't it time to move on? Isn't it time to stop seeing that voices are heard and get on with locking down what the New World will look like?
Getting more voices to be heard almost comes off like a delay tactic, at this point. Most responsible executives in this industry just want to know what the new lay of the land will be and get on with it.
Indeed, the Great Debates held Monday night on the eve of the Expo by Larry Tabb's Tabb Forum duly tackled the questions of what market structure reform will look like in equities markets and what will happen when over-the-counter derivatives, such as credit default swaps, start getting traded on exchanges, backed by central clearing houses.
But the panelists were largely stumped. They didn't know what aspects of market structure reform to debate, because there were no details to discuss. And particularly in something as complex as making standard products out of incredibly involved products such as credit default swaps, the benefit or destruction is indeed in the details.
The most interesting point of the night in fact was the last one: That there can be too much of a good thing. That too many derivatives of different types could being funneled into exchanges. And that therein could lie a new systemic risk.
The widely used number for the volume of credit default swaps that were getting traded at the time the crisis exploded was $600 trillion.
It's just possible you don't want trillions of dollars being moved on exchanges, the panelist indicated. Because having a central clearing party standing behind the deals could encourage parties to make more and bigger (and more complex) trades. Then, if one of the two trading parties disappears, the clearing house is on the hook to make the transaction good.
But what if the clearing house has to make good on $1 or $2 or $200 trillion of swaps? At some point, it craters. AIG, move over.
So, let's end the debate. And get down to detail.
The recovery depends on it. As does avoiding yet another financial crisis.
