Friday, May 7, 2010

Amidst the craziness...

Well, even as I was writing yesterday's post, the Brown-Kaufman amendment failed and Bernie Sanders' proposal to increase the GAO's oversight of the Fed was watered down to a one-time audit. Why do I let myself succumb to optimism when optimism virtually never is justified? I imagine it's a safe bet that the banks won't have to spin off their derivatives desks either, and they'll find a way to defeat the Volcker Rule as well.

There's a lot of talk about a bank tax lately — to repay government for bailing out the industry, provide a cushion for the future, and just reduce the deficit — but I don't see that happening either. The administration proposal for a $50 billion fund collected from the banks to help finance future bailouts already is dead, so a permanent tax seems even less likely.

In the meanwhile, high-speed trading by computers created quite an "anomaly" in the market yesterday. It will be interesting to hear how mere humans will eventually explain it — and interesting to see if there's a complete recovery from the losses at the end of the day. Unless the problem was entirely a technical glitch that cascaded out of control, one figures that some major investors think stock prices have been a bit overheated of late, and their sell orders triggered the robotic meltdown.

It also will be interesting to learn who might have made money while stock prices were bouncing around. Is it paranoid to think that some of the quants who created the algorithms that led to the craziness might have... hmmm.