Can I Have a Bailout?

Am I about to get regulated?

From Zero Hedge:

SocGen’s Todd Martin, who is the bank’s Asia equity strategist, appeared on Bloomberg earlier today to discuss the Volcker Rule and prop trading, against which the anonymous blogosphere had some very “strong views” back in 2009. Sure enough, prop trading ended a few months later with the adoption of the Volcker Rule. Somehow, the topic of the Volcker rule shifted to the topic of whether or not Morgan Stanley is exposed to France, and its insolvent banks, and who is to blame: “For example one blog just a week ago, had a very, very strong view against Morgan Stanley. They quoted Sanford Bernstein who actually was telling people to buy the stock. And then they were quoting Gross Exposures not Net, and then concluding that Morgan Stanley had to go down and be dismembered [sic]. Now I have a serious problem with this. If I get regulated why isn’t this place regulated. It’s also very dangerous because they are using psudonames [sic] and we don’t know who they are. They could be the guy on the street. They could be a hedge fund dangling out information. It could be the head of a prop desk. Thing is it is supposed to be regulated. And they get their revenues from trading platforms on US soil. And I don’t think it’s fair. And I think the US should go and take a look and regulate the blogosphere. I think it’s really, really out of control.” In other words: it is all the blogosphere’s fault.

Of course, it is a simple fact that while the promise of bailout money hangs over markets, some traders and executives will take huge risks with other people’s money (shareholders, taxpayers, anyone with a loose chequebook). This agency problem creates huge fragility — especially in a system like modern international finance which is prone to the default cascade, where one bank failure can potentially bring the system down. And it is also true that Dexia — a bank that only recently passed the regulators’ stress tests with flying colours — just failed (ouch) and had to be bailed out.

The reality is that the only way to create a system based on responsible behaviour is to enforce the idea in capitalism that actions have consequences —  no bailouts for screw-ups, no free lunch, remove the money from politics, etc.

The real issue here, though, is just how “regulated” I might end up being.

From Wikipedia (surely this needs to be regulated, too?):

Censorship in Nazi Germany was implemented by the Minister of PropagandaJoseph Goebbels. All media — literaturemusicnewspapers, and public events — were censored. Attempts were also made to censor private communications, such as mail and even private conversation, with mixed results.

The aim of censorship under the Nazi regime was simple: to reinforce Nazi power and to suppress opposing viewpoints and information. Punishments ranged from banning of presentation and publishing of works to deportation, imprisonment, or even execution in a concentration camp.

Hitler outlined his theory of propaganda and censorship in Mein Kampf:

The chief function of propaganda is to convince the masses, whose slowness of understanding needs to be given time so they may absorb information; and only constant repetition will finally succeed in imprinting an idea on their mind.

Right — citizens need to have the right ideas imprinted on their minds.

Repeat after me:

The Euro is not failing.
The Euro is not failing.
The Euro is not failing.
The Euro is not failing.

Let’s try another one:

Goldman Sachs is doing God’s work.
Goldman Sachs is doing God’s work.
Goldman Sachs is doing God’s work.
Goldman Sachs is doing God’s work.

Feels good, doesn’t it?

More importantly, now that I am doing God’s work (by proxy), can I get a no-haircut bailout if I leverage myself 100:1 selling out of the money S&P calls and lose all my capital?

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