Jamesian Philosophy Refreshed

For those of my readers not familiar with the lingo of the financial world, let me begin with a definition of clearing and then of a clearinghouse. Clearing is the process by which transactions are reconciled, that is, money matched to the product or service it is purchasing. An institution that "clears" a transaction is also the institution that, in the first instance, runs the risk of default. Simple example: I make some large purchase with a check. The seller accepts my check in payment. In that case, in a common arrangement my bank would be the clearing party, and would bear that initial risk of default.  It is the bank, not the seller, and not in the first instance me either, who will be "out" if my check is in excess of my deposit account. In finance, then, a clearinghouse (sometimes written in two words as 'clearing house') is an institution that provides clearing and settlement services for commodities, derivatives, or securities transact...

In the TabbFORUM, a web platform for discussion of the capital markets by informed participants therein, I see a new piece by Andy Nybo about the segmenting of the order flow in the U.S. listed options markets. Nybo is head of derivatives research for the TABB Group, where he has worked for 10 years. So he knows all its mysteries, such as presumably why the capitalization convention for the TABB Group is reversed for the name of the TabbFORUM. His article begins with the observation that there are lots of US options markets, and that they try to compete with one another with various innovations. Isn't that a good thing? Well ... it depends on the innovation. He complains that one new trend is raising havoc, "price improvement auctions." He defines a price improvement auction as "a trading protocol that allows market makers to improve prices for a segmented swatch of order flow," and claims it has a "number of detrimental consequences." In es...

A recent book by David von Leib (a pseudonym for Barclay von Leib), discusses Von Leib's long career as a derivatives trader. Along the way, the author has much to say about Martin Armstrong, a market guru prominent in the 1990s, when he chaired "Princeton Economics International" and wrote a widely-followed newsletter. For no good reason (though he appears to believe the practice gives him some legal immunity) von Leib gives to many of the figures in his memoir slightly fictionalized names. Accordingly, he refers to Martin Armstrong as Marty Amwell. At any rate, here is a numerological process that, in von Leib's telling, led Armstrong/Amwell to some of his business-cycle hypotheses. Marty thought that there were too many coincidences here not to view the pyramid of Giza as a mathematical treasure chest from history of some sort -- a gift from the heavens perhaps -- something left over from some ancient -- potentially alien -- civilization. Marty also co...

As regular readers of this blog surely know, I published a book early in 2012, Gambling with Borrowed Chips. I'm thinking of that book anew because one of its key contentions received some support in recent days from an unlikely source, Janet Yellen, the new chair of the Federal Reserve. One of my book's central contentions was that overly the permissive credit policy by the Federal Reserve throughout the early years of the new century under both Greenspan and Bernanke fueled the housing and housing derivatives boom, a boom that was bound to burst. Entering the new century, the Fed Funds rate was at 6.5 percent. Greenspan pressed to lower the target in several steps starting in January, so that in early September, before the 9/11 attacks, the rate was 3.5 percent. Of course, after those attacks the Fed sought to forestall panic by lowering the rate further, to 1.25. If you only have a hammer (or only think you have a hammer) all problems look like nails. ...