Sunday, May 15, 2011

House Advantage: The Sure Thing

From the New York Times, an animated explanation of how banks use securities lending to make a profit, while their customers cover the losses.

1 comment:

  1. So wrong. S's old employer invented securities lending. They are real innovators. Also, because of lax oversight you can actually lend the same security to more than one person at a time, multiplying the fees, but also ensuring that the risk is multiplied, since it is exactly the same security.

    Also, I think the real crux of the matter is why would a pension fund enter into such a poorly structured deal? On NPR the other day I heard someone talking about "regulatory capture". They were saying that it is actually much worse than the Chicago guys predicted because we essentially had society" capture, were someone overseeing a pension fund, supposedly the most modest, secure type of fund sincerely believed that this type of deal made sense becaseu a large bank was telling them it was a good idea. It isn't just the clowns at the SEC and Alan Greenspan who are taking the banks at their wor, tit is the man on the steet who didn;t realize how absurd it is to let a bank tell you what makes sensse

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