Nom de Plumber | Volcker Rule implementation: Mission Impossible?

Below follows the latest from Nom de Plumber on the act of full display public idiocy known as the Volcker Rule.  The American Bankers Association and Community Bankers have apparently backed down regulators when it comes to small bank holdings of preferred CDOs.  But what is really needed is a loud “Foxtrot Oscar” to regulators on the entire enterprise. The Volcker Rule is artibrary and capricious.  As Nom de Plumber argues, you cannot enforce a legal standard that cannot be accurately measured.  One man’s hedge is another man’s principal exposure.  The Volcker Rule is public evidence of the irrational madness that passes for serious thought in US public policy circles.  — Chris

Volcker Rule implementation:  Mission Impossible?

A hedge at a bank will be deemed allowable risk mitigation, and not forbidden proprietary trading—–but only if no material new risk arises, unless the hedge simultaneously protects against that too.   Yet, in reality, every hedge does NOT eliminate risk, but merely exchanges one risk type for ideally more-palatable risk types.   For instance, a bank could hedge the market risk of its Treasury bond portfolio, by shorting Treasury futures.   The bank thereby assumes these substantive new risks, instead:

basis risk (cash versus futures tracking error)

liquidity risk (margin calls, without offsetting asset cashflows)

counterparty and operational risks ( )

regulatory risk (topic here, ironically).


So, how can any hedge truly be Volcker Rule-compliant? 

To prove having only client market-making and no proprietary exposures, a bank must attribute its daily trading P&L to particular risk factors (yield curves, prepayments, defaults, credit spreads, equity indices, dividend streams, option-implied volatility, IRR, asset cashflows, currency rates, etc.) and buy-sell activity.  It must then report all un-attributable P&L to regulators, for flagging non-client, proprietary risk positions.   Yet, in reality, almost every asset (except non-callable, fixed-rate, high-quality sovereign debt) trades strictly by market price……not by observable or consensus settings of underlying risk factors.   Because infinite permutations of risk factor movements can cause a specific asset price movement, no definitive anchor points will arise to bootstrap that mandated P&L attribution. 

So, how can a bank or regulator attribute daily P&L, to flag proprietary trading versus client market-making?

Bottom line:  The Volcker Rule will be remarkably hard, at best, to implement.

Moreover, a bank complying with Dodd-Frank originator risk retention could simultaneously be charged as a disguised version of non-compliant proprietary trading.…

Thank you. 


via Zero Hedge rcwhalen

Obamacare Goes Live Today: Here Is The Next Big Problem

Obamacare officially went live at midnight. This means that 2.1 million Americans (the latest enrollment number provided by the administration) will be given a chance to exercise their new plans at hospitals and clinics across the country (it was unclear what the latest number of Americans kicked off their existing plans was most recently: the tally was 4.0 million as of mid-November and it is fair to assume it has risen since then). And then the real glitches will begin.

We reported two weeks ago that navigating the labyrinth successfully and “signing up” for Obamacare is one thing; actually activating coverage by making a payment is something totally different. We added that “if people don’t pay by Dec. 31, insurers may end up stuck with a disproportionate number of sicker and costlier customers.”

It is this “shock” realization that one’s Obamacare plan is not active until after the healthcare service has been rendered, that may hit as many as 50% of all enrollees, which means that of the 2+ million Americans who believe they have coverage, up to 1 million is about to be served with a bill which they can’t afford. This also happens to be the main story across various media outlets today.

First, The Hill:

Enrollment deadline delays and processing errors at have been an administrative nightmare for insurers, and may leave some consumers discovering that they don’t have the insurance they thought they purchased when they show up at the doctor’s office. 


It’s also likely that some people think they have insurance under ObamaCare but do not because they have yet to make their first premium payment. Until they do, they aren’t actually insured. 


In Washington and Nevada, only about 50 percent of enrollees have made their first premium payments. Those are the only states that provide the breakdown.


The biggest risk now is people thinking that by picking a plan, that they’re insured, when in fact final step is paying the premium,” Larry Levitt, a senior vice president with the Kaiser Family Foundation, told The Hill. “I haven’t seen good numbers on how many people are paying premiums, so that to me is the uncertainty.”

Next, it’s Reuters’ turn:

“It will be difficult for us to actually verify coverage – that’s my concern,” said Dr. William Wulf, CEO of Central Ohio Primary Care, which has 250 primary care physicians.


The task could be made more difficult by decisions by the U.S. government and many states to push back enrollment deadlines toward the end of the year, and to allow some patients well into January to pay for coverage that is retroactive to the start of the year.


The late deadlines mean that many enrollees who seek care initially may lack insurance cards or other proof of coverage. Wulf said his physician offices will assume that an existing patient is covered if they claim to be when they come in for appointments and their coverage cannot be verified immediately. But if they require expensive tests, such as MRIs or heart-stress tests that can cost up to $700, the Ohio practice will check with insurers first to make sure the patient has coverage.


Similarly, Dr. Andy Chiou, CEO of Peoria Surgical Group Ltd in Illinois, said that if the practice finds a “significant minority” of its patients do not have coverage when they believe they do, it might delay elective surgeries for patients until their insurance is confirmed.


“For the protection of patients and us, we’ll have to say, ‘Sorry, you don’t have insurance,’” Chiou said.

That means 1 million Americans, some of whom are very ill, are about to get a big new year’s disappointment from their doctor.

To be sure, some stop gap measures have been implemented: the Hill reports that some big insurers “will allow consumers to pay their first premium by Jan. 10 and still be insured on Jan. 1. In addition, Walgreens and CVS Pharmacies announced this week that they will provide up to a month of no-cost medications to consumers that haven’t received their ObamaCare IDs yet, but can prove they enrolled.” However, for those who expected Obamacare to be a deus ex with zero payment at all, which appears to have been the case at nearly a majority level, no temporary measures will fix the situation that there is still a payment to be made: a payment which millions simply can not afford.

Needless to say, with 2014 an election year, the stakes for the administration are huge:

For the Obama administration, the political stakes are high in ensuring a smooth transition period for coverage, particularly after the website’s problems damaged the popularity of the Democratic president and the healthcare overhaul, his top domestic achievement.


Republicans who have called Obamacare a costly program that will rob many Americans of insurance choices have said they will make Obamacare’s problems their top issue in the November 2014 elections, when control of Congress will be at stake.


White House health policy adviser Phil Schiliro said on Tuesday that because of the intense focus on Obamacare, “problems that have never gotten attention before will get some attention now.”

The Hill adds:

There’s little doubt the success of the healthcare law will be a big factor in Democratic efforts to retain the Senate, where Republicans need to gain six seats to win back a majority.


Doing so would be a huge blow to Obama’s remaining years in office, virtually assuring him lame-duck status through the rest of his term.


So there’s a lot at stake for the administration to ensure things go smoothly, starting on New Year’s Day.

At this point, some opt out to fall back to a naive belief that things will be well:

John Holahan, a fellow at the non-partisan Urban Institute, said the idea that people will be blindsided is foolish. “If they don’t pay they don’t have insurance, that’s part of the deal, you’re not really enrolled,” he said. “But I assume anyone who goes through the trouble of enrolling will go ahead and pay.”

Actually, most who have the free time to go through the trouble of enrolling likely don’t have a source of disposable income.

A more realistic conclusion comes from Joe Antos of the conservative American Enterprise Institute, who predicted the flood of applications would be too much for the administration and the insurers to handle before the newly covered head out to exercise their plans. “There’s no way the insurance industry could hire enough people to process all that paperwork if the data was coming in correctly, and it’s not,” he said. “I think most people who think they have coverage will find some difficulty early in January.”

We will find out in the coming days if the next big embarrassment for the administration will unfold and if Obama’s ratings will tumble to fresh record lows as a result.


via Zero Hedge Tyler Durden

Jacob Sullum on the Year's Highlights in Blame Shifting

Politicians caught with cocaine blamed booze. A
governor who tried to force gun owners to buy nonexistent magazines
blamed a technicality. A president whose signature law banned
health plans that did not meet his specifications blamed coverage
cancellations on insurers. Jacob Sullum reviews these and other
highlights in blame shifting from the last year.

View this article.

from Hit & Run

Jacob Sullum on the Year’s Highlights in Blame Shifting

Politicians caught with cocaine blamed booze. A
governor who tried to force gun owners to buy nonexistent magazines
blamed a technicality. A president whose signature law banned
health plans that did not meet his specifications blamed coverage
cancellations on insurers. Jacob Sullum reviews these and other
highlights in blame shifting from the last year.

View this article.

from Hit & Run

Brickbat: Leave Your Gun at the Office

A Pennsylvania
court has rejected State Trooper Michael L. Keyes’s attempt to
possess a firearm while off duty. Keyes was stripped of his right
to own a gun seven years ago after he was involuntarily committed
for mental health treatment after repeatedly trying to kill
himself. He won a legal battle to get reinstated
as a state trooper
, but so far the courts have upheld stripping
him of his right to have a gun off duty.

from Hit & Run