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Wall Street Journal calls out Wall Street

Because it's a serious newspaper committed to objective news gathering, the Wall Street Journal can't come right out and say that the arguments derivatives-dealers are using to fight transparency are total bunk. But they can come pretty close:

Proponents say increased transparency into derivatives, which are mostly traded in the over-the-counter market, would make it easier for investors to find out what the rest of the market is doing, giving them the ability to find the cheapest price.

Today, prices for only a small portion of the derivatives market are accessible to investors, who often need to make phone calls to dealers to find out the going rate for the contracts.

The price-reporting model would be akin to Trace, a vehicle for corporate-bond trading implemented in 2002. After Trace was introduced, the gap between bid and offer prices was cut in half, hurting trading profits for banks.

Many bankers argue that the transparency provided by Trace, which reports prices several minutes after a trade is completed, hurt liquidity in the corporate-bond market because traders were less willing to take big positions. Academic research, however, has shown that there's little evidence that Trace hurt liquidity.

Since the banks stand between investors in the deals, they are often able to make a big profit on the difference between the prices at which investors are willing to buy and sell. If investors have better information about how the deals are priced, the "spread" between those prices should shrink, hurting the banks' profits on the deals.


By Ezra Klein  |  April 20, 2010; 2:30 PM ET
Categories:  Financial Regulation  
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Comments

My understanding of the Wall Street Journal is that the news portion is relatively unbiased and the opinion portion is on par with the verbal stylings of Rush Limbaugh.

But Rupert Murdoch bought it a few months ago, so the whole thing could be a worthless pile of rightwing spew by now.

Posted by: nisleib | April 20, 2010 3:09 PM | Report abuse

Ezra

any plans on covering Geithner's testimony to the House Financial Committee?

any plans on covering Bernake's testimony to the House Financial Committee?

any plans on covering Schapiro's testimony to the House Financial Committee?

any plans on covering Valukas's testimony to the House Financial Committee?

I know you are very very very busy writing about Financial Reform, so maybe now is not the best time for you to analyze Financial Reform, or to write about Geithner's lies, or Valukas' reporting of Geithner's lies, or even the violations of SEC rules by Lehman uncovered by Valukas, or the violations of the US Criminal Code, Title XII uncovered by Valukas, or the Super Special Kid Glove Treatment Barney is displaying, but if you can take a break from writing about Financial Reform to comment on the Financial Crimes being discussed at today's hearings in Washington DC by the House Financial Services Committee it would be super cool.

or maybe you could tell us about your favorite food groups?

Posted by: johninflorida | April 20, 2010 3:40 PM | Report abuse

Oh my, so near but still not courageous enough to cross the line...

But I guess this is not bad and still quite helpful for overall financial regulation reforms.

Different question Ezra - how realistic Sen. Lincoln Blanche proposals will be become laws?

Posted by: umesh409 | April 20, 2010 3:49 PM | Report abuse

i for one don't read the WSJ.

I read THIS:

http://voices.washingtonpost.com/economy-watch/2010/04/dnc_buys_top_google_search_res.html

Are they still trying to LIE over at the DNC and not say this was politically motivated and not say the timing was suspect at the least?

What I want to know is if anyone involved in this sold Goldman stock short on Friday? How bout a nice expose on that Ezra?

Posted by: visionbrkr | April 20, 2010 4:57 PM | Report abuse

OMG, visionbrkr-- Google ads of mass destruction! The only politically motivated thing going on here is Republican opposition to financial regulation. We tried it your way, and it tanked the economy. It's why you don't vote Republican if you want your country to function and why you never should take advice from Bush voters.

Posted by: constans | April 20, 2010 5:07 PM | Report abuse

constans,

who said it was "MY WAY"? Who said I'm obstructing? I'm all for the reforms that are being talked about.

In my world insurers have had to have capital requirements for YEARS. its about time financial services companies had to follow suit.

In fact if you want to bring back Glass Steagal I'm 100% for that too. Less financial reps handling insurance that they don't understand.

that being said you completely missed my point. The point is WHEN did the ads go up, before or after the announcement??

Posted by: visionbrkr | April 20, 2010 5:10 PM | Report abuse

@vision: Sure, it's "your way".You know we all look alike to liberals. :)

Posted by: Kevin_Willis | April 20, 2010 10:59 PM | Report abuse

Kevin,

Don't forget we all want the poor to suffer!!


That snark aside I will agree that conservatives think the same thing. To have a certain segment of the conservative movement believe that Obama is the anti-christ is more than a little unsettling.

Posted by: visionbrkr | April 21, 2010 9:49 AM | Report abuse

visionbrkr, you were on the side of deregulations and mindless tax cuts when it counted... and now you're getting seduced by loony-right conspiracy theories. You have a history of poor judgment, so why should we believe your ramblings now?

Posted by: constans | April 21, 2010 6:31 PM | Report abuse

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