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Dear all，周四经管来啦~！
今天有两个主题，高频交易（High frequency trade）以及对华尔街的紧急救助（bailout）。TIME 1-4是关于高频交易的，全部来自同一篇文章，由于原文太长（将近3000字），所以LZ只取了四个小部分，有兴趣看原文的童鞋可以点击source的链接。18系（18-01）的时候贴过一个关于高频交易的文章，这次希望能再做一下补充。TIME 5是单独的一则新闻，主题与越障相同，都是关于bailout的。越障文比较长，不过有不少小标题，希望可以帮助大家理顺文章结构。
Now let's get started~!
【PART I: SPEED】
Article 1: How the Robots Lost: High-Frequency Trading's Rise and Fall
（前面部分文章内容省略）
【TIME 1】
The definition of high-frequency trading (HFT) varies, depending on whom you ask. Essentially, it’s the use of automated strategies to churn through large volumes of orders in fractions of seconds. Some firms can trade in microseconds. (Usually, these shops are trading for themselves rather than clients.) And HFT isn’t just for stocks: Speed traders have made inroads in futures, fixed income, and foreign currencies. Options, not so much.
Back in 2007, traditional trading firms were rushing to automate. That year, Citigroup (C) bought ATD for $680 million. Swanson, then 40, was named head of Citi’s entire electronic stock trading operation and charged with integrating ATD’s systems into the bank globally.
By 2010, HFT accounted for more than 60 percent of all U.S. equity volume and seemed positioned to swallow the rest. Swanson, tired of Citi’s bureaucracy, left, and in mid-2011 opened his own HFT firm. The private equity firm Technology Crossover Ventures gave him tens of millions to open a trading shop, which he called Eladian Partners. If things went well, TCV would kick in another multimillion-dollar round in 2012. But things didn’t go well. For the first time since its inception, high-frequency trading, the bogey machine of the markets, is in retreat. According to estimates from Rosenblatt Securities, as much as two-thirds of all stock trades in the U.S. from 2008 to 2011 were executed by high-frequency firms; today it’s about half. In 2009, high-frequency traders moved about 3.25 billion shares a day. In 2012, it was 1.6 billion a day. Speed traders aren’t just trading fewer shares, they’re making less money on each trade. Average profits have fallen from about a tenth of a penny per share to a twentieth of a penny.
【TIME 1 ENDS - 301 WORDS】 （中间部分文章内容省略）
【TIME 2】
One of HFT’s objectives has always been to make the market more efficient. Speed traders have done such an excellent job of wringing waste out of buying and selling stocks that they’re having a hard time making money themselves. HFT also lacks the two things it needs the most: trading volume and price volatility. Compared with the deep, choppy waters of 2009 and 2010, the stock market is now a shallow, placid pool. Trading volumes in U.S. equities are around 6 billion shares a day, roughly where they were in 2006. Volatility, a measure of the extent to which a share’s price jumps around, is about half what it was a few years ago. By seeking out price disparities across assets and exchanges, speed traders ensure that when things do get out of whack, they’re quickly brought back into harmony. As a result, they tamp down volatility, suffocating their two most common strategies: market making and statistical arbitrage.
Market-making firms facilitate trading by quoting both a bid and a sell price. They profit off the spread in between, which these days is rarely more than a penny per share, so they rely on volume to make money. Arbitrage firms take advantage of small price differences between related assets. If shares of Apple (AAPL) are trading for slightly different prices across any of the 13 U.S. stock exchanges, HFT firms will buy the cheaper shares or sell the more expensive ones. The more prices change, the more chances there are for disparities to ripple through the market. As things have calmed, arbitrage trading has become less profitable.
To some extent, the drop in volume may be the result of high-frequency trading scaring investors away from stocks, particularly after the so-called Flash Crash of May 6, 2010, when a big futures sell order filled by computers unleashed a massive selloff. The Dow Jones industrial average dropped 600 points in about five minutes. As volatility spiked, most high-frequency traders that stayed in the market that day made a fortune. Those that turned their machines off were blamed for accelerating the selloff by drying up liquidity, since there were fewer speed traders willing to buy all those cascading sell orders triggered by falling prices.
【TIME 2 ENDS - 378 WORDS】
（中间部分文章内容省略）
【TIME 3】
Europeans are already clamping down on speed traders. France and Italy have both implemented some version of a trading tax. The European Commission is debating a euro zone-wide transaction fee.
In the U.S., Bart Chilton, a commissioner of the Commodity Futures Trading Commission (CFTC), has discussed adding yet more pressure. At the Boca conference the evening after the meeting took place, sitting at a table on a pink veranda, he explained his recent concern. According to Chilton, the CFTC has uncovered some “curious activity” in the markets that is “deeply disturbing and may be against the law.” Chilton, who calls the high-frequency traders “cheetahs,” said the CFTC needs to rethink how it determines whether a firm is manipulating markets.
Under the CFTC’s manipulation standard, a firm has to have a large share of a particular market to be deemed big enough to engage in manipulative behavior. For example, a firm that owns 20 percent of a company’s stock might be able to manipulate it. Since they rarely hold a position longer than several seconds, speed traders might have at most 1 percent or 2 percent of a market, but due to the outsize influence of their speed, they can often affect prices just as much as those with bigger footprints—particularly when they engage in what Chilton refers to as “feeding frenzies,” when prices are volatile. “We may need to lower the bar in regard to cheetahs,” says Chilton. “The question is whether revising that standard might be a way for us to catch cheetahs manipulating the market.”
【TIME 3 ENDS - 271 WORDS】
【TIME 4】
Recently the CFTC has deployed its own high-tech surveillance system, capable of viewing market activity in hundredths of a second, and also tracing trades back to the firms that execute them. This has led the CFTC to look into potential manipulation in the natural gas markets and review something called “wash trading,” where firms illegally trade with themselves to create the impression of activity that doesn’t really exist.
In May, Chilton proposed a .06¢ fee on futures and swaps trades. The tax is meant to calm the market and fund CFTC investigations. Democrats in Congress would go further. Iowa Senator Tom Harkin and Oregon Representative Peter DeFazio want a .03 percent tax on nearly every trade in nearly every market in the U.S.
As profits have shrunk, more HFT firms are resorting to something called momentum trading. Using methods similar to what Swanson helped pioneer 25 years ago, momentum traders sense the way the market is going and bet big. It can be lucrative, and it comes with enormous risks. Other HFTs are using sophisticated programs to analyze news wires and headlines to get their returns. A few are even scanning Twitter feeds, as evidenced by the sudden selloff that followed the Associated Press’s hacked Twitter account reporting explosions at the White House on April 23. In many ways, it was the best they could do.
【TIME 4 ENDS - 232 WORDS】
Source: Bloomberg Business Week
http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall#p4
Article 2: S&P's Latest Delusion: It’s 'Increasingly Clear' Banks Won't Get Bailouts
By Nick Summers | June 11, 2013
(Check the title later)
【TIME 5】
Standard & Poor’s (MHP), saying that it is “increasingly clear” that the government may not bail out big banks in another crisis, downgraded JPMorgan Chase’s (JPM)credit rating outlook this morning to “negative,” bringing it into line with seven other key financial institutions.
Since the bank rescues of 2008, investors have assumed that the United States government and others around the world won’t let banks fail, lest they bring the economy down with them. That’s more or less still the consensus. Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) introduced a bill in April on the theory that the biggest legislation to come out of the crisis, the Dodd-Frank Act, hasn’t adequately solved the problem of “Too Big To Fail.” Bloomberg View argues that the largest U.S. banks get a taxpayer subsidy of $83 billion a year because of this perception, realized in the form of lower borrowing costs.
S&P apparently sees things differently. The ratings agency cited “the evolving nature of extraordinary government support” in docking its outlook on JPMorgan, the largest U.S. bank by assets. “We believe it is becoming increasingly clear that holding company creditors may not receive extraordinary government support in a crisis,” the agency wrote. Specifically, S&P said it will review the progress regulators have made towards their goal of an “orderly liquidation authority.” That refers to a plan under Dodd-Frank in which the Federal Deposit Insurance Corporation takes over a failing bank and methodically works through its shareholders and creditors.
S&P also revised its outlook on the long-term rating of the United States on June 10: from negative up to stable. The agency had downgraded the U.S. credit rating from AAA to the second-tier AA+ in August 2011, adding to a short-term panic in the markets. Stocks have gone on a tear since that seemingly scary moment, with the S&P 500-stock index gaining 17 percent; investors mostly ignored S&P’s announcement on Tuesday. As of midday, shares of JPMorgan were down about 1 percent.
【TIME 5 ENDS - 352 WORDS】
Source: Bloomberg Business Week
http://www.businessweek.com/articles/2013-06-11/s-and-ps-latest-delusion-it-s-increasingly-clear-banks-wont-get-bailouts#r=hp-ls
【PART II: OBSTACLE】
Article 3: When Bailouts Make Moral and Economic Sense
By Daniel Friedman & Daniel McNeill | Jun 11, 2013
(Check the title later)
【WARM UP - INTRODUCTION】
Effective or not, bailouts somehow seem unjust. Why use taxpayer money to save the companies that actually caused the meltdown, the banks that made the reckless loans, and insurance companies that wrote too many credit-default swaps? More broadly, why save the state and local governments that offered overly generous pensions? Or auto companies too fat and lazy to match foreign competitors? They deserve to suffer the consequences of their behavior.
Let’s start with the word “bailout.” To most laypeople, it suggests a gift to a giant, inefficient, highly connected octopus. But bailouts are typically investments: loans or purchases. In 1980, the U.S. government bailed out Chrysler with a $1.5 billion loan and earned acid criticism, mostly from liberals. But by 1983, Chrysler had paid it back and, with interest and stock warrants, the government made a $660 million profit. Taxpayers spent less overall, and the nation saved jobs. So these companies often pay for the lifesaver we throw them.
More basically, the trouble is that we don’t live in Adam Smith’s village. We live in a much larger world.
Take American International Group Inc. The mammoth insurer had links everywhere. On Feb. 28, 2008, it had branches in 130 countries and received half of its revenue from overseas. Its assets exceeded $1 trillion and its stock sold for $50.15. Yet for an insurance company it showed breathtaking disregard for risk. In August 2007, Joseph Cassano, head of the unit that made the fateful CDS deals, said, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”
【288 WORDS】
【OBSTACLE】
Facing Bankruptcy
In late 2008, AIG faced death from “those transactions” and begged for help. The government could have punished it and let it succumb, but the harm would have been global. AIG owed money everywhere, and its bankruptcy could have brought surprising creditors, like the supposedly safe money-market funds, to their knees and spurred further panic.
Yet most AIG divisions earned a profit. So to keep this crumbling tower upright, the U.S. government pumped $182.5 billion into it and took 77.9 percent of its stock. The gamble seemed hazardous, since at one point its stock fell to about $1 a share. And it was the most hated bailout, partly because AIG went on to shower millions in bonuses on executives who had caused the fiasco.
But the strategy had key advantages. For instance, the government was buying inexpensively, when most investors thought the company mortally ill. And it could be patient. It didn’t need repayment at once. According to one analysis, by 2012 the U.S. government had earned all its money back and made a profit of $15 billion, and it still owned 16 percent of a company whose stock was selling for about $34.
Similarly, with the banking system, the most direct strategy would have been to take control of the most overleveraged big banks, fire the top executives, strip out the toxic assets and liquidate them slowly, and spin off new banks with cleansed balance sheets. This approach worked well in the U.S. savings-and-loan crisis of the 1980s and more recently for banks in Scandinavia. Taxpayers ended up paying relatively little, and the economy suffered minimal damage.
However, like all investments, bailouts don’t always turn a profit. The Treasury gave the big banks about $230 billion from the Troubled Asset Relief Program and has received about $255 billion, for a gain of $25 billion. However, the smaller banks still owe some $15 billion, and overall the public may never get the full $700 billion back from TARP. But its cost will be far less than pundits originally warned.
Saving Goliaths
So we have to counter the moral impulse to pull down irresponsible goliaths with the economic -- and ultimately moral -- benefits of saving them. After a financial crash, well-targeted bailouts and stimulus spending can hasten repair of the torn network. They can keep the economy stronger, spare the hardship of lost jobs, and earn money for taxpayers. The moral reaction, often manipulated to political advantage, hinders such repair work and prolongs the suffering.
The government can respond by educating the public about the nature of bailouts and thus help overcome the sense that they are ripping money from citizens’ paychecks to cushion fat cats from their blunders. This task may be difficult, but even so, Barack Obama’s administration proved deficient in it. Indeed, in the 2010 midterm elections, the moral backlash fueled the Tea Party and made further stimulus impossible. Repair of the financial system then had to proceed slowly, using awkward indirect subsidies.
The problems in the financial sector begin with bad promises at the base of the mortgage pyramid. A mortgage is a promise of monthly payments or an early repayment in full. That pledge is good as long as the owner can sell the house for more than the remaining principal balance of the mortgage. But when she no longer can -- when she owes more than the house is worth -- the promise is in jeopardy. She may do better by defaulting. And after 2007, falling home prices in much of Florida, California and elsewhere pulled millions of homeowners “underwater.” Monthly payments stopped from those who lost their jobs or were never able to pay to begin with.
But here is the interesting and important question: What about the underwater homeowners who can make the monthly payments? The value of a good credit rating and the possibility of a rebound in house prices might make it financially advantageous for them to keep paying on homes that are worth only slightly less than the value of their mortgage. At some point, however, it may make bottom-line sense to walk away from the loan.
Foreclosure Threat
The specter of massive foreclosures worried both politicians and economists. As a result, the Obama administration offered many programs to renegotiate distressed mortgages, some carved out of TARP funds and others created separately.
And that raised questions. Is it moral to use taxpayer money to ease the mortgages of people who should have understood and avoided them in the first place? Doesn’t every homeowner take a risk that the property’s value will decrease?
There is a moral tension here. On the one hand, most of us feel a desire to aid others in distress. On the other, we have homeowners with varied levels of culpability and merit -- from the “good people” who received typical mortgages and wound up underwater anyway, to those who trusted lying agents and signed mortgages with nasty provisions they didn’t know about, to those who lied to get mortgages they couldn’t pay back. The weights you place on helping out versus punishing in each case reflects your moral attitude.
But here, too, we have to be careful not to let our moral instincts outweigh good policy. So what are the economic dimensions of this situation?
Businesses routinely walk away from contracts when it is more profitable to, and we hear no uproar about it. Moreover, the law imposes no punitive damages on anyone breaking a contract (in most cases). If you default, you pay only for the harm you cause, and the courts pass no moral judgment on you. The rationale is that our economy ultimately benefits, since business moves faster and more nimbly.
Homeowners whose mortgages are sufficiently underwater are in a similar situation. By defaulting, they can enjoy living in a home at lower cost, even taking into account the impact on their personal credit rating and the loss of the tax advantages from home ownership. And, they may argue, what’s the harm to anyone else?
But this dynamic changes when a tide of defaults looms. The more defaults, the more foreclosures, and they bring down the price of all homes nearby. If foreclosures are nationwide, people’s wealth drops significantly. They can’t get home-equity mortgages, for instance. At the same time, as housing prices fall, owners get deeper underwater and default looks more and more appealing. So while an individual default here and there does not affect society much, a rash of them does. Yet if you lighten too many mortgage burdens, as the Obama administration proposed to do, you lower income for the banks and make them less likely to lend. And that damage radiates, too.
Default Decisions
So what actually happened?
Intriguingly, despite the dire predictions, most underwater homeowners chose not to default. Recent research suggests that the reasons were mainly moral. Many homeowners apparently didn’t want the guilt and shame from skipping out on the deal. Perhaps, too, they didn’t want to hurt their neighbors by abandoning their current home and contributing to neighborhood blight.
At the same time, the federal aid programs had few takers. For instance, the Homeowner Affordability and Stability Plan, announced in February 2009, sought to help as many as 9 million homeowners to avoid foreclosure. However, far less than 10 percent have received any substantial relief, while about 4 million people lost their homes to foreclosure from 2007 to early 2012. And many of those losses have been processed improperly, in some cases fraudulently, to the banks’ advantage.
These foreclosure problems are doubtless due partly to the complexities higher up the food chain. But we share the opinion of many commentators that the larger problem is political. The financial industry spends more money on lobbying and campaign contributions than any other industry except health care, and it seems to get an excellent return on its investment. The industry opposed the mortgage-renegotiation programs, and then Treasury Secretary Timothy Geithner did little to get them off the ground.
【OBSTACLE ENDS - 1365 WORDS】
Source: Bloomberg
http://www.bloomberg.com/news/2013-06-10/when-bailouts-make-moral-and-economic-sense.html
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发表于 2013-6-13 23:01:05
楼主
小杀妹辛苦了。
。。。。