Swiss Cheese with a Lot of Holes

Bill Tatro
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Posted: Jan 17, 2015 12:01 AM
Swiss Cheese with a Lot of Holes

The Swiss National Bank pulled a fast one and allowed the markets to be the markets and go to where they normally would be without intervention. Congratulations SNB at being the first!

However, it does present a question that hopefully we can answer with a little thought, common sense and understanding of the law.

The retail FX Brokers took a bloodbath as capital requirements were breached and apparently business as usual came to an end. The most visible was publically traded FXCM Inc. whose stock dropped as much as 90% in one day.

Leverage of going long the Euro and short the Swiss Franc can be a wonderful thing when everyone is on the same manipulated page. When, however, that page is turned the doorway can be very narrow for everyone to fit through. Retail brokers and their clients were on their own. Caveat Emptor.

However, caught in the turmoil, were none other than our favorite Too Big Too Fails (TBTF).

Citigroup said they would lose more than 150 million on the currency move. The head of European FX Sales for Citigroup has already been “said to leave”. He obviously will be out of work but not counted as unemployed and in the participation pool, but that’s another story.

Since Citigroup wrote into the President’s most recent budget, approved overwhelmingly by both Democrats and Republicans in the Senate and the House, that any derivative trading would still be supported, guaranteed, by the Federal Reserve, aka the American taxpayer. Who is on the hook for that 150 million dollars? Ironically in the context of Citigroup, being the biggest derivative trader in the world, just eeking out JP Morgan, the lost millions are simply chump change or Jamie Dimon walking around money. But 150 million is still 150 million.

Perhaps because it is so small it won’t be counted as a derivative and we, the American taxpayers, are off the hook. I doubt it.

So let’s get the ball rolling. Much like Soupy Sales did in the ‘50’s when he asked the kids to go to mom’s purse and send in the green paper inside, big trouble for Soupy, let’s all just dig in and send some green paper to the FX trading desk at Citigroup. They will get it anyway according to the President’s budget.

While we are at it we can dig a little deeper and contribute to the Goldman Sachs employee fund since it was announced today that their 34,000 workers average compensation dropped to the lowest since the second quarter of 2012. ONLY $373,260 (trailing 12 month basis) per worker.

I am not sure the SNB realized the far reaching effects they would have when they changed the rules of the game, FXCM Inc. and friends, Citigroup, House and Senate, Federal Reserve and Goldman Sachs, just to name a few, but perhaps they did and simply wanted to give us all a taste of things to come.