I will be releasing my market sentiment blog entry tomorrow, and it is positive. Though what I want to comment on is how the world has changed for the better. What do you think it was?
I will not keep you in suspense, but the world changing event is the fact that the Fed has allowed investment banks to come to the Fed bank teller for money. That has changed everything. What this single action means is that investment banks will be able to tidy their bottom lines, letting the market recover. Though it also means investment banks will have to allow themselves to be regulated.
Up to now investment banks did not want to be regulated like banks because of the fear that they will not be able to do what they want to. Yet now because they need money they will have to succumb to regulations by the Fed, and the government. This folks, is a world changing event.
The ramifications:
- Quants will be a regulated profession and structured products will loose their luster.
- Products will become tamer with less return, but therefore more “secure” from a risk perspective.
- Balance sheets will need to be kept clean.
Kudos to the Fed!
