Wallace Turbeville

Wallace Turbeville is a former vice president of Goldman Sachs and a fellow at Demos.

Recent Articles

The Shadow Derivatives Market Lives On

Flickr/Leader Pelosi
Tomorrow, the public interest will take a loss and the largest banks will chalk up a win. The shadow market for derivatives was a t the heart of the financial crisis. By far, the largest component of this market was the $60 trillion per year swaps market, with more than $700 trillion of swaps outstanding. Compare that with the 2012 U.S. GDP of about $15 trillion. These markets influence interest rates, currency values, credit costs, share values, and commodities, including food, fuel and precious and base metals. The shadow market was oligopolistic and became a goldmine for the big banks. Almost all swaps have a bank on one side. And the Office of the Comptroller of the currency has consistently found that four banks hold well over 90 percent of all derivatives. As would be expected in such a large oligopolistic market, bank profits have been staggering. Financier Bertrand de Pallieres has estimated that two-thirds of all trading revenues come from derivatives. This has syphoned...

Wall Street's Grand Bargain

Flickr/ White House
Three developments in finance cropped up in the last days that must be read as a single story. First , Blankfein, Dimon, and the rest of the Wall Street bigwigs visited the White House to meet with the president and his team. That team consisted of Denis McDonough (Chief of Staff); Valerie Jarrett (Senior Adviser); Cecilia Munoz (Domestic Policy Adviser); Gene Sperling (National Economic Council Director); and Alan Krueger, (Chairman, Council of Economic Advisers). The meeting was secret, but we can deduce much from its attendance. The White House appears to want Wall Street support in the policy/politics battles to come. This is not far fetched, especially coming on the heels of steak dinners served to Republican Senators earlier this week and the Obama budget that grabbed the “third rail” issue of Social Security. But every conversation has two sides. What did the power brokers of Wall Street want in return? High on the list is a roll back of financial reform. Industry...

Industry-Funded High-Frequency Trading Study Falls Short

I recently published an article in response to a study of high-frequency trading (“HFT”) by Professor Charles M. Jones of Columbia Business School and an opinion piece he published simultaneously in Politico . My article focused on the funding of the research by Citadel LLP, a major HFT user. It also pointed out broad concerns about the study, which asserts that computer-based algorithmic trading provides substantial net value to the economy. Keeping in mind the Professor Jones’ funding source, it is useful to look into the studies on which the professor relies (his independent work was limited to interpretation). These should be compared with other academic work that draws alternative conclusions. The studies that he cites as supportive are generally based on conventional views of the efficiency of markets. These studies identify lower trading costs that have been experienced during the years that HFT has emerged as a dominant force in the equities and commodities markets. He...

Are Academics for Hire Influencing the High Frequency Trading Debate?

Last week, Professor Charles M. Jones, a noted economist at Columbia, published an opinion piece in POLITICO claiming to enlighten readers on the realities of high-frequency trading (or “HFT”), computer driven trading at millisecond speeds driven by complex algorithms based on complex trading strategies. This has surfaced as the subject of politically charged debate in the context of of a proposed financial transaction tax that would, among other things, curb the most excessive forms of HFT. The POLITICO piece and a longer, academic-style article were published simultaneously. These articles catalogue existing claims of the benefits of HFT and dismiss concerns of the potential harm of such activity. Perhaps the most important bit of information does not appear in the articles. It can be found at the very end of the press release by Columbia Business School announcing the article: “ The research was supported by a grant from Citadel LLC.” The interest of Citadel in the subject is clear...

Jamie Dimon's Whale Fail

Flickr/ jurveston
Last night, the Senate Permanent Subcommittee on Investigations released a searing 300-page report on JP Morgan Chase’s London Whale episode. The bank lost at least $6.2 billion through trading credit derivatives in a business unit tasked with reducing firm-wide risk, the Chief Investment Office. (The trading activity is called the “Synthetic Credit Portfolio” or “SCP.”) There is much to digest in the report. Hearings are to commence today. But, even at this early date, the veil has been lifted on the complex and cavalier approach that banks take when they put the American public at risk every day in the quest for profits and personal gain. The bank’s CEO, Jamie Dimon, famously claimed that JP Morgan Chase featured the very best risk control systems in the industry. But the report makes it abundantly clear that these systems were manipulated to reduce the calculated risk of the CIO’s massive credit default swap positions. The SCP had grown from $4 billion to $51 billion in 2011, and...