Wednesday, May 20, 2015


The "Vig" is the cost of doing business.  Well, not exactly.  The Vig is the "Vigerous" or the amount of money charged on a loan made by...shall we say...a non-registered financial institution when you can't borrow from a real financial institution.  The Vig is expensive; the Vig is even more expensive if it doesn't get a broken leg expensive.

Now depending who's charging the Vig, the cost of not paying can be going out of business.  For example, if you are a bank and you get sued by the government and you don't pay the Vig, the government takes you to trial and raises the amount of the Vig at the trial by about ten times.  Now the government is composed of nice people; they tell you before hand that is exactly what they are going to do.  It's known in the trade as an incentive to settle.  On the street it's known as extortion but what's in a name.

Well, the Vig got paid today by five banks in the great foreign exchange rate fixing scandal.  Hopefully, this will be the last of these things but with so much money being collected and so much in bonuses being paid to government attorneys, both in house and hired guns, I wonder.  Then again, the NY State banking commissioner, Benjamin Lawsky announced today that he was resigning so the money pool may be running dry.  He was in on the Vig as well, just not to the same extent as the Feds.  He also may not have a friend in the world from all reports.  Nasty little bugger I guess.  We move on.

I still don't understand what went on at these five institutions or who got hurt.  I suspect that a bunch of traders decided to improve their odds in  the taking of short term positions by tipping off a few of the other big players as to what they were up to and when.  Fireable offenses no doubt.  Maybe even criminal.  Probably not widely known in management circles.  But "fixing" the $6 trillion a day FX market?  Could be I guess but I really do need someone to explain this to me.  Of course when Central Banks through their political/monetary policy cause the fixed income market to give up $400 billion in a couple of days, we call it...what the hell do we call it?  There are a lot of things I just don't understand.

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