Good for you, Commodity Futures Trading Commission

Sir, Tracy Alloway writes that “last week the Commodity Futures Trading Commission upset many traders when it announced it would require cash to backstop Treasuries used as collateral for derivative trades, “Asset price ‘security alerts’ can mask complex risk”, November 23.

And Alloway follows up on that opining that “if the markets cannot agree on the value of one of the most liquid and relative safe assets in the world – an $11tn – then it is tempting to believe than even the most basic assumption are open to interpretation”.

This is an opening to clarify precisely what has gone wrong with bank regulations. In a nutshell, the Commodity Futures Trading Commission is NOT the market, it is the regulator, and should therefore always be open to believe in that all assumptions in the market are open to interpretations.

Stupid were the bank regulators because, in their capital requirements based on perceived risk, they followed the opinions of the same credit ratings market and banks followed.

Yes the Homeland Security Advisor System, with its different colors ranging from green to red to indicate risk levels that Alloway also refers to, might indeed be “A classification system that offers little differentiation provides only limited information value”… but the nightmare would not be much the passengers relying on the colors, but Homeland´s security personnel doing so too.

And, by the way, an $11tn market, of just one borrower…might very well be the systemically most important and therefore the most dangerous market in the world.