Jim, Very Good Post<<<If we can't tax big currency swaps there is no way to end this sort of rip off. The whole thing is a Racket..run by racketeers of the likes most people never dream of.>>>>>>>
The key point is you can not tax currency swaps unless you put some
type of " VAT Sales Tax" on them.. Since in long dated transactions, you have positions that can be calculated to give you a profit or loss
based solely on mark-to market assumptions, which in a thinly traded
market can be what you say they are. So you can always value your
swap book (the banking entity) so as to minimize gains for
tax purposes.
Andy Krieger who was trading currency options and long-dated FX
position at Bankers Trust in 1986-87 ...was a front page WSJ
story. The headlines were that he had made BT 300-400 million
dollars and BT was not sure how much to compensate him for this
feat.
He left the firm to start the Karma Foundation, and later when
the bank revalued some of his forward trades and thin OTC option
derivatives it was found that it was less than a 100 million dollars
which is still a bunch of money but it highlights the inherent
softness 0f the present value of Over-the-Counter options, swaps
and forwards.
Respectable swaps have at least four components to value,
say the USD at a point in the future, US 5 year rates, for example
the GBP at a point in the future , and 5 year British rates.
That position is probably offset by a 3 year floating rate note position, that can have a collar that limits the level of interest
rate movement on one side....
Anyway, this matchbook sketch shows the complexity of , and the
flexibilty of assumptions that can be used to value very arcane
instruments.
If the auditors of Cendant and Sunbeam can not figure out the
shenanigans of those companies accounting.. that pretty much
limits the potential for even more high-powered supervision.
Passing Observation,
John
Footnote---Kreiger was given a reported bonus in the 3-4 million
range for his toiling in the coalmines....<<<VBG>>>> |
