Monday, February 23, 2009

On Wall Street

Former Federal Reserve Chairman Alan Greenspan scared the holy bejesus out of the markets today by raising the specter of an irregularity in the highly obscure Libor/Ois barometer, creating a wave of selling off of pretty much anything that might have a whiff of either Libor or Ois to it. After declaring that the unknown but critical ratio will remain higher for the rest of the year, traders disappeared from the floor, Googling furiously in an attempt to figure out what the hell the old man was talking about.

"I tried my hardest to make some sense of it all," said Hichaou Hajhamou, a treasury trader at BLP Panibas. "It's not like I couldn't find anything about Libor/Ois, it's that I couldn't make any sense out of it. No damn sense at all..."

Responding to the panic while denying that he had any part in creating it, Greenspan made an impromptu appearance on the FOX Business Network, where he attempted to explain it "in a manner so simple that a viewer of the FOX Business Network can understand it". He did not succeed.

"Look," Greenspan explained impatiently, "in the first place you've got to understand the basics. Libor is simply the rate that banks would lend to each other if they were lending to each other, which of course they're not doing right now, so you might very well think that it's a moot point. But it's not, because the banks are required to report some interest rate to the Libor Committee. That's just the way it is. So what they report is an imaginary number, representing imaginary liquidity, which at this point is all you need to know about Libor. Okay?"

"Now when we talk about the Libor/Ois spread, we're talking about the difference between what these same banks would have to pay to borrow those imaginary funds from other non-lending banks, measured against what the market believes they would have to pay for this non-existent liquidity. It's a case of hopes battling dreams, if I may be poetic for a moment, because you have to factor in the overnight index swap rates, and given that their is no basis for this computation outside of actual transactions... Well, you get the picture."

Later in the day, Hichaou Hajhamou was found dead behind his desk at BLP, one amongst a rash of traders to recently succumb to self-inflicted gunshots. He left behind a note saying only 'My life is a lie. I don't even know what the Libor Committee is'.

More turmoil is expected again tomorrow on Wall Street, as Greenspan appears on CNBC to explain the influence of the Radon–Nikodym theorem on the continued decline of the derivatives market.

10cc attempt to comfort despondent former members of
the Alan Greenspan fan club.

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