Caution: Flip-Flop Alarm Is Ringing

Courtesy of Karl Denninger at The Market Ticker 

Has President Obama issued an actual directive to Geithner?

May 13 (Bloomberg) — The U.S. Treasury will tell banks to increase transparency in the over-the-counter derivatives market by making prices available on centralized computer platforms, according to people familiar with the plan.

Treasury Secretary Timothy Geithner may announce the decision as soon as today, said the people, who declined to be identified because they weren’t authorized to speak publicly. Geithner laid out a framework in March for increasing regulation of financial markets as the worst credit crisis since the Great Depression caused more than $1.4 trillion in writedowns by banks and financial companies worldwide.

That would be a dramatic change from Geithner’s and Treasury’s position (going back to Paulson) – in fact, its an outright flip-flop.

Geithner has opposed this of course because it is not in the best interest of Goldman (and other sell-siders in the business) as price transparency means spreads contract dramatically and thus the skimming (and outright ripping off) that has gone on for the previous 10 years in this market will largely disappear.

I, on the other hand, have been calling for exactly this for a very long time, including in multiple petitions and in The Genesis Plan published last year.

Bluntly: It is about damn time, and this marks the first real proposal, assuming it is real, that I’ve heard come out of the Obama Administration that has the potential to actually get price discovery going.

That price discovery likely will lead to dramatically lower prices for some instruments (quite possibly including equity prices) but it will also allow the market to clear.

The latter is essential.

Propping up price is counter-productive.

If this is real, its incredible – and positive.

Let’s hope it is.