Putting together the session. A great deal of interest to ge capital capital, and i think to any issuer who makes regular use of the bond markets. The whole question of liquidity and if it doesnt function as it should means the bond markets do not function efficiently. Representing issuers or the viewpoint, which is what im most familiar with, to the extent that the bond markets cease to be effective, more important, a source of capitol, which can be flexible in its form, and allows issuers like ge capitol to hedge its Balance Sheet risk. The reason i say that is concerns about liquidity, having impact on secondary Market Pricing and also on the new issue premium, which investors quite rightly and logically demand to take on in order to buy a new bond transaction. To the extent there is a disconnect in the market, and those issues are elevated. It translates 2krek9ly into a higher cost for funds. And by further extension it can affect what business is chosen to go into or not, and ulti
Liquidity. And we cant let this narrative go unchallenged. Youve seen it in the fsoc annual report. There was a drive by of it in the multi Agency Report that came out last october. And ive been around this town long enough there always has to be a boogeyman somewhere when youre trying to misdirect. I think this is an area that we need to encourage and not run away from and not vilify, not accept the standard pushback that were getting. And the second point, too which is this notion of the aggregate impact of regulation. And your question, which i think is a good one, how much of it is standard post crisis and how much of it is regulation. I was listening closely to sandy. I think weve reached a point where weve seen historically 2008 to maybe into 11 where there was a lot of prudent Risk Management undertaken in response to a crisis. I dont think you can parse them out any longer. You cant say its basul, its dodd frank, you go down the road and then its prudent Risk Management because
Whats needed is an order displaced facility. It doesnt have to be mandated by the government, bit has to be something where private entities can create these things where the price res made public, not necessarily through a consolidated system. But if not reuters or others will consolidate the information just as incident either active does. But most importantly, a system where youre not allowed to trade through those prices because youre not doing your client a service by failing to pick up the easy to pick up trade. There is one additional complicate. If you say you cant trade through that price, you must make that price available so it can be taken. But if anybody can take a price, then it has to be the case that the trading system has to be an all to all system where if i grab it i can settle the trade. We do this all the time in equities. Why should it be so difficult to do it in another system. Theyre just securities. So lets settle them up that way. These are the order handling
Its going to predict how it would react under a stress event. And so was the key one of the key issues is what how are investors anticipating this . Is this part of their Investment Strategy . And do prices reflect it, and do practice Risk Management practices reflect that . I think that there are two issues we have to separate as we address the questions you offered. Is there a liquidity crisis . The first is are we in the midst of a transition from one type of market to over. If over night, we say that ever bond dealer who works in a bank can no longer deal bonds, the next day it will be a little harder to buy bounds. No question about it, and sell them as well. But what will happen afterwards, the banks will sell their operations to hedge funds to other companies, to the employees themselves and theyll get reorganized to find the capital and make money, because there are opportunities to make money when people demand liquidity, by the way, theres no such thing anywhere of free liqui
Issues we have to separate as we address the questions you offered. Is there a liquidity crisis . The first is are we in the midst of a transition from one type of market to over. If over night, we say that ever bond dealer who works in a bank can no longer deal bonds, the next day it will be a little harder to buy bounds. No question about it, and sell them as well. But what will happen afterwards, the banks will sell their operations to hedge funds to other companies, to the employees themselves and theyll get reorganized to find the capital and make money, because there are opportunities to make money when people demand liquidity, by the way, theres no such thing anywhere of free liquidity. Liquidity always has some price, sometimes its low and wed like it to be low, its always, always priced. The first issue, is there a question of transition . And if theres a question of transition, how do we get through the transition quickly . Maybe we dont want to have banks dealing bonds. The