By ROBERT SPRUILL
CHICAGO—After a week in which President Obama blamed bankers and their “binge of irresponsibility” for the country’s ongoing economic woes, the CME Group announced the launch of a suite of products that quantify anger directed toward the US financial industry.
Beginning in March of this year, futures and options based on the Populist Outrage Index will trade on the CME GLOBEX electronic trading platform. The index is calculated using several broad measures of public ire, including opinion polling, the incidence of rage-related phrases in major print media, and the weighted average decibel level of Congressional hearings relating to the financial industry.
“Recent events have shown that the popularity of punitive financial legislation is a major source of risk not only to banks, but to the market and economy more broadly,” said Marcus Petty-Johnson, Managing Director of Products and Services for the CME Group. “We believe that these new products provide essential tools for prudent asset managers to guard against these risks.”
According to Lloyd Rudesby, Head of Equity Strategy for the Ucalegon Multi-Markets fund, the Populist Outrage Index offers unique benefits to investors in US markets. “Our research shows that established market models fail to capture crucial current drivers of equity returns, and that this index offers significant explanatory power especially in the case of adverse market moves. In particular, we have noted that when journalists and politicians start whipping up the masses against rich bankers, the market pretty much freaks out.”
The move sparked surprise among many in the media and in Washington, who over the years have grown accustomed to being ignored by global markets. Nobel Laureate and New York Times columnist Paul Krugman offered this opinion: “Look, unfortunately the regulatory apparatus isn’t yet in place to prevent those banking idiots from doing what they did last year: turning billions in trading profits to help offset credit losses, when instead they should have been throwing everything they had into extending even more credit to insolvent businesses and individuals. But since we can’t force them to do that yet, I have only two words of advice about this new index: Go long.”
Republican Senator Mike Crapo of Idaho, a member of the Senate Banking Committee, sees this innovation in the market as a positive sign. “Since the days of Ronald Reagan, the Republican Party has stood for vilifying select groups to play upon the fears and prejudices of our constituents, then going to Washington and making sure that the great corporations that built this country can exercise the God-given right to do whatever the hell they can think of to pretty much whomever they want. This index affords us the unique opportunity to realize personal profit as we fulfill our responsibility to rail against fat-cat bankers publicly even while blocking substantive reform.”
When contacted to provide a response to the CME announcement, the office of Maxine Waters (D-CA), member of the House Financial Services Committee, declined to comment, but indicated that her staff was diligently conducting research to discover what a futures contract is.
The introduction of this new index is unlikely, according to Rudesby, to affect the average individual investor. “Overall, 401(k) money is heavily concentrated in US equities, which are precisely the instruments most subject to outrage risk. These plans generally have little access to the hedging instruments used by professionals. As a result, when legislators go after the big banks, individual workers are the ones who get creamed. With instruments like these at hand, it really doesn’t bother us much.”
About the Author:
Robert Spruill is a financial engineer at State Street, where he does modeling and analytics for a web-based risk management product. He is also an instructor in Baruch College’s Financial Engineering program, from which he received his Master’s degree. Prior to studying finance, he spent fifteen years in commercial education, preparing undergraduates for Medical and Law School entrance exams. He also holds a Master’s degree from The Writing Seminars at Johns Hopkins and is at times uneasy about the similarities between his dual avocations of finance and fiction.
Tags: cme, derivatives, Robert Spruill
