I am scared for currency trading and OTC Forex :(

[alwaysLearning]

Source:
http://hosted.verticalresponse.com/238172/a9b44eb624/542002066/f3d428fd78/

This weekend some basic decisions have to be made. The first is whether to give the bailouts time to work, to increase the packages or to accept that they have failed and move to the next step. The next step is for governments and central banks to take over decision making from financial institutions, and cause them to lend. This can be done in one of two ways. The first is to guarantee the loans made between financial institutions so that solvency is not an issue and risk is eliminated. The second is to directly take over the lending process, with the state dictating how much is lent to whom. In a real sense, the distinction between the two is not as significant as it appears. The market is abolished and wealth is distributed through mechanisms created by the state, with risk eliminated from the system, or more precisely, transferred from the lender to the taxing authority of the state.

The more complex issue is how to manage this on an international scale. For example, American banks lend to European banks. If the United States comes up with a plan which guarantees loans to U.S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.

At the same time, there is no global mechanism for managing radical solutions. In taking over lending or guarantees, the administrative structure is everything. Managing the interbank-lending of the global economy is something for which there is no institution. And even with coordination, finance ministries and central banks would find it difficult to bear the burden ”” not to mention managing the system’s Herculean size and labyrinthine complexity. But if the G-7 in effect nationalize global financial systems and do it without international understandings and coordination, the consequences will be immediate and serious.

 

[Joe Blow]

I am assuming you are scared, not scarred and have edited the thread title accordingly.

 

[alwaysLearning]

I am assuming you are scared, not scarred and have edited the thread title accordingly.

Thanks Joe

 

[Trembling Hand]

Why??

 

[Sean K]

Why??

Maybe he doesn't know how to trade currencies and OTC Forex?

 

[tayser]

The only thing which would screw FX traders royally would be the same G7 governments fixing their exchange rates.

 

[alwaysLearning]

Why??

From the article: "If the United States comes up with a plan which guarantees loans to U.S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national."

See above from the article. If each country nationalises their banking system and this big banks lend mostly to their country then this reduces the amount of trading done over the Interbank to other countries.

So converting say EURO's to USD. If those big banks that normally lend to other countries focus more on lending only to banks and people within their borders then there will be less volume traded internationally in Forex.

Also, the interbank is the heart and soul of Forex as far as I can tell and with banks not wanting to lend to banks, then I fear for bucket shop OTC brokers for starters. (Already we see their spread increasing for the major pairs).

Also what Tayser said about the fixing of exchange rates.

So to summerise:

If the interbank market falls over then:

1. Much less trading in forex
2. Forex brokers, especially bucket shops will go bust, which is bad for people like me who like OTC Forex trading.
3. What Tayser said regarding the fixing of currency rates.
4. Regulation could have a BIG effect on OTC Forex trading as well.

Maybe I'm just paranoid and scared of losing my ability to trade an instrument (forex spot) after finally finding something that I think I can get good at

If anyone here can tell me why what is written above is wrong, and unlikely then I'd be greatful