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Filed under: Spy Photos, Coupe, Performance, Paris Motor Show, Audi

Within the next two years, Audi plans to have five different variants of the R8 in production: V8- and V10-powered coupes and convertibles, and one harder-core variant tuned to play as well on the track as it does on the road. This newest, lightweight model – likely carrying either a ClubSport (CS) or GT badge – has been undergoing testing in Germany this week, and beyond the sinister matte-black paint scheme (with matching fuel door), there are a few choice modifications to the body to set it apart from its standard siblings.

The front fascia has been lowered slightly with the addition of a new splitter and reshaped winglets, while out back you’ll notice the larger, round exhaust outlets, restyled rear bumper with new air outlets aft of the wheels and that shapely fixed rear wing. The rolling stock appears to have grown a bit and larger carbon ceramic brakes are fitted at all four corners.

It’s likely that Audi is using a fair amount of carbon fiber bodywork to bring the ClubSport’s curbweight down by a couple hundred pounds, and judging by the side-sill intakes, a V10 – possibly mated to a new dual-clutch gearbox – remains mounted amidships. Given the current pace of development, we’d suspect Audi plans to unveil its latest R8 project this year, possibly at the Paris Motor Show in the fall.

Spy Shots: Audi R8 ClubSport heads to the ‘Ring originally appeared on Autoblog on Wed, 21 Apr 2010 14:58:00 EST. Please see our terms for use of feeds.

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Netflix reported a solid Q1, and after an initial dip, shares rose slightly after hours.

Netflix finished March with 13.97 million subscribers, ahead of expectations. Revenue and EPS were also solid, and guidance strong.

Interesting stat: “Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie in the first quarter of 2010 was 55 percent compared to 36 percent for the same period of 2009 and 48 percent for the fourth quarter of 2009.”

We’ll tune into Netflix’s earnings call at 6 p.m. ET and update with any interesting information.

Key Stats:

• Revenue: $493.7 million vs. $493 million consensus, $490-496 million guidance
• EPS: $0.59 vs. $0.54 consensus, $0.47-0.58 guidance
• Subscribers: 14.0 million vs. 13.7 million consensus, 13.6-13.8 million guidance
• Q2 sub guidance: 14.7-15.0 million vs. 14.2 million consensus
• 2010 sub guidance: 16.5-17.3 million vs. 16.1 million consensus

Here’s Citi analyst Mark Mahaney’s “Cheat Sheet” for Netflix earnings.

Join the conversation about this story »

See Also:

• Is Netflix The Single Worst Stock On The Market?
• Netflix And ABC Likely Closing In On 200,000 iPad App Downloads
• 10 Awesome iPad Apps For Travel

There’s been a little bit of confusion regarding some of the specs of the Verizon Droid Incredible. Let’s clear up on of them. On every info sheet we’ve received, ROM — aka the place to which you can install applications — is listed at 512 megabytes. When you dive into the phone settings on the device, however, you’ll see listed 740MB of "phone storage."

So what gives? HTC now tells us that you can install apps to all of that space, which is a pleasant treat, indeed! Have more questions about the Droid Incredible? Ask us in this forum thread and we’ll get them answered soon.

As Republicans inch closer to Democrats on the piece of financial reform that would limit and regulate the trading of complex instruments called derivatives, some Democratic are trotting out increasingly aggressive strategies to break up the big banks.

Sen. Chuck Schumer is building bipartisan support to levy a bank tax similar to the 0.15
percent profits-tax that Obama floated in January to pay down TARP. Meanwhile four Democratic senators have proposed an even stronger shrink-the-banks bill that would cap leverage at 16:1 and enact two more hard ceilings on deposits and liabilities. Those plans are:

1) Cap at 10% a bank’s share of total US deposits.

Would that accomplish much? In mid-2009 the largest commercial bank in the US, Bank of America, had 12% of total US deposits, and it has been considered too big to fail. Shrinking it to 10% won’t it’s TBTF status dramatically. No other bank held more than 10 percent of total domestic deposits. Anyway, deposits aren’t the central problem. Liabilities are what crater a firm when the market
turns down. A more direct way to get at this problem would be capital
requirements or leverage caps to limit risk-taking. So here we go…

2) Reduce the max amount of non-deposit liabilities to 2% of US GDP for banks, and 3% of GDP for non-bank institutions.

Now this is the blunt instrument. Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase and Morgan
Stanley all now have non-deposit liabilities in the
neighborhood of 5-8 percent of GDP, according to this column from New Rules. In short, this rule would require all of these organizations to effectively split into at least two pieces.

Obama likes to approach fundamental change by chiseling away at bad incentives. This bill approaches fundamental change by taking a sledgehammer to Wall St. And that’s exactly why we should expect this law — which Tim Fernholz writes might appear as an amendment to the Senate reform bill — will either go nowhere fast or re-inspire the fury of Republicans who seem to be edging toward a kumbaya on financial reform. If Democrats want to fight, this bill will make for a good ammunition. If they want a bill, and soon, it will make for good recycling paper.

After fighting every step of the way to keep the ACTA secret, the USTR last week disengenuously proclaimed that it was finally time to make the international agreement public — to "help the process of reaching a final agreement." Of course this proclamation of transparency and cooperation comes only after much of the agreement had been hashed out without substantive public input, after the European Parliament voted 633-to-13 to demand the release of ACTA’s text, and after most of the agreement had already leaked to the press. Today the European Union finally released the full agreement (pdf) — as well as a statement by EU Trade Commissioner Karel De Gucht insisting that the release proves ACTA concerns have been unfounded (shockingly it turns out that’s not true).

Most of what’s in the agreement isn’t a surprise given the leaks, and while the ACTA remains a bevy of awful policies, there are a few minor changes to degrees of said awfulness. While the leaked versions of the ACTA didn’t explicity mandate ISP "three strikes" provisions, they did threaten to take away ISP safe harbor protections if ISPs didn’t agree to police copyright, with the only real example of acceptable behavior being — to employ three strikes provisions. This freshly-released version of the agreement gets rid of that language, instead simply insisting that ISPs can only retain safe harbor protections by adopting a "takedown" policy that will "address the unauthorized storage or transmission of materials protected by copyright."

That’s of course simply taking our notoriously unreliable DMCA letter warning process and exporting it to Canada and elsewhere. Here in the States several major ISPs are already voluntarily taking this idea one step further — by threatening users with disconnection for trading copyrighted files via BitTorrent (in some cases these threats, which no ISP is willing to transparently discuss, have been found to be a bluff). Some new language in the bill also appears to take aim at softening European law, allowing countries to "terminate or prevent an infringement" and pass legislation "governing the removal or disabling of access to information." Meanwhile, Michael Geist notes that three strikes may not be dead yet given countries still need to hash out their differences:

"However, that does not mean that three strikes has disappeared from the draft entirely. The U.S. proposal for ISP liability is one of three options currently being considered. The European option preserves, but does not require, three strikes . . . The EU will argue this is consistent with the law in a few of its member states. If the approach is adopted, it will clearly keep three strikes on the table and could be used in other ACTA member countries to encourage its adoption."

Most of the language that critics have grown familiar with (making the bypassing of copy protection illegal even in cases of fair use, making copies of a large quality of content illegal even if no money is exchanged, mandating that ISPs become copyright nannies) remain at the heart of the ACTA. The agreement’s central thrust continues to be to foist clearly dysfunctional, unreliable, and draconian U.S. DMCA-style copyright enforcement policies upon other countries. Other than that? Sure, ACTA concerns are "unfounded" with the release of this latest draft. Of course it can still get better (or worse) in time.

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Muslim Group Says It Is Warning, Not Threatening, ‘South Park’ Creators. Here’s a screen shot from the cached version of the site (it was hacked after the threat):

The website is run by a dozen crazy people. No word on crazy Buddhists objecting to the fact that Buddha was depicted as a cocaine snorting junkie in the episode. It’s a two part episode, so watch the finale tonight.

While reviewing the proxy that First American Corporation (FAF) filed last week, we noticed an expensive executive transition that occurred recently with little fanfare.

The executive, Frank McMahon, was the CEO of First American’s Information Solutions Group. McMahon joined the company in February, 2006 after leaving his role as a managing director at Lehman Brothers Holdings, Inc. (He’d been an advisor to First American while there.)

At the time McMahon joined First American, the company assured him that his employment “will be guaranteed for a period of five years, commencing on March 31, 2006.” The Employment Offer Letter further promised that McMahon would receive “minimum annual cash compensation… equal to at least $1,750,000.”  He actually received more than $2.1 million in total compensation in 2006, more than $3.3 million in 2007, and more than $3.8 million in 2008.

McMahon only stayed in the CEO role of the Information Solutions Group for 19 months. On December 4, 2009, First American filed an 8-K to announce that McMahon had resigned four days earlier and that Anand Nallathambi would serve as president/COO of the Information Services Group (he has since been promoted to CEO). No reason was given for McMahon’s sudden departure.

Six weeks later, on January 15, 2010, First American filed another 8-K which announced the terms of McMahon’s Separation Agreement (the agreement itself was not filed until First American filed its annual report on March 1, 2010).

In addition to containing a release and an agreement not to disparage the other party, the company agreed to pay McMahon

“…$3,309,305 in severance pay and $2,040,500, representing a bonus for calendar year 2009. In addition, the Company and Mr. McMahon entered into a Consulting Agreement, which terminates on November 30, 2011, whereby Mr. McMahon agrees to provide consulting services at the request of the Company for total consideration of $1,058,388, payable as follows: $50,000 on May 30, 2010; $479,194 on November 30, 2010; and $44,099.50 each month starting December 30, 2010 and ending November 30, 2011.”

McMahon’s Consulting Agreement is noteworthy in part because the description of services that he is to provide seems vague. It states:

“the Company has retained Consultant to provide, and Consultant agrees to provide, to the Company and its subsidiaries consulting services as reasonably requested by the Company… including, without limitation, those services as may be requested to transition employee, client, vendor and other relationships to employees of the Company or its subsidiaries and to complete transactions in which the Company or any of its subsidiaries are involved. Consultant shall report to the chairman of the board, the chief executive officer of the Company and their designees.”

The Consulting Agreement also states that so long as McMahon doesn’t compete with the company or solicit its customers, “Consultant is free to pursue any and all outside activities and/or employment as Consultant desires, and Company acknowledges that Consultant will likely be involved in other business activities, contracting and/or employment.”

One wonders what McMahon is expected to do for this additional $1,058,388.  Certainly, the company tells us next to nothing, which leaves the matter to our imaginations.  But regardless, for him to depart First American with more than $6.4 million in extra compensation after working there for less than 4 years seems generous, to say the least.

Image source: Todd Ryburn via Flickr

Microsoft’s Fusion Labs just announced a new product that they are doing in partnership with Facebook, called Docs for Facebook. Built on Microsoft Office 2010, Docs for Facebook is seemingly a play by Microsoft to take some of the cloud-based office suite share away from Google Docs. You’ll be able to create and share documents with friends on Facebook, control privacy settings, and with a click of a button, open the documents in your native Office software on your PC or Mac. That’s all well and good, but do you know many people who’ve been clamoring for the opportunity to add their boss and co-workers as Facebook friends, just so they can share documents with them on the popular social networking site? Yeah, us either.

If you want to get in on the action, hit the link below.

Tags:
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fuse labs,
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Article Tags: Headline Story, Will Alexander

This whole climate change issue is unravelling like a Sherlock Holmes novel of old, or Midsummer Murders on TV.

The IPCC was established in 1988 but it was only after its assessment reports of 2001 that the plot gathered momentum. Opposition started mounting between then and the 2007 assessment reports. The attached memo refers to the events during the 2005/06 period with the emphasis on the Stern Review. I responded vigorously but without effect.

Others had similar reservations but we were outnumbered. Nevertheless, the other side was forced on the defensive as it was patently unable to substantiate its alarmist claims.

Then, out of the blue in November last year the Climategate scandal hit the Internet. Less than a month later we witnessed the ignominious collapse of the Copenhagen conference. It was saved by last minute discussions between President Obama of the US and the heads of state of the BASIC nations (Brazil, South Africa, India and China). Other Western nations were sidelined including the UK and the EU.

Then came a flood of exposures of the antics of those who compiled the IPCC’s assessment reports.

These were followed by cover up investigations of the UK House of Commons and the UN bodies. But these did not address the fundamental differences in the basic science.

Read in full with comments »   

A woman in California lived for free in a hotel room for two years — a $55,000 bill — by pretending to be an IRS agent. Of course, now she’s been caught and has to pay it all back.

According to reports, the woman actually began living in the hotel in Novato, CA, about 40 miles north of San Francisco, in 2002. That’s also when she began telling hotel employees her made-up tale about being an agent for the Internal Revenue Service.

However, she apparently had no problem paying for her room on time until 2008, at which point she told a hotel co-owner that she would not be paid again until the completion of her current (nonexistent) investigation for the IRS. She even told them to write letters to the IRS — which she promised to delivery — explaining their need to be paid.

It all caught up with her earlier this year, when the woman ultimately pleaded guilty to charges of impersonating a federal officer. But rather than send the woman, now in her 60s and diabetic, to prison, she was given five years of supervised probation and ordered to pay the $55K to the hotel owners.

Fake IRS agent told to pay $55,000 hotel bill [SF Chronicle]

In my lastest podcast, I talk to Keith Klugman of Emory University about pneumonia–how its devastation worldwide is worse than we once thought, and how vaccines are proving surprisingly effective at keeping it in check. A pneumonia vaccine may even prevent a replay of the 50 million deaths during the 1918 Spanish flu pandemic. Check it out.

Whitney Port is a regular Ann Landers! From tackling “puffy eyes” to selecting a jaw-dropping dress for your first date with a new beau — Go ahead, ask her anything! The MTV reality star-designer-PR ace, who appeared on The Hills before moving to New York City to work for acclaimed designer Diane von Furstenberg in the spinoff smash The City, is penning an advice manual set to hit the shelves of your favorite bookseller in 2011.

The Whitney Eve designer plans to unveil a tome of “personal stories, and advice for young women.”

True Whit, which will be released by It Books next fall, is described as: “conversational, fun, and candid guide for girls looking to start out [in life] with style.”

Port, now 25, thinks sharing her experiences as a young adult will be beneficial to other young adults. She tells PEOPLE: “Being a twenty-something can be a difficult phase. There are so many questions, and I wanted to write about my experiences for anyone who needs help navigating through life.”

True Whit may be in for some true competition when it debuts next year. Former Saved By The Bell star Elizabeth Berkely is also working on a book of advice and guidance for young women. Whitney’s not the only Hills alum to take on the literary world. Port’s pal Lauren Conrad — who appeared on the MTV series for five seasons before bidding farewell last year — has written two New York Times Bestselling novels.

The new season of The City is scheduled to premiere on MTV April 27.

Nesta terça-feira foi lançada oficialmente , no Memorial da América Latina , São Paulo, a Nova Ferrari 458 Italia, sucessora da Ferrari 430, o país é o primeiro da América Latina a apresentar esse novo modelo da fábrica de Maranello, anteriormente o superesportivo foi lançadao em 2009 no Salão de Frankfurt, com a apresentação de Luca di Montezemolo e de Michael Schumacher , que teve papel importante desde o ínicio do projeto. A 458 Italia chega ao mercado no preço inicial de R$ 1,5 mi, e segundo Chico Longo, Presidente da Via Italia, representante oficial da marca no Brasil, já tem 8 encomendas que serão entregues até agosto.

A supermáquina tem esse nome devido a cilindrada de seu motor e uma homanegem a seu país de origem. Seu motor V8 em 90º desenvolve 570 cavalos de potência a 9000 rpm e é mais econômico que seu antecessor graças ao tamanho compacto do modelo, aerodinâmica inovadora, redução de peso e um menor atrito interno do motor, alcançando a velocidade final de 325 Km/h, acelerando de 0 a 100 Km/h em apenas 3.4 segundos . A caixa de câmbio é derivada do modelo da Fórmula 1 , tem 7 marchas , dupla embreagem, causando a trocas pra cima e reduções, imperceptiveis e mais rápidas, que são acionadas pelo sistema de borboletas . Vários controles estão no volante, funcionam através de botões, semelhantes aos carros de F1.

A 458 Italia em resumo , é um carro de rua com muitos recursos incorporados da Fórmula 1, feito para que quer acelerar um carro de corrida.

Dados técnicos: Via Italia
Texto e fotos: Carlos Pandolfe

The history of Infiniti

Infiniti is an upscale automaker from Japan. Though most of its vehicles are related to those sold by parent company Nissan, Infiniti looks to achieve a premium status by infusing its cars and SUVs with spirited performance and additional luxury content.

The Infiniti brand was launched for the 1990 model year. Its purpose back then, as it is now, was to create and sell premium vehicles in America that wouldn’t have otherwise fit in with Nissan’s more mainstream image.

In its first full year, Infiniti started out with two luxury cars, the Q45 and the M30; the entry-level G20 was introduced soon after. Initially, the brand’s sales were disappointing, a fact many attribute to some of Infiniti’s poorly received advertising at the time.

The company’s initial campaign aimed to bring about brand awareness with Zen-influenced spots that focused on nature.

However, the ads didn’t show the actual cars, and many believe this omission did no favors for a company that was hoping to have buyers recognize and clamor for its vehicles.

As the 1990s moved along, Infiniti slowly added more vehicles to its lineup. The Q45 found its market (though it was still outsold by competing offerings from Lexus). The car’s 278-horsepower V8 was class-leading in its day.

On top of that, the Q45 offered cutting-edge technology; it was the first vehicle to offer an active suspension system. By the late ’90s, Infiniti had rolled out the QX4, an SUV that was based on the Pathfinder. The sport-ute’s unibody platform gave it a leg up in on-road ride comfort and handling compared to competing truck-based luxury SUVs.

Sales across the Infiniti lineup grew steadily throughout the ’90s. Still, by the end of the decade, the marque fell short of both Lexus and Acura in terms of popularity.

The early 2000s saw Infiniti making a determined effort to sharpen its focus and upgrade its products. Its stated intention was to create vehicles of exceptionally high quality and performance.

The Q45 was redesigned with this goal in mind, but it was the introduction of the entry-level G35 in 2003 that finally gave Infiniti the kick-start it sorely needed. Based on the FM platform, the car, in both sedan and coupe versions, met with immediate sales success. The FX35/FX45 soon followed, a crossover SUV that emphasizes performance, mating sports-car handling with the utility of a wagon.

Today, Infiniti still trails competing marques like BMW, Audi and Lexus in brand recognition and popularity. However, recent improvements in its product line have not gone unnoticed, and the brand has won the respect and praise of buyers and automotive journalists alike.

New Infiniti Essence Concept

via

Der Spiegel: Experts Warn Of Impending Phosphorus Crisis!

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The 2012 Porsche 911 GT2 facelift is being developed quite secretly given the fact that there wasn’t a single spy shot of the scorcher available until date. The 2012 model which will go on sale next year and will remain in production until the release of the Porsche 991 was spotted for the first time by spy photographers in Germany. The commuter will get slight modifications on the outside while under the hood will be a direct injection engine boosting power to 550 PS which is way better than the previous 911 models. The facelifted model will also sport a new bumper as well as a new front splitter. [via WCF]

Senators agree that the banks are too big. But multiple bills and possible amendments circulating on the Hill offer different solutions to that problem. Here is a primer on the main proposals.

The American Financial Stability Act: Sen. Chris Dodd’s (D-Conn.) financial regulatory reform proposal is due to be taken up next week. It imposes “tough” new capital and leverage requirements that “make it undesirable to get too big.” (Dodd has not specified any numbers, leaving that up to regulators.)

It also creates a Financial Stability Oversight Council, to keep an eye on big banks. The Federal Reserve and FSOC can force a bank (or a non-bank financial institution, like an investment bank) to slim down if the regulators determine it poses a danger to the financial stability of the country. But this is only a “last resort.” Additionally, the Dodd bill looks to implement a version of the Volcker Rule — stopping banks from speculating with their own funds, or “prop trading.” But this rule will not be finalized or implemented until FSOC completes a study of it.

The Wall Street Transparency and Accountability Act: Sen. Blanche Lincoln’s (D-Ark.) derivatives reform bill passed out of committee today and will be merged into Dodd’s bill. It makes derivatives trading a less lucrative enterprise by forcing many over-the-counter derivatives trades into clearinghouses, improving price and volume transparency and encouraging competition. The bill helps to limit bank size by forcing financial firms that have access to the Fed discount window to stop trading in swaps, a currently unregulated form of derivative.

The Safe Banking Act: Sen. Sherrod Brown (D-Ohio) and Sen. Ted Kaufman (D-Del.) introduced a new bill to break up the banks today. They say they hope to offer it as an amendment to the Dodd proposal. It mandates hard leverage and size caps on banks and non-banking financial institutions. It limits commercial banks’ assets to 2 percent of GDP, and non-banks’ assets to 3 percent. It also prevents banks from holding more than 10 percent of insured deposits. Finally, it imposes a 16-to-1 leverage cap.

The Return of Glass-Steagall: Sen. Maria Cantwell (D-Wash.) has said she will reintroduce Glass-Steagall-type provisions as an amendment to financial reform. (Glass-Steagall is a Depression-era rule, rescinded in 1999, that banned banks from combining commercial and investment banking functions.) She has the backing of Sen. John McCain (R-Ariz.). Republican Senators Richard Shelby (Ala.), Johnny Isakson (Ga.) and John Cornyn (Texas) have also said they support repealing the repeal of Glass-Steagall.

Filed under: Recalls, Safety, Videos, Lexus, Toyota

Toyota announced a voluntary recall on Monday for some 9,400 Lexus GX 460 SUVs for wheel slippage that could occur during high speed turns. The company acted quickly in stopping sales of the GX after Consumer Reports gave the SUV a Do Not Buy rating following its own tests that showed the big SUV had trouble maintaining composure during high speed maneuvers. Toyota’s press release at the time stated the recall involves reprogramming software in the Vehicle Stability Control (VSC) system. We weren’t sure how long it would take Toyota to develop a software patch, but apparently it didn’t take long at all.

The main culprit appears to be the fact that the fuel tank is located on the left side of the vehicle. A full tank of gas plus the weight of a driver in left-hand-drive vehicle could result in some hairy handling when taking right turns at high speed. That is, at least, before Toyota’s software fix for the VSC system.

Follow the jump to see the effect a little reprogramming has on how a vehicle behaves. In the video, two Lexus SUVs take a right turn at 59 miles per hour. One puts on an impromptu drifting session and the other makes it through just fine. We’ll let you guess which one had its VSC reprogrammed.

[Source: The Lexus Enthusiast]

Continue reading Video: Lexus GX recall remedy in action

Video: Lexus GX recall remedy in action originally appeared on Autoblog on Wed, 21 Apr 2010 14:28:00 EST. Please see our terms for use of feeds.

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Another thing they don’t teach you in design school is what you get paid for…Mostly, designers get paid to negotiate the difficult terrain of individual egos, expectations, tastes, and aspirations of various individuals in an organization or corporation, against business needs, and constraints of the marketplace…Getting a large, diverse group of people to agree on a single new methodology for all of their corporate communications means the designer has to be a strategist, psychiatrist, diplomat, showman, and even a Svengali. The complicated process is worth money. That’s what clients pay for.

—Paula Scher [via TJ]

The Senate Agricultural Committee passed its Chair Blanche Lincoln’s (D-AR) bill to revamp the derivatives market today. It will now take the place of the derivatives section in the Banking Committee’s broader reform legislation. Lincoln’s bill is the most aggressive attempt to date for reforming the shadowy world of Wall Street’s most complex securities. It seeks to cast light in some of those dark corners so that investors and regulators can better understand the derivatives market. The sentiment is sensible, but not all of the ideas contained in the bill are as uncontroversial as they appear. One problematic suggestion: requiring virtually all derivatives to be cleared.

Currently, several clearing houses exist for derivatives. They act as sort of middle men that net out derivative obligations and ensure that all parties eventually get what they’re owed, depending on how the derivatives perform. This might sound great, but mandatory clearing will impose a cost on the market.

The problem can be understood through an analogy. A clearing house is kind of like a bookie that takes bets, but doesn’t set odds. Let’s say Nick wants to bet that the New York Knicks will beat the Miami Heat. But another guy, Heath, thinks the Heat will win. They both contact a bookie named Clarence. If Nick knows Heath, then they could just bet each other, without Clarence’s help. But if they make the bets through Clarence, then he will ensure that each party gets its winnings. A clearing house makes a similar promise to both investors in a derivative.

Now a bookie like Clarence probably has ways of dealing with people who don’t pay up if they lose. For example, he might work with a thug who can track down a deadbeat gambler to make sure that Clarence gets what he’s owed. After all, if the loser doesn’t pay up, Clarence will have to pay the winner out of his own pocket.

Mandatory clearing would sort of force all investors to use a bookie for their derivative trades. But unlike Clarence in the example above, a clearing house doesn’t have the benefit of a thug to break both of an investor’s arms if he can’t pay.

While this example might seem silly, it brings up a serious problem. Currently, not just anyone can utilize a clearing house for derivative trades. The parties must have strong credit quality, so that the clearing house has little worry that parties will default and not be able to cover their obligations. Otherwise, the clearing house will lose money and potentially default if the losses are high enough.

If clearing is mandatory, however, not only can anyone use a clearing house for their trades, they will be required to. This puts the creditworthiness of the clearing house in peril, and could jeopardize the stability of all the trades it clears. This problem is also touched on in this post about a separate new policy that would require Fannie Mae and Freddie Mac to clear their interest rate swaps.

There are certain ways clearing houses could attempt to deal with this problem. Perhaps they will require riskier investors to post more collateral to cover potential losses; perhaps they will require risk-based fees for clearing services. Lincoln’s legislation doesn’t appear to prohibit such possibilities, so the market would likely incorporate such changes if clearing becomes mandatory.

The result would probably be a little less liquidity and a little more expense in trading derivatives. That will likely stengthen big banks/investors and hurt smaller ones. Whether that’s a good or bad thing depends on your perspective. But it does illustrate that clearing all derivative trades will come at a cost.