Some of the inexplicable price action last week turns out to have been paper-shuffling as institutional investors moved money from one clearing bank to another. Moves in the prime brokerage community have been well-chronicled but there appears to have been moves by traditional fund managers shifting assets from bank to bank. These huge, sloppy flows have created intense volatility, sending options prices to the stratosphere.
If moves by the remaining central banks to become banks and the government bailout package calm the waters, these flows could stop (or perhaps even reverse!) If the flows stop, volatility will drop. If they reverse, it could be chaotic again this week as the deck gets shuffled again.
