Satyajit, as far as where we are in this mess, are we still singing the national anthem before a game that is going to go into overtime?
Independent Mind
· 1 year ago
Dave - to put this into perspective for you. We are just now standing up to sing the national anthem BEFORE the game begins. This isn't the beggining of the end of this, it isn't even the end of the beginning. We are just getting started on a path that if allowed to run it's cource will take anywhere from 18 to 24 months to sort itself out. If the feds keep intervening, it will only prolong it, along with destroying the monetary value of our currency.
Good luck brother, not the news you wanted to hear, but it is the truth. The derivative bubble is behind the housing bubble. And it would be like comapring a sedan to a semi tractor trailer in size. THat's not taking into cosideration the constant ripples that return to us from our originating housing bubbles. You might want to go out to you tube and look up some of Ron Pauls Monetary Policy videos. He has been spot on for the past 10 years on everything that has happened.
dave
· 1 year ago
Thank you, the Fed intervening going forward is pretty much a given I believe, they will fight this tooth and nail and will come up short against the market forces. My fwd looking fear is our US Treasuries turn subprime in the eyes of asia with all the debt we are piling on (3 trillion in 3 weeks), if the kindness of our overseas bond holders have a change of heart and dump our bonds out of fear we will be 3rd world.
johnmerryman
· 1 year ago
The reason it is a bubble is because to save money, it must be invested, i.e., lent to someone. This means the total savings is determined by prudent lending, rather than the needs of a privatized economy, where everyone is dependent on private savings. To overcome this obstacle, lending standards have to be lowered. Even that isn't enough, so there is this form of pari-mutual wagering, called derivatives. So if I bet my dollar against your dollar, that's two dollars invested. Since one of us might lose, we hedge this initial bet with counter bets. That means six dollars invested and the web spreads. Lots of money invested, so we are all rich. Think soap bubble and the pin just hit it. How do we solve this problem? Get the government to print lots of money to replace the credit? Hmmm.... Doesn't that just make the underlaying value of the currency part of the bubble, which we will continue blowing up until it pops too? The fact is that the entire system of government supported private central banks servicing a private banking industry has reached its viable limits. Money is a form of public utility, based on faith in the institution insuring it, which means us, the taxpayers. It's sort of like a road system. You own your car, house, business, etc., but not the roads connecting them. Same for the money in your pocket. The fact it's completely interchangeable with what's in everyone else's pocket is what makes it a medium of exchange. We like to think of it as private property, but the government owns the rights, which it leases out to a private banking system and they make the profits, while we are responsible for the risks. Now much of this private banking system is being nationalized because they got way too greedy. Should we spend billions more to make them whole and set them free again, or is there another way? Obviously a huge nationalized banking system is as scary as the current system, but we have developed a system of government that consists of many layers, from the smallest town and county councils, up through state and city governments, to national and even international organizations. Why not a banking system modeled on that, with community banking as an integral function of all the various levels of government, channeling their profits back into the communities from which they came, in order to provide the public services necessary. These communities can then compete to provide the best environment for their people and businesses and grow as an organic function of that. They would continue using a national currency, with various levels of local, state and federal regulation that would evolve as situations require it. It's not that far fetched, given the extent to which banking is being rescued and otherwise propped up. It also goes back to the very nature of money; Where would all the money the government borrows and re-cycles back through the public sector be invested otherwise? Private markets are not big enough. Social Security is a good example, as this money is spent as it is collected and doesn't need complex savings mechanisms to be stored. Throughout history, people have invested in their old age by taking care of their elders in the assumption the next generation will do the same. Government debt only transfers value from taxpayers to bondholders. Isn't it interesting the same people who say we shouldn't have to pay taxes, go and borrow as much as possible? Whether it's your house, or your government, if you borrow to pay for it and don't pay it back, sooner or later it isn't yours anymore. Think of that when you are paying tolls to some foreign sovereign fund to use your local highway in a few years time. We need to develop far more complex and flexible methods of exchange, because the current model is more broken than anyone wants to admit. Storing abstract wealth has its limits, as well as its uses. We need to invest more in our environment and communities, rather than sucking value out of both to put in a bank. That will restrain the ability of both public and private organizations to use this wealth in ways that are destructive and unpopular.
Michael M. Thomas
· 1 year ago
I suspect (and this has been confirmed by people with considerable inside knowledge of Lehman) that it was the firm's COMMERCIAL real estate book that undid it, at least in Paulson's eyes. This set the firm apart from other, prior "bailees" in terms of the potential chain-reaction a rescue might incite. A way should have been found to separate these assets and iabilities from the rest of Lehman.
williambanzai7
· 1 year ago
As usual, your commentary is informative and entertaining. Please post more.
KING OF GREEK MODE (King of the Road) WilliamBanzai7
Traders who just invent Rules without common sense. No phones, or blind fool bets I ain't got no trading sense Ah, but..two hours of crunchin in the data room Buys an eight million dollar four bedroom I'm a man of means by standard means King of Greek Mode.
Black box, midnight brain Innovative trades, just insane. Old worn out suits and shoes, Don't pay no heed to world news, I smoke Cuban stogies and make garbled sounds Short sell, but not too much all around I'm a man of standard means by no means King of Greek Mode.
I know every trading engineer from here to Mumbay All of their children, and all of their names And every printout in every town And every black box that ain't locked When no one's around.
I sing, Traders who just invent Rules easy to circumvent No phone, or blind fool bets I ain't got no trading sense Ah, but, two hours of crunchin the data room Buys an eight million dollar four bedroom I'm a man of means by standard means King of Greek Mode.
listenhere
· 1 year ago
The idiotic complexity of the debt instrument buildup over the last 30 years succeded in keeping most of the eventual owners of these instruments from really understanding what they owned. How does anyone think that in the unwind phase, we will suddenly figure it all out? The financial whizzes succeeded in putting packaged debt out there totaling about 8 times the GDP of the whole world with one dollar of real money supporting over twenty dollars of toxic mystery money. The unwind will be much more chaotic than the buildup. I think that at some point in the coming struggle with Debt World, there will inevitably be a need to declare some sort of global jubilee as has, up untill now, been a little known or talked about movement aimed at international debt cancellation. The toxic debt will be tossed around like a hot potato for years forcing governments to print currencies into oblivion. This old order will give way to a new order where there will be no debt as we know it and no currencies and a totally new money.
العاب
· 9 months ago
At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article although he may be an owner indirectly as an investor in a fund.
Arunabh Das
· 9 months ago
I heard you on Planet Money and as your namesake, I am jealous of you :-). However, I was wondering if you think that there is an element of "the butterfly effect" in the financial system and if that is a result of the coupling of financial systems across the world and whether the effects of the snowball effect can be mitigated by decoupling financial systems, without eliminating market touchpoints and trade and commerce?
m6mgames
· 6 months ago
I would like to say something , but i'm sure all of you will hate me for it :-(
All Comments
Good luck brother, not the news you wanted to hear, but it is the truth. The derivative bubble is behind the housing bubble. And it would be like comapring a sedan to a semi tractor trailer in size. THat's not taking into cosideration the constant ripples that return to us from our originating housing bubbles. You might want to go out to you tube and look up some of Ron Pauls Monetary Policy videos. He has been spot on for the past 10 years on everything that has happened.
How do we solve this problem? Get the government to print lots of money to replace the credit? Hmmm.... Doesn't that just make the underlaying value of the currency part of the bubble, which we will continue blowing up until it pops too?
The fact is that the entire system of government supported private central banks servicing a private banking industry has reached its viable limits.
Money is a form of public utility, based on faith in the institution insuring it, which means us, the taxpayers. It's sort of like a road system. You own your car, house, business, etc., but not the roads connecting them. Same for the money in your pocket. The fact it's completely interchangeable with what's in everyone else's pocket is what makes it a medium of exchange. We like to think of it as private property, but the government owns the rights, which it leases out to a private banking system and they make the profits, while we are responsible for the risks.
Now much of this private banking system is being nationalized because they got way too greedy.
Should we spend billions more to make them whole and set them free again, or is there another way?
Obviously a huge nationalized banking system is as scary as the current system, but we have developed a system of government that consists of many layers, from the smallest town and county councils, up through state and city governments, to national and even international organizations. Why not a banking system modeled on that, with community banking as an integral function of all the various levels of government, channeling their profits back into the communities from which they came, in order to provide the public services necessary. These communities can then compete to provide the best environment for their people and businesses and grow as an organic function of that. They would continue using a national currency, with various levels of local, state and federal regulation that would evolve as situations require it.
It's not that far fetched, given the extent to which banking is being rescued and otherwise propped up.
It also goes back to the very nature of money; Where would all the money the government borrows and re-cycles back through the public sector be invested otherwise? Private markets are not big enough. Social Security is a good example, as this money is spent as it is collected and doesn't need complex savings mechanisms to be stored. Throughout history, people have invested in their old age by taking care of their elders in the assumption the next generation will do the same.
Government debt only transfers value from taxpayers to bondholders. Isn't it interesting the same people who say we shouldn't have to pay taxes, go and borrow as much as possible? Whether it's your house, or your government, if you borrow to pay for it and don't pay it back, sooner or later it isn't yours anymore. Think of that when you are paying tolls to some foreign sovereign fund to use your local highway in a few years time.
We need to develop far more complex and flexible methods of exchange, because the current model is more broken than anyone wants to admit. Storing abstract wealth has its limits, as well as its uses. We need to invest more in our environment and communities, rather than sucking value out of both to put in a bank. That will restrain the ability of both public and private organizations to use this wealth in ways that are destructive and unpopular.
KING OF GREEK MODE
(King of the Road)
WilliamBanzai7
Traders who just invent
Rules without common sense.
No phones, or blind fool bets
I ain't got no trading sense
Ah, but..two hours of crunchin in the data room
Buys an eight million dollar four bedroom
I'm a man of means by standard means
King of Greek Mode.
Black box, midnight brain
Innovative trades, just insane.
Old worn out suits and shoes,
Don't pay no heed to world news,
I smoke Cuban stogies and make garbled sounds
Short sell, but not too much all around
I'm a man of standard means by no means
King of Greek Mode.
I know every trading engineer from here to Mumbay
All of their children, and all of their names
And every printout in every town
And every black box that ain't locked
When no one's around.
I sing,
Traders who just invent
Rules easy to circumvent
No phone, or blind fool bets
I ain't got no trading sense
Ah, but, two hours of crunchin the data room
Buys an eight million dollar four bedroom
I'm a man of means by standard means
King of Greek Mode.