A passage that struck me in The Big Short this morning:
"One of the reasons that Wall Street had cooked up this new industry called structured finance was that its old-fashioned business was every day less profitable. The profits in stockbroking, along with those in the more conventional sorts of bond broking, had been squashed by internet competition."
Sort of set off a light bulb for me. Wall Street would rather have the predictable profits from its old-fashioned businesses -- the old "make other people's money work for you" adage. Profits whether the market goes up or down. Profits from transaction costs. It's when that model is put at risk that Wall Street starts thrashing around and doing crazier, more risky things. It's almost like a gambler doubling down.
― this guy's a gangsta? his real name's mittens. (Hurting 2), Friday, 1 June 2012 15:03 (11 months ago) Permalink
Can you give me a timeline here? Does old-fashioned mean when Glass-Stegall still existed?
― curmudgeon, Friday, 1 June 2012 19:59 (11 months ago) Permalink
alphaville iama on reddit. good reading: http://www.reddit.com/r/IAmA/comments/uflwl/iama_reporter_on_the_financial_times_alphaville/
― s.clover, Friday, 1 June 2012 20:22 (11 months ago) Permalink
When E-trade (or Scotttrade, Ameritrade, Fidelity, Schwab, etc.) advertise $9.99 for unlimited share amount transaction fees, its worth noting that Merrill Lynch et. al. in the 70s used to make around $150 for the first 100 shares traded and a sliding percentage of total dollar amount thereafter. Trading was expensive, investors had to buy and hold, and brokers went out of their way to seek new clients and sometimes even keep them happy to ensure future commissions.
Additionally, stock prices used to be quoted in 1/4th, 1/8th and sometimes 1/16th of a dollar, ensuring that the spread between bid and ask that the brokerage could pocket if they were doing a interclient trade was at least $0.06 and usually more like $0.25, per share. With decimalization of share prices, the spread on liquid securities has dropped to fractions of a penny.
The disintermediation of discount, and later, internet trading totally destroyed the business model of the brokerage industry.
― The Painter of Blight™ (Sanpaku), Friday, 1 June 2012 22:49 (11 months ago) Permalink
But to detail what went wrong in the CIO, Dimon has repeatedly promised to be an “open kimono” — a phrase that we hope he will wean himself off.
― just sayin, Friday, 22 June 2012 18:06 (11 months ago) Permalink
― BIG HOOS aka the steendriver, Saturday, 23 June 2012 00:02 (10 months ago) Permalink
sooo what do we think of the LIBOR SCANDAL?
huge deal in the UK, not a blip stateside
― goole, Tuesday, 3 July 2012 18:17 (10 months ago) Permalink
yeah super big deal here, which seems fair enough?? affects a lot of things (it seems)
― just sayin, Tuesday, 3 July 2012 18:21 (10 months ago) Permalink
Barclays apparently planning to strip Bob Diamond of most of his stock options and such that generally soften the blow of being run out of town.
― Andrew Farrell, Tuesday, 3 July 2012 18:25 (10 months ago) Permalink
The LIBOR scandal hasn't taken off here (USA) as a story, but it is getting some play. It's this kind of casual manipulation of the market that destroys trust in banks and bankers, and someone needs to point out that without a certain amount of trust to grease the wheels the whole financial system would freeze up as solid as a rock. The punishments for such abuses should be commensurate with the damage they do to the whole system.
― Aimless, Tuesday, 3 July 2012 18:26 (10 months ago) Permalink
It's this kind of casual manipulation of the market that destroys trust in banks and bankersIt's this kind of casual manipulation of the market that destroys trust in banks and bankers
destroys what now?
― goole, Tuesday, 3 July 2012 18:29 (10 months ago) Permalink
er, didn't mean to paste that twice
cheap joek. if people really had no trust in banks, bank assets would evaporate so fast you could hardly blink twice.
― Aimless, Tuesday, 3 July 2012 18:31 (10 months ago) Permalink
Libor should really be getting more play in the US. There's $500trn based on it in one way or another, and a lot of public money (via states and cities) made or lost via it. Be surprised if there aren't fraud investigations and a shit-ton of lawsuits from the US over this.
― stet, Tuesday, 3 July 2012 18:34 (10 months ago) Permalink
i think people assume everybody holding their money is a blood-drinking bandit, probably gives them a lot of room to maneuver in shit like this, perversely enough.
― goole, Tuesday, 3 July 2012 18:34 (10 months ago) Permalink
if the fdic didnt exist banks assets might dry up over night
― lag∞n, Tuesday, 3 July 2012 18:44 (10 months ago) Permalink
Libor getting virtually no coverage on US cable news outlets. Nor on the PBS Newshour yesterday.
― Fas Ro Duh (Gukbe), Tuesday, 3 July 2012 19:03 (10 months ago) Permalink
At least that I've seen.
Didn't realise that half of all US floating mortgage rates are directly based on Libor http://www.lrb.co.uk/v30/n18/donald-mackenzie/whats-in-a-number
― stet, Wednesday, 4 July 2012 09:40 (10 months ago) Permalink
this, and the economist article it links are pretty good: http://blogs.reuters.com/felix-salmon/2012/07/06/barclays-first-mover-disadvantage/
my sense is that libor basically was always a big lie packaged up as an actual number, and everyone who actually interacted with it and knew how it was generated must have pretty much known that.
basically, bankers are not stupid when it comes to considering how people might attempt to break the rules to screw them over. and so when you have a rate that everyone knows is the average of people just saying whatever numbers they want to, every trader and banker must have understood that this never was something at all meaningful or reliable, or only was to the extent that it was an average of what different people wanted it to be in the first place.
― s.clover, Friday, 6 July 2012 16:34 (10 months ago) Permalink
Ah, yes, another incarnation of the she-was-asking-for-it defense.
― Aimless, Friday, 6 July 2012 17:23 (10 months ago) Permalink
ritholtz blog runs down stories questioning libor as a sound number as far back as 07
― goole, Friday, 6 July 2012 18:12 (10 months ago) Permalink
not exactly. not a defense even.
just that libor never made sense, and everyone was always cynical about it and i mean yes go ahead fine the banks, they deserve it, but don't pretend that libor ever was or could be (or can be if we fine enough banks) anything but a mechanism for big banks to "vote" on short-term rates.
libor, remember, is a number that a bunch of banks got together and colluded to make up to begin with!
this is more of a gambling in rick's cafe sort of situation.
― s.clover, Friday, 6 July 2012 18:14 (10 months ago) Permalink
― iatee, Friday, 14 September 2012 14:44 (8 months ago) Permalink
― s.clover, Friday, 14 September 2012 14:56 (8 months ago) Permalink
bold prediction: there won't be a lot of jobs where untrained 21 y/os make 150k in 10 years
― iatee, Friday, 14 September 2012 15:04 (8 months ago) Permalink
WASHINGTON (Reuters) - The New York Stock Exchange will pay $5 million to resolve U.S. civil charges that it gave certain customers "an improper head start" on trading information, marking the first time a U.S. exchange has faced a financial penalty from market regulators. http://www.nytimes.com/reuters/2012/09/14/business/14reuters-nyse-sec.html?hp
Good that they are being charged. However, it's probably a slap on the wrist compared to how much money was made in the 2 years they did this.
― Emperor Cos Dashit (Adam Bruneau), Friday, 14 September 2012 15:30 (8 months ago) Permalink
Ok, so since QE and monetary policy is being discussed on the Taibbi thread, and since I also just heard Galbraith Jr. on NPR talking about related issues, I have these nagging doubts/questions about the standard line that "we're not at risk of inflation."
It seems to me that the reason we're not seeing inflation is that the economic recovery is so paltry. But the point of QE and other uses of monetary policy is to jumpstart the economy, right? And also, we keep hearing about how a lot of the liquidity the government is attempting to inject is not making its way into the system because banks aren't lending enough, correct? I mean maybe this is no longer true, but I thought so. Well what happens if the economy really does start to pick up, and all that extra liquidity starts to make its way into the economy again -- then aren't we finally going to start seeing some inflation? And then isn't the Fed faced with a problematic choice of either allowing inflation or putting the brakes on the recovery?
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 01:13 (7 months ago) Permalink
i think a lot of the recent stuff amounts to the fed saying that it is willing to have a period of higher inflation in once the economy starts to recover. paul krugman had a blog post recently noting the increased spread between inflation-protected and regular govt bonds and bascially saying that this is a feature, not a bug, even if they prefer not to explain it that way.
― circles, Thursday, 27 September 2012 01:25 (7 months ago) Permalink
hah, i basically just reworded http://krugman.blogs.nytimes.com/2012/09/18/inflation-expectations-a-feature-not-a-bug/
― circles, Thursday, 27 September 2012 01:27 (7 months ago) Permalink
One thing that is true about bubbles is that you can't reinflate them. Investors generally stay shy of whatever it was that went bust until the memory of it fades somewhat. That means that pumping banks full of reserves to loan to investors will probably result in that money flowing elsewhere than detached single-family housing.
Because this is not a housing-led recovery as is often the case in the past, it has not been a recovery led by strong gains in employment. So, there is a pretty good chance that some of those banks loans will flow toward speculation. A good candidate would be commodities, especially oil and food. That certainly does bring some risk of inflation with it, but not the hyper-inflation bugbear that the far right keeps waving around. That is also why government infrastructure projects would have been a far better vehicle for jump-starting the recovery. Such projects do employ people and also increase demand for industrial production, such as steel or concrete.
Again, it was our idiot, ideologue Congress that failed to understand basic economics, blinded by their stupid free-market fundamentalism.
― Aimless, Thursday, 27 September 2012 01:30 (7 months ago) Permalink
also were perfectly happy w/ a shitty economy under obama
― iatee, Thursday, 27 September 2012 01:39 (7 months ago) Permalink
I certainly get that we're not at immediate risk of hyperinflation, and the paultard myopic focus on hyperinflation is lulzy. But I am also wondering if the left mantra of "a little inflation never hurt anyone" is myopic in this scenario too. I mean maybe higher oil and food prices are not hyper-inflation, but maybe they are exerting pressure against meaningful recovery, or inflicting additional pain on the hardest hit.
It seems to me like a competent, stable government would never allow hyperinflation. But they might be faced with a sophie's choice of doing serious harm to the economy to prevent it.
Since you can't "reinflate a bubble" I also wonder if the aim of current economic policy is really not to help the economy "recover" (to a state that it can't naturally return to), but to kind of give us a slow, soft landing into a new poorer existence.
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 01:52 (7 months ago) Permalink
the hardest hit don't have jobs right now
― iatee, Thursday, 27 September 2012 01:55 (7 months ago) Permalink
― just sayin, Thursday, 27 September 2012 07:19 (7 months ago) Permalink
right, and they have a hard time affording food and gas. But is there reason to think our recent uses of monetary policy are stimulating job creation?
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 14:53 (7 months ago) Permalink
I mean if anything, the unemployed are worse off than the employed in an inflationary situation, because they don't have wages that can rise with costs, but that wasn't really my point.
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 14:54 (7 months ago) Permalink
Former FDIC chair pushing her new book
After she recommended that President Obama name former Federal Reserve chairman Paul Volcker as Treasury secretary, she wrote, Obama’s decision to tap Geithner was “a punch in the gut.” She considered Geithner the “bailouter in chief” because he wanted to make unconditional guarantees to top banks to keep them afloat without demanding much in return.
― curmudgeon, Thursday, 27 September 2012 15:01 (7 months ago) Permalink
I mean, I'm not sure I have a point, exactly. I'm just trying to get a handle on what is the endgame or exit strategy or w/e of the kind of monetary policy we've been using.
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 15:17 (7 months ago) Permalink
― iatee, Thursday, 27 September 2012 15:18 (7 months ago) Permalink
I hope so, but:
So, central bank actions have pumped up asset prices while jobs have stagnated. Even chicken soup is more effective.
― curmudgeon, Thursday, 27 September 2012 15:25 (7 months ago) Permalink
as w/ the stimulus you have to compare gdp/job growth figures to the counterfactual world where there wasn't any qe.
― iatee, Thursday, 27 September 2012 15:28 (7 months ago) Permalink
well to be more accurate, is it leading to job creation in some reasonable proportion to its overall impact? I mean
Potential Attenuating FactorsIn my judgment, the Federal Reserve's deployment of our policy tools has been completely appropriate in promoting maximum employment and price stability. Ideally, such policy decisions would be informed by precise quantitative information about the effects of each tool. In reality, however, the estimated effects of the FOMC's policy actions are subject to considerable uncertainty. Such uncertainty is intrinsic to real-world monetary policymaking at any time but is particularly relevant under circumstances where the scope for conventional monetary policy is constrained by the zero lower bound on the federal funds rate, leaving unconventional tools as the only means of providing further monetary accommodation.
Although these monetary policy tools have been successful in pushing down interest rates across the maturity spectrum, the magnitude of the transmission to economic growth and employment has been somewhat more muted than I might have expected. Indeed, it seems plausible that the effectiveness of our policy tools is being attenuated by a number of unusual persisting factors, including an excess supply of housing and impaired access to credit for many households and small businesses.
Under normal circumstances, residential construction is an interest-sensitive sector of the economy that has played an important role in contributing to previous economic recoveries--especially the brisk recovery that followed the steep downturn in 1981 and 1982. In the wake of the bursting of the housing bubble, however, the housing sector has remained exceedingly weak. In effect, there is an excess supply of housing that seems likely to decline only gradually despite the record-low level of mortgage rates. Thus, in this crucial sector, one can argue that lower interest rates have not shown through to higher activity in the same way that would be expected under more usual recoveries.
Consumer spending is also being restrained by the excess supply of housing, which has put downward pressure on home equity values and household wealth. A substantial portion of homeowners now have negative home equity and are effectively unable to refinance at historically low mortgage rates. Many more have seen a drastic decline in the value of their homes, which would typically serve as collateral for home equity lines of credit or second mortgages.
The slow progress in repairing and restructuring households' balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates. In particular, lenders continue to maintain relatively tight terms and standards on credit cards and, to a lesser extent, other consumer loans. Consequently, many households may be unable to take advantage of the lower borrowing rates that are available to those who have a high net worth and pristine credit records.
Many small businesses also appear to be facing unusual obstacles in obtaining credit. If times were more typical, we would expect a smooth transmission in which lower interest rates would fuel credit expansion that would be used to finance expanding payrolls, capital investment, inventories, and other short-term operating expenses. Nonetheless, the latest Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, which was taken in July, indicated that although domestic banks continued to ease standards on their commercial and industrial loans, the net fraction reporting easing on such loans to smaller firms (those with annual sales of less than $50 billion) remained low and was well below that of loans to large and middle-sized firms.8 In its August survey, the National Federation of Independent Businesses reported a noticeable increase in the proportion of small businesses reporting that credit has become more difficult to obtain.9 These businesses not only expect credit to become tighter in coming months but--like other businesses--have turned sharply more pessimistic about the broader economic outlook.
Finally, and perhaps most comprehensively, it is worth observing that the financial crisis has undermined the wealth of many Americans. Low- and moderate-income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. According to the 2007 Survey of Consumer Finances (SCF), home equity accounted for about half of the total net worth for low- and moderate-income families, which made them extremely vulnerable to the eventual housing market collapse.10 Families at the lower end of the income distribution saw a substantial drop in their net worth between 2007 and 2009, and families in the middle of the income distribution fared even worse.11 Combined with widespread unemployment, housing and stock price declines, and increasing rates of mortgage defaults, foreclosures, and bankruptcies, the assets of many American families have been significantly eroded. The effect of these developments may be to attenuate the revival of normal consumption patterns that would otherwise be dictating increases in consumer demand and growth.
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 15:30 (7 months ago) Permalink
What bothers me about that analysis, is the fallback on "if these were normal circumstances" as an excuse -- assuming that there's an economic "normal" seems like a big mistake in the thinking. I mean "it is worth observing" that the financial crisis destroyed all that home equity wealth, well yeah duh shit that's the whole point isn't it? I mean there's just something very frustrating in the thinking here -- "We are using measures to solve the financial crisis which, under normal circumstances, would solve the financial crisis, but due to the financial crisis..."
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 15:35 (7 months ago) Permalink
― iatee, Thursday, September 27, 2012 11:28 AM Bookmark Flag Post Permalink
sure, but maybe there's also a third option to be compared? Not that I profess to know what that is.
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 15:37 (7 months ago) Permalink
that was a year ago.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.
― iatee, Thursday, 27 September 2012 15:37 (7 months ago) Permalink
xp well the third option is surely a more expansionary fiscal policy? or do you mean a third monetary option...
― just sayin, Thursday, 27 September 2012 15:39 (7 months ago) Permalink
I mean I guess one third option would be stimulus that targets the demand side rather than monetary stimulus, sure. And what worries me is not that QE "doesn't work" in the sense that it has no impact on job creation, but that it will have negative impacts that are disproportionate to the resulting job creation. Because it seems to take an awful lot of monetary stimulus to get a little tiny bump in job creation/consumer spending.
― look at this quarterstaff (Hurting 2), Thursday, 27 September 2012 15:42 (7 months ago) Permalink
that fiscal policy is better really doesn't matter thanks to democracy, that it happens to be in the set of theoretical policy decisions doesn't mean that it's also in the set of actual policy decisions
― iatee, Thursday, 27 September 2012 15:50 (7 months ago) Permalink