Rolling US Economy Into The Shitbin Thread

right -- there's a very good argument that huge amounts of derivative products are ways to get around risk controls. that's largely changing with new regs already, which weight certain sorts of assets waaay more heavily than they used to be. regulatory arbitrage will always always though show up in new stupid ways. the argument is really then its not the products, its that people use them to take enormous bets (and i don't see any way of curbing these bets in a bubble market in general, actually, since human creativity is endless when profit is involved).

OTM, water rolling downward etc. Peeps always gonna gamble.

So if you can't keep people from gambling then you at least have to try to use some social engineering mitigate risk with taxes/fines accounting rules and hope that the SEC will bother to enforce them.

chinese government spiked the emerging housing bubble by basically saying people can't buy more than one apartment. very effective. meanwhile greenspan couldn't even _say_ 'irrational exuberance' without getting landed on. policy needs to be responsive to new scams and bubbles to have any hope of being effective, and i'm dubious that legislation will ever do more than just ban the practices that everyone's just already decided lost them heaps of money.

the other thing is deriv contracts (even the more complicated ones) are basically equivalent to combinations contracts that you really can't prevent people from entering into. so really better to not let these things stay over-the-counter and not centrally managed, and instead pull them into transparent, regulated markets. the more the transparency, the less interest there will be in abusing 'em. but of course there's the issue that you have random consortiums of banks serving as voluntary associations to standardize this crap.

Not really sure how our monetary policy could be used that effectively against the Chinese.

chinese government spiked the emerging housing bubble by basically saying people can't buy more than one apartment. very effective.

But now you have married couples getting divorced so that each of them can own one apartment. So I guess there are always loopholes.

you also have chinese investors buying up houses like mad in the western US and creating a new bubble there!

"derivatives" isn't really a good proxy for "useless" -- it's a very broad term. There are useful derivatives, and there's plenty of useless financial activity that has nothing to do with derivatives.

― space phwoar (Hurting 2), Monday, March 18, 2013 8:20 PM (2 days ago) Bookmark Flag Post Permalink

can we start with synthetic derivatives ffs

sure

see this is precisely the thing. as far as i know, huge portions of synthetic derivatives are now considered bad ideas (because they were impossible to model and lost people lots of money) and nobody is entering into them anymore. when something like them comes back again, it will have a new name, some fancy new math, and everyone will swear this is a totally different thing that won't be like last time, honest abe.

once a product is that obviously bad that its not politically infeasible for the govt to regulate it, its bad enough that even the banks usually don't want to screw with it anyway.

People are going to gamble, but banks and insurance companies need to be watched to keep that urge in check, because gambling with other people's money should require their permission, y'know.

Is there any good reason not to treat CDS like insurance, e.g. to impose some kind of reserve/capital requirement so that the party writing them is actually able to pay out, and to disallow or limit parties from buying CDS on assets they don't own?

there are reserve requirements on cds already plus pretty strong capital-transfer occurs as contracts get riskier. the problem is that didn't really help AIG when everything plummeted at once.

you actually can get insurance on lots of things you don't own (including other people's life insurance! but they have to take it out and then later sign it over to you...).

that said, limiting buying cds on things you don't own seems somewhat possible. you already can't short stocks you don't hold (although that's violated all the time). the usual complaint is that it would kill liquidity and drive up prices, but with more standardized cds contracts it might work. but there would be things like curve plays (taking long and short bets on the same name, but with different maturities for each) that would let people express basically the same sort of positions. and forcing holdings to all maturity match really would destroy cds. on the other other hand, even though cds serves a 'legit' purpose, honestly the bond markets got along just fine without it for years.

so a blanket ban on it, though basically impossible, wouldn't actually have much in the way of negative effects on the actual economy i think. especially since there are so many ways both countries and companies are trying to structure 'default-like' events so they don't trigger cds contracts lately.

like the worst thing about vanilla cds isn't necessarily any bad economic effects its had on its own, but that even at its most straightforward its a legal tangle in terms of what constitues a 'credit event' and the worse things get, the more likely precedent will get thrown out or rewritten to screw protection-holders out of their payday.

ban math

my big bet is banks are going to do less stupid junk, hedge funds will do more stupid junk, and banks will invest more in hedge funds. alternately everyone will just throw money into the stock market again and run up a huge bubble.

Gah! We hand over 40% of the wealth of the entire nation to the top 0.01% of the people and what? They just fucking throw it around randomly chasing big returns on pieces of paper. Job creators my eye. They're greedier than most of us and absolutely no smarter. And 100x more useless. Let's eat them.

u say that like it's a bad idea

What? I would be happy to eat the bastards. Rly. Then we could hold an enormous Lotto game to see who gets to be in the next pile of useless rich people we could eat about five years from now.

cannibalism is underrated

This is one of the best pieces I've read about tech money and its effects in a while:
http://www.eastbayexpress.com/oakland/the-bacon-wrapped-economy/Content?oid=3494301&showFullText=true

http://apps.npr.org/unfit-for-work/

Ha, I was just going to post the corresponding This American Life piece.

Truly, truly depressing. More people applying for disability every month than there are new jobs created.

like I knew it was 'a thing' but these numbers are insane

http://apps.npr.org/unfit-for-work/img/pm-gr-disability_states-616.gif

That's crazy, almost 1 in 20 people. How can I get in on this action? Do I just need to stop being healthy and start drinking lots of sodas and stuff?

Frightening takedown of US economic state of affairs in the New York Times.

http://www.nytimes.com/2013/03/31/opinion/sunday/sundown-in-america.html

Not sure I care about David Stockman's view

Right, because he's disqualified to comment on the economy.

Don, are you my brother-in-law? Because he's bad at sarcasm and generally unwilling to come out and say what he means, too.

William, can you read? Because it's pretty obvious what I mean in the two posts I've made today. But let me repeat it for you, so that you and your brother in law can figure it out:

- The world's economy is in a frightening state. David Stockman has long article in the New York Times about this. The New York Times, a noted authority on matters of the day, thinks that David Stockman's opinion is relevant.

If think I'm unwilling to say what I mean, then you haven't been paying attention to my posts for the last decade here.

everyone is qualified to comment on the economy, don, bcz there is no agreement on what constitutes a disqualification. I am not sure I care about everyone's views, tho.

Indeed.

So, now I'll comment on it. You may or may not care.

...the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

First, this flood of liquidity has been loosed on the world by the Federal Reserve Bank far more than by the federal government's deficit spending. The federal government has been spending its borrowed money on such frivolities as extending unemployment benefits to people who go out and use it to pay for food, gas, utilities and rent. They also have been buying concrete, steel and labor to build or repair roads and bridges. iow, they've mainly been putting liquidity into the real economy, where it buys useful stuff. That doesn't create Wall Street bubbles.

otoh, the Fed has been buying many trillions of dollars of shaky bank assets, propping up the banks' balance sheets and helping to keep them solvent. The Fed has also kept interest rates near zero, hoping to entice borrowers to borrow and spend money in the real economy on stuff like cars, homes, furniture and appliances, or on services.

The problem with economic pump-priming mainly through monetary policy is precisely that the Fed has no control over who takes out loans or what they spend that money on. Right now, because of misguided Reaganomic policies, the only people in the USA who can get a big bank loan are the rich and the super-rich. These folks do not need another home, another car, or another vacation. They are already glutted with stuff. And they can't figure out how to invest in the real economy, because the real economy requires demand from the 99%.

The stupid thing is that all this is straight, basic Keynesian 101, and the Republican party of David Stockman has decided that Keynes was wrong. So they keep shoving money at the super-rich instead of at the 99% on whom the economy rests, expecting that the super-rich will do something with other than play the markets and create bubbles.

If I didn't care, I wouldn't post it. I figured all the criticism of Republicans in that article, particularly against Reagan and Bush, would appeal to people around her.

The Fed buying trillions of dollars of shaky bank assets is Keynesian?

midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House

top marginal tax rate under Ike: 92%

The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

lol

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke. (referring to 2008-9)

This is the strangest assertion I've read in a long time. From Sept 08 through April 09 the US economy lost 4.6 million jobs and no one has more than a foggy idea of how many tens of trillions of dollars worth of assets on the books of US banks and insurance corporations evaporated off their balance sheets. Every major US auto manufacturer was effectively bankrupt. And so on.

If Stockman asserts that this set of facts never once for a moment constituted even a remote threat of a Great Depression, then I think it is safe to toss out all the rest of his article as bullshit, because that assertion is so blatantly off base, you cannot trust a single other conclusion he is peddling.

yeah, i couldn't get through the second page. i'm sure he manages to make a few valid points in there but the bullshit alarms got too loud and frequent

nah this guy's just straight up nuts, whole thing is basically a ron paul economic history rant

it was nice of the New York Times, a noted authority on matters of the day, to feature his piece so prominently today.

ya wtf nytimes

The Fed buying trillions of dollars of shaky bank assets is Keynesian?

Not really.

Keynes stressed the need for active government borrowing and spending during times of cash famine. The Fed buying trillions of dollars of US bonds and monetizing the necessary debts incurred by the federal government as it expands its spending would have been far more Keynesian. But the Congress is controlled by Republicans who, just like 1930, think the solution to sharply reduced revenues is to balance the budget.

C'mon, don. Stop acting like you're talking to children. Contribute something useful for a change.

You guys the NYT publishes Ross Douthat so his opinion on things is very very important

Stockman may have finally admitted a few years ago that the trickle-down economics he helped institute while working for Reagan didn't work, but his views can still be crazy enough that I don't care for them.

Hey Aimless, you're the one who said it was Keynesian. That's why I asked for the clarification. I'm not trying to talk down to you.

Also, I'm sorry that my comments aren't useful to you. And if it makes you feel better to put me down about it, I'm glad this forum allows that.

Yikes.

And I will read stuff I don't agree with in the NY Times or elsewhere, sometimes Don.

you're the one who said it was Keynesian

No, I merely assumed you had at least the minimal acquaintance with Keynesian ideas required to understand what I did say.

Do you expect me to believe you are that ignorant?

I went to Krugman's blog expecting a takedown of the Stockman thing, but mostly he just shakes his head:

Actually, I was disappointed in Stockman’s piece. I thought there would be some kind of real argument, some presentation, however tendentious, of evidence. Instead it’s just a series of gee-whiz, context- and model-free numbers embedded in a rant — and not even an interesting rant. It’s cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge.

Sad.

No, I merely assumed you had at least the minimal acquaintance with Keynesian ideas required to understand what I did say.

I do. Your post was not clear. Seems like you usually present your opinions on economic stuff better than than you did.

Do you expect me to believe you are that ignorant?

I assume that you believe I am ignorant, given your dismissive nature towards me. That's ok.

So kind of you to forgive me for what you assume I believe.

http://24.media.tumblr.com/c2ac124e748cbbfa800c4350f9bc3e44/tumblr_mkjnb4mP8g1qdmmiqo1_500.gif
http://24.media.tumblr.com/c2ac124e748cbbfa800c4350f9bc3e44/tumblr_mkjnb4mP8g1qdmmiqo1_500.gif
http://24.media.tumblr.com/c2ac124e748cbbfa800c4350f9bc3e44/tumblr_mkjnb4mP8g1qdmmiqo1_500.gif