yeah just what we need. Congress knows everything. We're stupid. Save us from ourselves!
Posted on 10/05/2008 12:05:49 AM PDT by TigerLikesRooster
Pursuit of an Edge, in Steroids or Stocks
By ROBERT H. FRANK
ASSET bubbles like the one that caused the current economic crisis have long plagued financial markets. But like hurricanes in the Gulf of Mexico, these disasters have been occurring with increasing frequency. If we want to prevent them, we must first understand their cause.
It isn’t simply “Wall Street greed,” which Senator John McCain has blamed for the crisis. Coming from Mr. McCain, a longtime champion of financial industry deregulation, it was a puzzling attribution, squarely at odds with the cherished belief of free-market enthusiasts everywhere that unbridled pursuit of self-interest promotes the common good. As Adam Smith wrote in “The Wealth of Nations,” “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Greed underlies every market outcome, good or bad. When important conditions are met, greed not only poses no threat to Smith’s “invisible hand” of competition, but is an essential part of it.
The forces that produced the current crisis actually reflect a powerful dynamic that afflicts all kinds of competitive endeavors. This may be seen clearly in the world of sports.
(Excerpt) Read more at nytimes.com ...
Ping!
As I've stated many times - Congress needs to go back to Washington immediately and pass legislation that prohibits a buyer from purchasing insurance on any security where the buyer does not have a vested financial insterest in that security.
We're going to get slammed - and slammed hard, but this type of legislation would give a fighting chance to our childrens generation.
The credit default swap scam----
This phony baloney "insurance" allowed Wall St wise guys and banks to keep minimum reserves against losses on loans or securities (such as bundled mortgages) they held. Because the credit default swap insured against a loss on a particular loan where in the past (10 years ago) keeping reserves against these losses had once done the trick
In this way, Frank is wrong too. A straight line limit on leverage for individual investors is wrong too. If you want to limit bank leverage to protect the 'monetary policy plumbing' I'm fine with that, but the rules should only apply to banks, not everyone. There are better ways to solve this than that.
What we really need is a way to correct the inefficiency of the distribution of information during periods of 'information cascades' or asset bubbles. If the government would make the cumulative information about the leverage of each market available (appropriately obfuscated to protect individual deals and investors) , then every investor can self regulate their own leverage based on their confidence of the sustainability of an upward trend. If they think it's a bubble ready to burst (which would be easily calculated with the leverage amounts public) then they can go short instead of long. This would change the ratio of long buyers to short sellers, and prevents the onset of the 'information in the first place. and in the meantime, we're not handing more control of the free market over to Washington ... which in the long run is always a mistake.
The last thing the any of these buccaneers want is a transparent market.In say credit default swaps. The mess makers love this mess. No one can be held accountable since it is so messy. But the players took home millions and tens of millions and probably bought lots of gold with it
IMHO you have very powerful entities such as hedge funds lobbying against common sense rules and enforcement. Naked shorts for example
Credit Has Collapsed
Housing derivatives were the real culprit in this enormous mess. The shear magnitude of this credit market-industry represents a huge chunk of USA outstanding credit and investments both personal and commercial. Greenspan provided the formula of low interest easy money credit and New York took full advantage using the Yen carry trade, hedge fund money, with all of it being an ultra cheap marketing plan with almost no upper limits.
The BOB’s (Buddies of Bush) ripped-off most of the immediate world with their derivative scam. The crux of this nefarious plan enables participants to remain obscure and hidden. Yes, two parties have names on the trades but with a daisy chain of sub-trades, breaking a large cake into smaller ones defies the auditors to determine who owns what. This is the beauty of their nasty plan from their greedy standpoint. Nobody knows or can figure out who owes what to whom. For that matter, those trying to collect on a winning trade can’t figure it out either. This is why the F&F’s (Fannie & Freddie) 800 auditors worked over four years and can’t find the answers and cannot sign-off without incurring incredible liabilities which they are loathe to do.
http://www.kitco.com/ind/Wiegand/sep242008.html
Wrong! Greed is the penultimate of capitlism. Most people simply want to make some money to enjoy life.
The people this author is talking about ARE the problem. They see nothing wrong with stripping people's lives and fortunes for their own gain. Trying to justify what five percent of the population does by calling the other ninety-five percent greedy is a lie.
My name for these people is super-capitalist. They think of nothing but money and taking it from others so they can brag about it over their martinis.
Why else would someone demand hundreds of millions of dollars in pay sucking money out of the corporation they claim to love so much?
Why not try thinking about approaching it from a different perspective? Why not try thinking about how to make the basic rules of the game more fair, and let the people who are better at it win more than the people who are not?
Now if I'm right, this is the moment you choose to explain to me that hedge funds are really just gaming the system and they're all dishonest. And after that I tell you that I've been working as a portfolio manager for multi-billion dollar hedge funds for years and you're simply wrong... and round and round and round we go.
But instead of doing that, why don't you try to really think about what I said in my last post. There is a simple way to encourage the markets to regulate themselves by making information that's only available to a few people right now, available to everyone. Many people won't know what to do with it, but many will... enough so that it will cause the market to self regulate. It's a free market solution that keeps the markets free. It's true, it will deny you your revenge of destroying the "hedge fund villain" that you have always seen yourself as struggling against. But it will achieve the results that everyone is after of making the market less prone to asset bubbles.
So just for the hell of it, this one time... why don't you try thinking outside your box if you can?
I do not mean to hijack this thread but it strikes me that if one takes out the hedge fund topic, your entire first paragraph describes the current problem that I and so many others see with trying to clean up government through our elected representatives. You have described the reason that the current bailout has so enraged a vast number of voters.
This is another one of those situations where someone who doesn't have any idea what he's talking about is trying to sound like he has all the answers. You talk about these people as if they are a totally different breed than you. You are intentionally de-humanizing them so that you can justify your anger. They play the same role for you that "the Jews" played for a German in the 1930's. your opinion is more the product of envy or insecurity or both, than it is about the facts. for you, at this moment, the facts seem to be irrelevant.
You probably mean well but the truth is you're not helping the situation. Your anger is going to empower people like Chuck Schumer and Barney Frank to do things that are really stupid and that will hurt us all, so you should try to let it go. You should try to accept that the overwhelming majority of the people you are currently calling evil are not deserving of your wrath. I know them... they are my friends and co-workers. I've spent the last 20 years getting to know them and it's clear that you have not. It's no sin if you don't understand how everyone on wall street made the decisions they did, but you should try to admit that to yourself instead of making yourself a tool for ambitious politicians who will harm you if they can.
You're just angry and uninformed, so you need a villain. but people will use that anger against you so you should really let it go.
They play the same role for you that "the Jews" played for a German in the 1930's. your opinion is more the product of envy or insecurity or both, than it is about the facts. for you, at this moment, the facts seem to be irrelevant.
That is specious at best and borders on juvenile.
I could link the barons of today to Pullman - wanting everyone beholden to the company.
Explain to me how taking millions of dollars in pay does NOT affect the value of the stock these people are supposed to be responsible for?
I can read. I can tell when someone is being greedy and when someone is genuinely trying to run a company that is profitable for all.
The mere idea that the very people that the "bailout" was supposed to help might NOT take the help because it might mean a cut in pay is indicative of the mentality. It is greed pure and simple.
It's no sin if you don't understand how everyone on wall street made the decisions they did, but you should try to admit that to yourself instead of making yourself a tool for ambitious politicians who will harm you if they can.
I do know how they made it. Off of someone else. Wall Street produces nothing. Recent events are clear evidence of that. It produces debt. It encourages debt.
Buying a company and putting its workers out on the street in not something I would be proud of. But, I bet they brag about their commissions over martinis. About how much they "made in arbitrage".
Look down on me if you will. I am not a banker or a broker. Nor would I want to be. I earned my money.
By the way ... you have no idea how ridiculous categorical statements like that sound to me and the people like me who figure out "who owes what to whom" for a living, and do it every day.
What you really mean is that Wall Street produces nothing that you understand how to value. But the truth is very different than that.
I know you don't believe this but I'm not looking down on you, I'm trying to help you.
Thanks for all that
So tell me
When hedgers make their big score and take money off the poker table.....
Where do you guys invest your proceeds? Do you buy gold and hard assets? That's always been my theory. Since your game is as abstracted from gold as one can get I figure you guys invest in gold and buy it with your own personal profits. The money you take off the poker table
Jeez Dennis... you make it awfully hard for someone serious to think of you as anything but a deranged crank.
Lets put it this way.
If I was profiting from a hedge fund, the last thing I would do with my profits would be to re-invest them in that hedge fund
By the way ... you have no idea how ridiculous categorical statements like that sound to me and the people like me who figure out "who owes what to whom" for a living, and do it every day.
I don't believe you. I believe him. You need to reread exactly what he said about the impenetrability of Fannie Mae's bundled mortgages and that auditors could not sign off on the validity of their analysis
What in the world makes you think that 6,000 people with widely varied skill sets would all do precisely the same thing with their money, espectially when that thing (buying gold) looks to go down in the near term rather than up? Do you really believe that we're all such simpletons? You really do imagine us all sitting around lighting our cigars with $100 bills and snorting coke off of some hooker's behind?
Actually, I think the big thing among we "hedgies" these days is a portfolio of 'sharks with freakin laser beams' on their heads.
Grow up will ya.
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