NWR: Financial chaos

Last I heard, back in November 2008 or so, there was 50 CDS dollars chasing every equity dollar - though I believe that AIG (read us) has been writing down or paying off some of this.
 
"Smarter regulators and better rules would help. But sadly, as the crisis has brutally shown, regulators are fallible. In time, financiers tend to gain the advantage over their overseers. They are better paid, better qualified and more influential than the regulators. Legislators are easily seduced by booms and lobbies. Voters are ignorant of and bored by regulation. The more a financial system depends on the wisdom of regulators, the more likely it is to fail catastrophically."

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www.economist.com
 
originally posted by scottreiner:
"Smarter regulators and better rules would help. But sadly, as the crisis has brutally shown, regulators are fallible. In time, financiers tend to gain the advantage over their overseers. They are better paid, better qualified and more influential than the regulators. Legislators are easily seduced by booms and lobbies. Voters are ignorant of and bored by regulation. The more a financial system depends on the wisdom of regulators, the more likely it is to fail catastrophically."

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www.economist.com
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Not sure I agree. The incentives for everyone to reach for performance and push the limits are large. Imagine that Lehman, say, had decided in 2007 that their leverage was too high, or their risk control too loose, or their proprietary positions too illiquid, and backed off. They would have missed the top of the bubble and underperformed their peers, and management would have been under a lot of pressure. The only way to get everyone back from the brink is to get everyone back at the same time, and that doesn't happen from market pressure.

Also, it might have been nice if the Fed had noticed we were in an asset bubble and raised rates a bit.
 
But take your analysis one step farther, SFJ...Imagine that Bernanke, say, had decided that conditions were too loose and tightened up and the BoJ and the ECB had not. Pressure would have been enormous there too. Paid representatives of investment banks (er, Senators) would have held hearings and thought about moving the power to set rates back to the Treasury (where they were after the last major crisis for almost 20 years).

While market participants are hardly self-regulating, regulators are at best a half-step behind. And often a few more steps behind.
 
originally posted by Cole Kendall:
But take your analysis one step farther, SFJ...Imagine that Bernanke, say, had decided that conditions were too loose and tightened up and the BoJ and the ECB had not. Pressure would have been enormous there too. Paid representatives of investment banks (er, Senators) would have held hearings and thought about moving the power to set rates back to the Treasury (where they were after the last major crisis for almost 20 years).

While market participants are hardly self-regulating, regulators are at best a half-step behind. And often a few more steps behind.
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Sounds like we need a Politburo.
 
Their view: The originator of a securitization will be required to retain a financial interest in its performance. Reality: It was a big unpleasant shock when everyone realized that Lehman, Bear Stearns, and others had retained a large exposure to dubious financial products, some of which they had issued. We are back to the Greenspan fallacy here if financial firms have an incentive not to screw up on a massive scale, they wont.

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baselinescenario.com
 
originally posted by Claude Kolm: Lots of intelligent, if depressing, discussion and analysis here: http://www.nybooks.com/articles/22756 .
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Claude,

Perhaps the most depressing is the truism spoken by Niall Ferguson ...

N.F.: Well, I tell you what, I feel depressed after what I've heard tonight. We are now contemplating a massive expansion of the state to substitute for the private sector because that's the only thing Paul thinks will deliver growth. We're going to reregulate the markets, we're going to go back to those good old days. Where were you in the 1970s when all these wonderful regulations were in place? I don't remember that going too smoothly. But what else are we going to do? We're going to print money. Almost limitlessly we'll print money. That's going to be fine, too. And when we're done with that, we're going to raise taxes. What a fabulous package we have in store for us. You know, back in late 2007, I was asked what my big concern was, and I said, "My concern is that we're going to get the 1970s for fear of the 1930s." It's very easy to forget, in your iron indignation at the failure of the market, where the true mainsprings of economic growth lie. The lesson of economic history is very clear. Economic growth does not come from state-led infrastructure investment. It comes from technological innovation, and gains in productivity, and these things come from the private sector, not from the state.
[END QUOTE]

. . . . . . Pete
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originally posted by Peter Creasey:
originally posted by Claude Kolm: Lots of intelligent, if depressing, discussion and analysis here: http://www.nybooks.com/articles/22756 .
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Claude,

Perhaps the most depressing is the truism spoken by Niall Ferguson ...

. . . . . . Pete
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Pete, I also find this depressing, but for reasons that may reflect our differing political points of view. To me, this seems all the more blues-inducing for being largely untrue--or certainly controversial.

My understanding of the stagflation of the 1970s (and admittedly it comes from Paul Krugman and others like him, whom I agree with on political matters, but I am in every sense an economic layman) is that it had little or nothing to do with regulation of markets or welfare state expansion. It was caused by oil shocks and bad--expansive--monetary policy. It was largely cured by good--and conservative--monetary policy, cooked up from a Milton Friedman recipe. The printing of money may be a concern, but I have heard one economist refer to that fear of inflation vs the current recession as analogous to being concerned about termites when your kitchen is on fire. Both are bad, but one demands attention right now.

Krugman and Ferguson have been going back and forth for weeks on some of this stuff--a Daniel Gross article in slate summarizes some of it.

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www.slate.com

Doug
 
Yesterday in the mail I received a credit card offer, a 0% credit card transfer offer, and a glossy flyer for an ocean-front timeshare.

Everything must be all better now, eh?
 
originally posted by Jeff Grossman:
Update.Yesterday in the mail I received a credit card offer, a 0% credit card transfer offer, and a glossy flyer for an ocean-front timeshare.

Everything must be all better now, eh?
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Must have an excellent credit score. Trying to bump up the mean.
 
originally posted by VLM:
originally posted by Jeff Grossman:
Update.Yesterday in the mail I received a credit card offer, a 0% credit card transfer offer, and a glossy flyer for an ocean-front timeshare.

Everything must be all better now, eh?
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Must have an excellent credit score. Trying to bump up the mean.
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It's all about the points.
 
originally posted by SFJoe:

It's all about the points.
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It's true. Today, I got an offer for 1,000 points if I signed up. I could spread them out any way I liked -- 10 bottles of 2009 Lafite or 12.5 bottles of an 80 point wine or 20 bottles of a 50 point wine.
 
originally posted by Ian Fitzsimmons:
No advertising. Who funds them?
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hit the about us tab.

It's primarily funded by the former owner of Golden West Financial. Which is pretty funny, esp. given the article cited above is about the financial collapse.
 
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