Allows the lumberjack to feed his family. That's what money is really for- making sure your citizens can get what they need to survive.
Right now- we've got WAY too much of the available money tied up in these fake "financial products" that do no good for anybody. We've got people starving on the streets because they don't have enough money to survive. We've got citizens living in tent trailers because they've been foreclosed upon and priced out of the housing market.
Let's make sure everybody has their first level Maslow needs met before we go making people rich, ok?
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
Insurance is a necessary precondition for technological advancement. When we passed the technological point where we needed multi-billion dollar research facilities, decade-long research time-lines, and decades of production before the research costs are returned, we have needed insurance to hedge against the multitude of risks involved in advancement.
Even farmers are huge beneficiaries of hedging. The futures market allows farmers and food processors to lock in prices well in advance of the harvest, eliminating the flood of produce hitting the market at one time, and reducing the risk (and higher consumer prices resulting from that greater risk). Modern farming, with its resulting abundance, would be impossible without some form of insurance.
Unhedged risk increases costs for everyone. Insurance, in its more traditional form or options, reduces the risk associated with doing business, and reduces the cost to society. Eliminate insurance and you will raise the costs.
I don't know about you, but I've never found money itself to be any good for any of those purposes. Farmers grow their food from seeds, and carpenters build houses from lumber. Reserve requirements don't remove any real resources from the economy. Besides, with a 100% reserve requirement there wouldn't be any CDS market to begin with. People would just find other ways to hedge their debt exposure.
Where we may need to repeal Article I, Section 10, of the US Constitution. It's become damned clear that nobody in the federal government gives a shit about citizens or protecting domestic jobs & lives, maybe if the states were legally able to run their own economies things would be smaller, but we'd be better off.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
That reserve requirement, in and of itself, means less money is available for growing food, building houses, researching new medicines, investing in green energy, etc.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
I've long been a firm believer in "Technology, if nothing else, will make the lives of our children better than those of our parents". But insurance, and other risk hedging methods, cost money that should be going to R&D or other forms of real wealth creation. In the long run, you cause greater risk by limiting your risk, because you're removing funds from the *real* wealth creation the world needs to continue to survive, squeezing farmers out of the land market to build skyscrapers so to speak- thus making EVERYBODY much more poor than before.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
on all of these "structured financial products" but my impression is they created fictional mathematics purely to generate fees on ficitional bets.
I'm still digging around in it but they mask a lot of disclosure with advanced mathematics (ahem) which on much of it, I am like, where the hell is the financial mathematics community, where are the mathematicians calling these things out? If I can see the fatal mathematical flaws well, I know there has to be mathematicians who can easily see them also. where the hell are they?
You bottom point, if they have to back these things up 100% the entire market would probably not exist.....Q.E.D.
But they allow unlimited issuance on one underlying asset. That's a serious problem.
I don't think this is a problem, so long as there are adequate capital reserves to back up those CDS's (which is not currently the case). In the end, it doesn't matter if there are $500 billion worth of CDS's covering $5 million worth of bonds, as long as there is enough capital kept in reserve to pay out the $500 billion upon default.
You are absolutely on the mark though, about the inadequacy of the formulas used to calculate the price and risk of these instruments. Sadly, because of the complexity of the economy and the relative simplicity of current financial mathematics, there may be no way to correctly judge the risk or value of a CDS.
A 100% reserve requirement would have certainly prevented the current chaos in this market. But, then there probably wouldn't be a CDS market to begin with; it simply wouldn't be profitable to offer them for sale.
"Even Nafta’s greatest success — exports — has become a liability, as Mexico feels the full brunt of declining consumption in the United States. The auto industry, for example, which has flourished under Nafta, has ground to a virtual standstill. "
Michigan has had the highest unemployment rate in the country for eight years. It is currently 11.6%. Bill Clinton and NAFTA screwed US auto manufacturing.
Fed Buys $7.5 Billion of Debt to Cut Borrowing Costs
Uh, it looks like the effort failed.
I wrote an article back in December that Treasuries were a bubble. They've gained about 40% of their yield since then, and now the Fed is monetizing debt to keep it from going higher...and failing.
This game appears to be coming to an end.
Finding out more about how they are precisely calculated in terms of "premiums" would be useful to know.
But they allow unlimited issuance on one underlying asset. That's a serious problem. Maybe by requiring 100% capital reserves kept might keep them bounded.
Also, they appear to be created based on the probability assumption defaults are independent events. That's just plain wrong by the mathematics. Foreclosures, mortgage defaults are not independent events. Not only can they occur in regional clusters but also increase per originator, they are time dependent, labor markets dependent, a host of other dependencies as well. Most assuredly not an independent variable.
But even more odious is just how many CDOs are using the CDS data instead of historical raw data, to determine their value. That is just beyond stupid for CDSes have only been in existence since about 1996. Also, as far as I know they exist only in the U.S. or certain countries? It's not a global metric by any stretch.
To me, immediately all of those CDOs should be decoupled from CDS data. They should be isolated, possibly recalculated using raw histogram statistical data. (Just one issue on a host of thousands).
There's nothing inherently scary about options(cash-settled or not) or CDS's. They are both methods of hedging against or speculating in risk. They're both essentially insurance. The problem with CDS's is, no one was required to carry adequate capital reserves to cover their potential obligations.
Or, more accurately, the financial models used to calculate what constitutes "adequate capital reserves" was seriously flawed. Firms ended up carrying far more risk than they thought.
CDS's depend upon the ability to forecast the likelihood of default, a rare and relatively unpredictable occurrence. It's hard to price them accurately. Options, on the other hand, are much more easily priced, as they depend on the far more predictable movement of the underlying index.
Makes cash-settled options *almost* as scary as CDSs. Good thing they have some limits on them.
Of course, to me, the proper use of money is direct investment in wealth creation- seed in the ground, mining equipment, and the like. Pure financial products scare the shit out of me.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
Treasury notes fell for a fifth day after an auction of $34 billion in five-year notes drew a higher-than-forecast yield, spurring concern record sales of U.S. debt are overwhelming demand.
U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent.
“This caught a lot of people unaware,” said Bulent Baygun, head of interest-rate strategy in New York at BNP Paribas Securities Corp., one of the 16 primary dealers that are required to bid at Treasury auctions. “Prior to the auction the Fed conducted its purchases of Treasuries, which may have compressed interest rates below where they would have been otherwise.”
Looking like the rest of the world ain't none too impressed with the temporary money printing press as well as the never ending financial bail out numbers.
What will the world think when the U.S. enacts policy to get their manufacturing base back, one of the root causes of why we are in this current malaise? (if our government ever gets a clue on a production economy again).
James Kwak of baseline scenario has an article up:
The legal doctrine in these areas is quite complex and there are probably several ways to apply it to various existing and future economic recovery programs. I do believe, however, that entities negatively affected by nationalization/conservatorship/receivership brought about under a brand-new program occur could make a very good argument that they are entitled to restitution under the Fifth Amendment. If that is the case, Congress can’t do anything to change the outcome. Of course, courts would still have to decide on the extent of “just compensation” that would remedy an otherwise illegal seizure. Historically, such awards have been based on market value, but the inquiry could get quite muddled in the financial arena.
As far as I can parse the issue seems to revolve around the idea of letting some debt go bad and not pay back creditors, which is key because the U.S. cannot be on the hook for trillions of dollars.
Congress set the terms and conditions for the L-1 and since it was never intended to be used as a permanent or labor arbitrage visa, no one realized the loophole of firing employees in not their home country but leaving them without any financial support to get home as an issue.
Trying to get reforms on L-1 and H-1B is a royal fight for corporate lobbyists and now NASSCOM (India business association) swarm the hill demanding their agenda.
There is a bill S.1035 from last session but they attack it and unfortunately one of the bull author's Dick Durbin seems to be believe S.1035 is simply a bargaining chip for gutting on the "amnesty" agenda.
To get this bill passed, intact, separately, well, we need outrage from the people and there actually is huge outrage....but Congress ignores them.
There are attempts to get these Visas put into Trade agreements. The TN Visa actually is but so far on the two above visas, L-1, H-1b, Congress still has legislative authority over them.
These are cash-settled options. There are no shares of an index to "own". So, no.
But, when you write an option contract, your broker will have margin requirements, limiting your ability to write an unlimited number of new contracts. I think this is something that the CDS market lacks.
Was when the world crossed the 2 billion population mark. Economic systems simply don't work when they get too large- regardless of the system.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
It's the fallacy that you can have a working economy past two degrees of friendship at all. Maybe it's time to do away with the idea of a "global" system.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
Allows the lumberjack to feed his family. That's what money is really for- making sure your citizens can get what they need to survive.
Right now- we've got WAY too much of the available money tied up in these fake "financial products" that do no good for anybody. We've got people starving on the streets because they don't have enough money to survive. We've got citizens living in tent trailers because they've been foreclosed upon and priced out of the housing market.
Let's make sure everybody has their first level Maslow needs met before we go making people rich, ok?
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
Insurance is a necessary precondition for technological advancement. When we passed the technological point where we needed multi-billion dollar research facilities, decade-long research time-lines, and decades of production before the research costs are returned, we have needed insurance to hedge against the multitude of risks involved in advancement.
Even farmers are huge beneficiaries of hedging. The futures market allows farmers and food processors to lock in prices well in advance of the harvest, eliminating the flood of produce hitting the market at one time, and reducing the risk (and higher consumer prices resulting from that greater risk). Modern farming, with its resulting abundance, would be impossible without some form of insurance.
Unhedged risk increases costs for everyone. Insurance, in its more traditional form or options, reduces the risk associated with doing business, and reduces the cost to society. Eliminate insurance and you will raise the costs.
I don't know about you, but I've never found money itself to be any good for any of those purposes. Farmers grow their food from seeds, and carpenters build houses from lumber. Reserve requirements don't remove any real resources from the economy. Besides, with a 100% reserve requirement there wouldn't be any CDS market to begin with. People would just find other ways to hedge their debt exposure.
Where we may need to repeal Article I, Section 10, of the US Constitution. It's become damned clear that nobody in the federal government gives a shit about citizens or protecting domestic jobs & lives, maybe if the states were legally able to run their own economies things would be smaller, but we'd be better off.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
That reserve requirement, in and of itself, means less money is available for growing food, building houses, researching new medicines, investing in green energy, etc.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
I've long been a firm believer in "Technology, if nothing else, will make the lives of our children better than those of our parents". But insurance, and other risk hedging methods, cost money that should be going to R&D or other forms of real wealth creation. In the long run, you cause greater risk by limiting your risk, because you're removing funds from the *real* wealth creation the world needs to continue to survive, squeezing farmers out of the land market to build skyscrapers so to speak- thus making EVERYBODY much more poor than before.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
on all of these "structured financial products" but my impression is they created fictional mathematics purely to generate fees on ficitional bets.
I'm still digging around in it but they mask a lot of disclosure with advanced mathematics (ahem) which on much of it, I am like, where the hell is the financial mathematics community, where are the mathematicians calling these things out? If I can see the fatal mathematical flaws well, I know there has to be mathematicians who can easily see them also. where the hell are they?
You bottom point, if they have to back these things up 100% the entire market would probably not exist.....Q.E.D.
I don't think this is a problem, so long as there are adequate capital reserves to back up those CDS's (which is not currently the case). In the end, it doesn't matter if there are $500 billion worth of CDS's covering $5 million worth of bonds, as long as there is enough capital kept in reserve to pay out the $500 billion upon default.
You are absolutely on the mark though, about the inadequacy of the formulas used to calculate the price and risk of these instruments. Sadly, because of the complexity of the economy and the relative simplicity of current financial mathematics, there may be no way to correctly judge the risk or value of a CDS.
A 100% reserve requirement would have certainly prevented the current chaos in this market. But, then there probably wouldn't be a CDS market to begin with; it simply wouldn't be profitable to offer them for sale.
"Even Nafta’s greatest success — exports — has become a liability, as Mexico feels the full brunt of declining consumption in the United States. The auto industry, for example, which has flourished under Nafta, has ground to a virtual standstill. "
Michigan has had the highest unemployment rate in the country for eight years. It is currently 11.6%. Bill Clinton and NAFTA screwed US auto manufacturing.
And yet I noticed this bloomberg headline.
Uh, it looks like the effort failed.
I wrote an article back in December that Treasuries were a bubble. They've gained about 40% of their yield since then, and now the Fed is monetizing debt to keep it from going higher...and failing.
This game appears to be coming to an end.
Finding out more about how they are precisely calculated in terms of "premiums" would be useful to know.
But they allow unlimited issuance on one underlying asset. That's a serious problem. Maybe by requiring 100% capital reserves kept might keep them bounded.
Also, they appear to be created based on the probability assumption defaults are independent events. That's just plain wrong by the mathematics. Foreclosures, mortgage defaults are not independent events. Not only can they occur in regional clusters but also increase per originator, they are time dependent, labor markets dependent, a host of other dependencies as well. Most assuredly not an independent variable.
But even more odious is just how many CDOs are using the CDS data instead of historical raw data, to determine their value. That is just beyond stupid for CDSes have only been in existence since about 1996. Also, as far as I know they exist only in the U.S. or certain countries? It's not a global metric by any stretch.
To me, immediately all of those CDOs should be decoupled from CDS data. They should be isolated, possibly recalculated using raw histogram statistical data. (Just one issue on a host of thousands).
There's nothing inherently scary about options(cash-settled or not) or CDS's. They are both methods of hedging against or speculating in risk. They're both essentially insurance. The problem with CDS's is, no one was required to carry adequate capital reserves to cover their potential obligations.
Or, more accurately, the financial models used to calculate what constitutes "adequate capital reserves" was seriously flawed. Firms ended up carrying far more risk than they thought.
CDS's depend upon the ability to forecast the likelihood of default, a rare and relatively unpredictable occurrence. It's hard to price them accurately. Options, on the other hand, are much more easily priced, as they depend on the far more predictable movement of the underlying index.
Makes cash-settled options *almost* as scary as CDSs. Good thing they have some limits on them.
Of course, to me, the proper use of money is direct investment in wealth creation- seed in the ground, mining equipment, and the like. Pure financial products scare the shit out of me.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
Bloomberg:
Looking like the rest of the world ain't none too impressed with the temporary money printing press as well as the never ending financial bail out numbers.
What will the world think when the U.S. enacts policy to get their manufacturing base back, one of the root causes of why we are in this current malaise? (if our government ever gets a clue on a production economy again).
Seriously, the implication was they could not investigate previously because they are under staffed.
I wonder though, assuredly during the Bush administration if one was a white collar thief, the best place to do business was with DoD contracts.
James Kwak of baseline scenario has an article up:
As far as I can parse the issue seems to revolve around the idea of letting some debt go bad and not pay back creditors, which is key because the U.S. cannot be on the hook for trillions of dollars.
Congress set the terms and conditions for the L-1 and since it was never intended to be used as a permanent or labor arbitrage visa, no one realized the loophole of firing employees in not their home country but leaving them without any financial support to get home as an issue.
Trying to get reforms on L-1 and H-1B is a royal fight for corporate lobbyists and now NASSCOM (India business association) swarm the hill demanding their agenda.
There is a bill S.1035 from last session but they attack it and unfortunately one of the bull author's Dick Durbin seems to be believe S.1035 is simply a bargaining chip for gutting on the "amnesty" agenda.
To get this bill passed, intact, separately, well, we need outrage from the people and there actually is huge outrage....but Congress ignores them.
There are attempts to get these Visas put into Trade agreements. The TN Visa actually is but so far on the two above visas, L-1, H-1b, Congress still has legislative authority over them.
These are cash-settled options. There are no shares of an index to "own". So, no.
But, when you write an option contract, your broker will have margin requirements, limiting your ability to write an unlimited number of new contracts. I think this is something that the CDS market lacks.
Was when the world crossed the 2 billion population mark. Economic systems simply don't work when they get too large- regardless of the system.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
It's the fallacy that you can have a working economy past two degrees of friendship at all. Maybe it's time to do away with the idea of a "global" system.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
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