Again, I think that Marx treats this quite well. Fictitious values can create real wealth. I can slice and dice bond. Sell off parts of it to people who are willing to pay because they can ensure the bond from someone else. I pocket some money for my efforts, then go out and buy a yacht. Everyone seems more prosperous. The new bondholders are making riskless money. The insurers are making money. I am sailing on my yacht which presumably has given income to the people who built it.
Then, as I mentioned in the piece on the fictitious capital, some event in Marx's dramatic phrase, "by acting like a feather which, when added to the weight of the scales, suffices to tip the oscillating balance definitely." The house of cards comes down. One thing weird about this is that Marx's analysis is not altogether different from that of Hayek and the Austrians. Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901 michaelperelman.wordpress.com -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Sabri Oncu Sent: Thursday, September 18, 2008 8:15 AM To: pen-l Subject: [Pen-l] Re: Reality catches up with catastrophists Shane: > With "fair" bets winnings and losses exactly offset each other, leaving no net income > to go into the National Income Accounts no matter how many trillions > flow between the bettors. This is true, only if the bets are fair. Think about the credit default swaps where both of the counter-parties can transfer the legs they are holding to other parties. Although in theory the price of one leg is the negative of the other, we know from the markets that both parties get paid money, since opinions about the prices of the legs differ. So, income is created out of thin air. Also, think about a mortgage pass-through and create a CMO with several tranches out of it. In the absence of transaction costs, the price of the pass-through should be equal to the sum of the prices of the tranches of the CMO constructed from it since if you buy all of the tranches what you are holding is the pass-through. But we again know that sum of the prices of the CMO tranches is larger than the price of the passthrough, and again income is created out of thin air. The same goes for all of the CDOs. Best, Sabri _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
