Re: My contribution to the bail-out
On Tue, Oct 28, 2008 at 6:13 PM, Ronn! Blankenship [EMAIL PROTECTED] wrote: Let them eat almond bread? M... almond bread... [makes Homer Simpson sound] -- Mauro Diotallevi The number you have dialed is imaginary. Please rotate your phone 90 degrees and try again. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Complex humor (was Re: My contribution to the bail-out)
At 09:18 AM Wednesday 10/29/2008, Mauro Diotallevi wrote: At 06:13 PM Tuesday 10/28/2008, Ronn! Blankenship wrote: At 11:12 AM Tuesday 10/28/2008, Bruce Bostwick wrote: On Oct 27, 2008, at 11:38 AM, Alberto Monteiro wrote: Let's adopt complex numbers in finance! Maybe in the next crisis we will be discussing things like the banks (or whatever) were negotiating 100 quadrillion i-dollars! There's got to be a reference to the Mandelbrot set in there somewhere .. :) Let them eat almond bread? M... almond bread... [makes Homer Simpson sound] Mauro Diotallevi The number you have dialed is imaginary. Please rotate your phone 90 degrees and try again. Catching up on some TV this afternoon, I saw repeatedly a couple of ads for Clorox® products for cleaning the bathroom, one of which features a girl in the bathtub imagining herself as a mermaid and the other a boy imagining himself a pirate, both of which end with a tag line that says Because a bathroom can be more than a bathroom, Clorox® helps keep it clean, even the imaginary parts. . . . ronn! :) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Dan M wrote: After selling my house and resettling, I'm finally back to the point where I can finish answers to old posts that the list (sorta) returned too. So have you left the Houston area? Doug ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
-Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Doug Pensinger Sent: Tuesday, October 28, 2008 1:08 AM To: Killer Bs (David Brin et al) Discussion Subject: Re: My contribution to the bail-out Dan M wrote: After selling my house and resettling, I'm finally back to the point where I can finish answers to old posts that the list (sorta) returned too. So have you left the Houston area? Nope. We've moved only about 3 miles, to an apartment complex in the Woodlands. We've taken a 6 month lease and are waiting on a church to call Teri. Things are going slow in that area, particularly now that churches are very uncertain what giving will be in the next year. There is no sense in calling a pastor you can't pay. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On Oct 27, 2008, at 11:38 AM, Alberto Monteiro wrote: Let's adopt complex numbers in finance! Maybe in the next crisis we will be discussing things like the banks (or whatever) were negotiating 100 quadrillion i-dollars! There's got to be a reference to the Mandelbrot set in there somewhere .. :) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Bruce Bostwick wrote: Let's adopt complex numbers in finance! Maybe in the next crisis we will be discussing things like the banks (or whatever) were negotiating 100 quadrillion i-dollars! There's got to be a reference to the Mandelbrot set in there somewhere .. :) You probably are aware of Mandelbrot's contritutions to the financial crisis, aren't you? He took data that showed that returns were not normal (in the statistical sense) - the normality of the returns is the basis of the standard (Black Scholes) options model. Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
At 09:28 AM Tuesday 10/28/2008, Dan M wrote: -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Doug Pensinger Sent: Tuesday, October 28, 2008 1:08 AM To: Killer Bs (David Brin et al) Discussion Subject: Re: My contribution to the bail-out Dan M wrote: After selling my house and resettling, I'm finally back to the point where I can finish answers to old posts that the list (sorta) returned too. So have you left the Houston area? Nope. We've moved only about 3 miles, to an apartment complex in the Woodlands. We've taken a 6 month lease and are waiting on a church to call Teri. Things are going slow in that area, particularly now that churches are very uncertain what giving will be in the next year. There is no sense in calling a pastor you can't pay. You could be members of a denomination with an unpaid clergy . . . . . . ronn! :) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
At 11:12 AM Tuesday 10/28/2008, Bruce Bostwick wrote: On Oct 27, 2008, at 11:38 AM, Alberto Monteiro wrote: Let's adopt complex numbers in finance! Maybe in the next crisis we will be discussing things like the banks (or whatever) were negotiating 100 quadrillion i-dollars! There's got to be a reference to the Mandelbrot set in there somewhere .. :) Let them eat almond bread? . . . ronn! :) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On 28 Oct 2008, at 23:12, Ronn! Blankenship wrote: At 09:28 AM Tuesday 10/28/2008, Dan M wrote: Nope. We've moved only about 3 miles, to an apartment complex in the Woodlands. We've taken a 6 month lease and are waiting on a church to call Teri. Things are going slow in that area, particularly now that churches are very uncertain what giving will be in the next year. There is no sense in calling a pastor you can't pay. You could be members of a denomination with an unpaid clergy . . . The opium of the people is not free. Big Con Maru -- William T Goodall Mail : [EMAIL PROTECTED] Web : http://www.wtgab.demon.co.uk Blog : http://radio.weblogs.com/0111221/ Those who can make you believe absurdities can make you commit atrocities. ~Voltaire. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
Dan M wrote: There are 40 _trillion_ of credit default swaps out there. Billions, trillions, quadrillions... Who cares? Dr. Evil was frozen for 30 years and had to raise the blackmail from 1 million to 100 billion. Now, 1 trillion seems like nothing :-) Let's adopt complex numbers in finance! Maybe in the next crisis we will be discussing things like the banks (or whatever) were negotiating 100 quadrillion i-dollars! Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
At 11:38 AM Monday 10/27/2008, Alberto Monteiro wrote: Dan M wrote: There are 40 _trillion_ of credit default swaps out there. Billions, trillions, quadrillions... Who cares? Dr. Evil was frozen for 30 years and had to raise the blackmail from 1 million to 100 billion. Now, 1 trillion seems like nothing :-) Let's adopt complex numbers in finance! Maybe in the next crisis we will be discussing things like the banks (or whatever) were negotiating 100 quadrillion i-dollars! Alberto Monteiro i bottles of beer on the wall, i bottles of beer, take one down, pass it around . . . . . . ronn! :) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
After selling my house and resettling, I'm finally back to the point where I can finish answers to old posts that the list (sorta) returned too. -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of John Williams Sent: Tuesday, September 30, 2008 4:05 PM To: Killer Bs (David Brin et al) Discussion Subject: Re: My contribution to the bail-out Dan M [EMAIL PROTECTED] As had been mentioned here before, they are both very highly leveraged. My memory is that Barclay's leveraged 30 to 1 and Deutsche Bank is leveraged about 50 to 1. That means a modest run on ether bank will result in them becoming unable to give people who request the money they put in the bank that money. You persist in oversimplifying, and in ignoring creditors and bondholders. I wonder if you have ever studied the balance sheet of a bank? I have mentioned before, and even given a link to a nice explanation, that for the large US investment banks, if they are declared insolvent and put into receivership, that there is enough debt to cover the bad assets without costing the customers and countparties a dime. First, it isn't that simple, as the cascade of events following LB's bankruptcy illustrated very nicely. Second, I looked at a number of your posts, and the link I found was to a Hoover Institute guy (I hope you can see how I find this ironically apropos) who argued for a market based solution based on 1) Allowing a return to the accounting rules under which the SL collapse occurred. 2) Eliminating (or drastically reducing reserve requirements. I was in Houston when it was the epicenter of the SL mess (which also came after a spell of regulators looking the other way because government regulation was bad.another of many coincidences, I suppose). What happened was simple to understand. The oil market had collapsed around '87. US rig count had fallen to around 750 IIRC. There were massive layoffs (in the 50% range) of good paying jobs. As a result, the Houston housing market had a collapse of epic proportions. Maybe the Nevada collapse matched it in absolute terms, but there were new 2200 sq. ft. homes in nice new neighborhoods going for $30,000. Granted, there's been inflation since then, but that's about $60k in today's money. But, banks hid their exposure to this by keeping the homes listed at the old values, not the new market values. On paper, they had no problem. Homes that couldn't be sold for 50k were being listed at 100k. This accounting fiction lasted only for a while, during which things continued to get worse. Finally, the Feds were caught paying a bundle. The second part of the proposal would allow banks to play it closer to the edge. But, if you noticed the folks who got in trouble first were the highest leveraged folks.and that the banks with 10% M1 reserves were a more manageable problem. I cannot imagine why 2% margins or 0.2% margins would make everything all right. I haven't looked at the balance sheets of Barclay's or Deutsche Bank, but I would guess that they are in the same situation. There are two things worth noting. The balance sheets in question changed daily, aye, hourly. Since the SL crisis, mark to market was demanded. So, the best guess of the market value had to be used as the value in the accounting. So, yes, I've looked at a number of balance sheets, including those which involved smoke and mirrors. I did look at the 2007 Barkley's and Deutsche Bank, and it was clear to me that the short term debt overwhelmed any ability of short term assets and subordinate bonds (which I think are the ones you are referring tothose folks who don't have accounts with the bank but own bonds issued by the bank like Ford issues bonds to raise money. They were clearly held up by the long term value of their loan packages, and were in no position to handle a run on the bank by those folks who had the right to ask for their money NOW. There are 40 _trillion_ of credit default swaps out there. Financial institutions have made such complicated deals, and, with the leverage they have, they can wake up on Wednesday with a +10 billion balance sheet and go to bed below water. Let's look If you disagree, then perhaps you can take a look at their balance sheets and tell us what you find? I hope you think I covered that fairly well above. The data shows that if there was a run on short term liabilities (savings, checking, short term paper) for either of these banks, then the banks didn't have the assets (even assuming all of the bondholders assets were included) to cover those assets. Even with the intervention, I can personally see the effects of credit tightening. Checks from in-state banks which always cleared overnight took eight days to clear. When we closed on our house, the buyers had to reconfirm that they had the loan the day of the closinga new standard procedureeven though they had 20
Re: My contribution to the bail-out
Dan M [EMAIL PROTECTED] First, it isn't that simple, Yes, you do tend to oversimplify. the SL mess (which also came after a spell of regulators looking the other way because government regulation was bad.another of many coincidences, I suppose). Actually, a large contributor to the SL failures was poor government regulations. When inflation shot up, the SL's were prohibited by regulation Q from paying high enough interest on deposits to attract enough money. Furthermore, SL's were required to make mortgage loans mostly to customers within a small radius of the SL. With little ability to attract new deposits, and almost no geographical diversification, it is no surprise that they made a lot of desperate, bad investments that ultimately led to many SL failures. the short term debt overwhelmed any ability of short term assets and subordinate bonds (which I think are the ones you are referring tothose folks who don't have accounts with the bank but own bonds issued by the bank like Ford issues bonds to raise money. No, I was referring to all debt, subordinate to senior. The data shows that if there was a run on short term liabilities (savings, checking, short term paper) for either of these banks, then the banks didn't have the assets (even assuming all of the bondholders assets were included) to cover those assets. If you only include short term assets, I think that is probably true. That is not what I was referring to. If a bank is insolvent, then it does not have enough total assets to pay all of its liabilities. There is a complicated set of rules that determines who gets paid and who doesn't, but generally customers (depositors) get paid first and equity holders last. Usually it goes something like customers, creditors, senior debt, subordinated debt, preferred shareholders, common shareholders. As you say, it is likely that the short term assets are not enough to cover a run on the bank. But in every balance sheet I am familiar with, the senior debt on down is more than enough to cover the depositors and creditors. It would just take some time to get them their money (or to arrange a takeover of the viable portions of the bank). Checks from in-state banks which always cleared overnight took eight days to clear. When we closed on our house, the buyers had to reconfirm that they had the loan the day of the closing Oh, the horrors! ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
-- Original message -- From: John Williams [EMAIL PROTECTED] Dan M Once told to me, the reason is obvious: flight to quality during a panic. Do you differ? Do I disagree that this was once told to you? Well, your view is such a mixture of accepting and rejecting common ecconomics, I do tend to forget what you accept as verified and what you say can't be verified as a result of complexity. In other words, I cannot put together a consistent model of your posts...'though I'm trying. There are two worthwhile points here. First, 0.16% per year interest (given the present ~4% inflation rate) is close to money under the mattress. Second, the rise of the dollar indicates and the drop in the Fed (together) indicates the belief that nothing in Europe is as safe as the US government, even though the problem is here now. We have to hope that this doesn't spread to nervousness about Deutchbank and/or Barkley's. Because if it does, to quote my old homeboy Zimmy from the '60s quote The highway is for gamblers, better use your sense Take what you have gathered from coincidence The empty handed painter from your streets Is drawing crazy patterns on your sheets . .. end quote I bet Julia and Rob can finish this. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
[EMAIL PROTECTED] [EMAIL PROTECTED] Well, your view is such a mixture of accepting and rejecting common ecconomics, Economists frequently disagree. Often, economics changes by having a professor at a prestigious university pump out a bunch of students with the same views. This kind of evolution is slow and not reliable since the selection forces rarely match with whether the theories unambiguously model the system (worse, the system keeps changing!). Consequently, I don't hold any economic theories strongly, but those that I do hold are shared by some economists who have studied the data, and disagreed with by other economists. Apparently your method of studying economics is to survey all economists to find out which theory is the most common? Opinion poll economics! Second, the rise of the dollar indicates and the drop in the Fed (together) indicates the belief that nothing in Europe is as safe as the US government, even though the problem is here now. Nothing is strong. The dollar went up against a broad basket of currencies as they say. But did you check each of the major currencies that might be a safe place to stash some cash, to see if they were all down with respect to the dollar? I didn't (since I don't think the point is important), but I would before I would make a statement like nothing in Europe Even then I would be skeptical of my conclusion, since there are many factors affecting the system and I am sure I am not aware of all of them. We have to hope that this doesn't spread to nervousness about Deutchbank and/or Barkley's. We don't have to hope that. Personally, I hope that if either Barclay's or Deutsche Bank made a lot of bad choices in their investments, then they will fail and be replaced by a stronger bank or banks. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On Tue, Sep 30, 2008 at 8:10 AM, John Williams [EMAIL PROTECTED]wrote: [EMAIL PROTECTED] [EMAIL PROTECTED] Well, your view is such a mixture of accepting and rejecting common ecconomics, Economists frequently disagree. More generally with each other than with themselves. Nick (who is tempted to disagree with the sentence above) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Nick Arnett [EMAIL PROTECTED] On Tue, Sep 30, 2008 at 8:10 AM, John Williams wrote: Economists frequently disagree. More generally with each other than with themselves. I have seen a lot of I am of two minds statements by economists recently. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On Tue, 30 Sep 2008, John Williams wrote: Nick Arnett [EMAIL PROTECTED] On Tue, Sep 30, 2008 at 8:10 AM, John Williams wrote: Economists frequently disagree. More generally with each other than with themselves. I have seen a lot of I am of two minds statements by economists recently. II I was of three minds, Like a tree In which there are three blackbirds. (From Thirteen Wasy of Looking at a Blackbird by Wallace Stevens.) Yeah. Maybe I should step away from the computer until I'm more caffeinated. Julia ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
-Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of John Williams Sent: Tuesday, September 30, 2008 10:11 AM To: Killer Bs (David Brin et al) Discussion Subject: Re: My contribution to the bail-out We don't have to hope that. Personally, I hope that if either Barclay's or Deutsche Bank made a lot of bad choices in their investments, then they will fail and be replaced by a stronger bank or banks. As had been mentioned here before, they are both very highly leveraged. My memory is that Barclay's leveraged 30 to 1 and Deutsche Bank is leveraged about 50 to 1. That means a modest run on ether bank will result in them becoming unable to give people who request the money they put in the bank that money. Now, you may mention the recent purchases of banks that have had runs on them by other banks (after the FDIC paid off part of the bad debt). Let's look at the assets of these banks from Wikipedia: Citibank$1.50 trillion Chase $1.78 trillion Wachovia$783 billion WaMu$307 billion You notice that Citibank is almost twice the size of Wachovia and Chase is over 5x the size of WaMu. Both have 10% reserves, so they felt they were in position (with the Feds covering part of the bad debt) to buy the assets of the smaller banks. Now, let's look at Barclay's and Deutsche Bank. Barcley's 1.27 trillion pounds 2.3 trillion dollars Deutchbank €2.020 trillion2.9 trillion dollars If there is a run on one of them, the obvious thing to do is to find a bigger bank with less leverage than 30-50 to take over the assets. Do you know of any candidates who are in place to do so? Even if they didn't make toxic loans, good loans can turn bad with a panic pretty soon. Even if the long term position for the banks look good, they have precious little margin to survive a run. If there is a run on either bank that causes a failure, who is big enough to step in? As far as I know, the answer may be the EU the US government put together, but no private institution. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Dan M [EMAIL PROTECTED] As had been mentioned here before, they are both very highly leveraged. My memory is that Barclay's leveraged 30 to 1 and Deutsche Bank is leveraged about 50 to 1. That means a modest run on ether bank will result in them becoming unable to give people who request the money they put in the bank that money. You persist in oversimplifying, and in ignoring creditors and bondholders. I wonder if you have ever studied the balance sheet of a bank? I have mentioned before, and even given a link to a nice explanation, that for the large US investment banks, if they are declared insolvent and put into receivership, that there is enough debt to cover the bad assets without costing the customers and countparties a dime. I haven't looked at the balance sheets of Barclay's or Deutsche Bank, but I would guess that they are in the same situation. If you disagree, then perhaps you can take a look at their balance sheets and tell us what you find? ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
John Williams [EMAIL PROTECTED] Alberto Monteiro Now suppose that some smart guy _knows_ that there's a 50% chance that tomorrow's price will raise by 100% and there's a 50% chance that tomorrow's price will get back to 0%, and that whenever he puts money in that, the g*vernment steals 1% from him. That is straightforward to profit from with any number of options strategies. Look up long straddle and long strangle for example. Would s/he be wise to put his/her money into this lottery I would. And I did, today. I had no idea how the vote would go, but I figured that the market would move strongly one way or the other. So I put on a long strangle, and made some money. About the only other people making money today were the gold-bugs and (oddly) the dollar bulls. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
-Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of John Williams Sent: Monday, September 29, 2008 3:27 PM To: Killer Bs (David Brin et al) Discussion Subject: Re: My contribution to the bail-out John Williams wrote: About the only other people making money today were the gold-bugs and (oddly) the dollar bulls. In the last month or so, the 1 month T-bill rate fell a factor of 10. http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rat e/yield.shtml Once told to me, the reason is obvious: flight to quality during a panic. Do you differ? Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Dan M [EMAIL PROTECTED] Once told to me, the reason is obvious: flight to quality during a panic. Do you differ? Do I disagree that this was once told to you? ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
John Williams wrote: Imagine that you, me, and a few other stupid guys believe that some stock prices will go up tomorrow by 10%. What should we do? Not enough information. What probability will they go up by 10%. What are other possible outcomes and probabilities? How much money do we have to risk? It should be implicit, by what I wrote next, that those stupid guys knew for sure that prices would raise by 10% - and they are wrong. After all, what's the point calling them stupid? Now suppose that some smart guy _knows_ that there's a 50% chance that tomorrow's price will raise by 100% and there's a 50% chance that tomorrow's price will get back to 0%, and that whenever he puts money in that, the g*vernment steals 1% from him. That is straightforward to profit from with any number of options strategies. Look up long straddle and long strangle for example. I am making it simple. There ain't no options. Just buy or (short) sell. Would s/he be wise to put his/her money into this lottery just to prove that we are fools? Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Alberto Vieira Ferreira Monteiro [EMAIL PROTECTED] I am making it simple. There ain't no options. Just buy or (short) sell. Oversimplifying, and missing obvious ways to make money. Typical of people who think they know better how to spend other people's money. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
John Williams wrote: I am making it simple. There ain't no options. Just buy or (short) sell. Oversimplifying, and missing obvious ways to make money. Typical of people who think they know better how to spend other people's money. Goodbye. I won't waste my time with Trolls. Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Alberto Vieira Ferreira Monteiro [EMAIL PROTECTED] Goodbye. I won't waste my time with Trolls. Unfortunately, that is NOT typical of those who think they know better how to spend other people's money. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On 9/28/2008 7:14:14 PM, John Williams ([EMAIL PROTECTED]) wrote: Alberto Vieira Ferreira Monteiro [EMAIL PROTECTED] Goodbye. I won't waste my time with Trolls. Unfortunately, that is NOT typical of those who think they know better how to spend other people's money. Yes it is. xponent Cry Havok Maru rob ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Rceeberger [EMAIL PROTECTED] Yes it is. I wish I lived in your world, then. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
My contribution to the bail-out
Does this make any sense at all? We bought a house about two years ago. We are now deep under water -- the house is worth about $100,000 less than we owe, after subtracting gains that we caused by making improvements. If I assume that we paid more than it is worth because valuations were based in part on sub-prime loans (which ours isn't) that were over-valued and that today's value is closer to a real market-based valuations (although who knows, the voodoo is still out there)... then haven't we contributed about $100,000 toward a bailout? That's assuming that prices stabilize around where they are, of course. Or are we part of the problem because we bought a house at a time when we should have known that valuations were absurd. Trouble is, that's a large part of what kept me from buying a house here in Silicon Valley for a long. And I always said that I knew that if I bought a house here, the market would promptly go south. Not that I'm arguing causality. How could we have known what we apparently should have known about valuations? How much research should a non-real estate professional be expected to figure out when buying a house? If financial professionals can't make sense of the value of sub-prime paper, how could the rest of us be expected to? Until I wrote that, I hadn't really thought about the effect of complexity on a market... the idea that complex derivatives, subordination and such can create a market in which nobody, least of all ordinary people, can know the value of goods. For those among us who oppose government regulation, does this include opposition to regulation whose purpose is to limit complexity? (Which I'm thinking would also help avoid chaotic -- in the mathematical sense -- behavior in the markets.) Nick ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Nick Arnett wrote: How could we have known what we apparently should have known about valuations? How much research should a non-real estate professional be expected to figure out when buying a house? If financial professionals can't make sense of the value of sub-prime paper, how could the rest of us be expected to? Back in 1991 or so (could be a few years latter), I learned what USA people were doing with the houses: each USA middle class citizen was living in a house that was not his/hers, in debts that were of the order of magnitude of 3 times what they actually owned. Back then, I had no training in Economics. I said that it was wrong. The reply? Everybody is in debt, so nobody will have to pay anything. For those among us who oppose government regulation, does this include opposition to regulation whose purpose is to limit complexity? (Which I'm thinking would also help avoid chaotic -- in the mathematical sense -- behavior in the markets.) The only way a g*vernment can control the complexity of the market is by making everything the private property of Our Beloved Leader. Anything else either creates a complex market, or a more complex black market. Alberto Monteiro PS: mathematical chaos is a good thing :-) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Nick Arnett [EMAIL PROTECTED] How could we have known what we apparently should have known about valuations? I looked at price to rental and price to income ratios, as well as the deteriorating loan standards (my parents needed to put 20% down, but so many loans in the past ten years put 5% or 0% down), and concluded that the housing market was overvalued (at least in the places I was living in). So I've been renting. How much research should a non-real estate professional be expected to figure out when buying a house? If financial professionals can't make sense of the value of sub-prime paper, how could the rest of us be expected to? Some people will make mistakes, others won't. That is part of how a market sets prices. I agree that many so-called experts were wrong. To me, that argues that we shouldn't have experts setting policy, since that just gives them a chance to be wrong for a much larger amount of money. You were wrong and are down $100,000. If an expert is wrong, the country could be down $100B or a trillion. Actually, it could be even worse than that. The numbers become huge if you look at the difference between, say, 2.1 and 2.0% growth over a lifetime and millions of people. Until I wrote that, I hadn't really thought about the effect of complexity on a market... the idea that complex derivatives, subordination and such can create a market in which nobody, least of all ordinary people, can know the value of goods. For those among us who oppose government regulation, does this include opposition to regulation whose purpose is to limit complexity? (Which I'm thinking would also help avoid chaotic -- in the mathematical sense -- behavior in the markets.) I don't follow how you go from nobody understanding to the government somehow being able to help. If nobody understands, surely that includes politicians? Maybe you are saying that the government can somehow make things understandable by reducing chaos? I find that an even bigger leap of faith. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On Fri, Sep 26, 2008 at 10:19 AM, John Williams [EMAIL PROTECTED]wrote: For those among us who oppose government regulation, does this include opposition to regulation whose purpose is to limit complexity? (Which I'm thinking would also help avoid chaotic -- in the mathematical sense -- behavior in the markets.) I don't follow how you go from nobody understanding to the government somehow being able to help. If nobody understands, surely that includes politicians? Maybe you are saying that the government can somehow make things understandable by reducing chaos? I find that an even bigger leap of faith. Yes, to the latter. I'm not talking about solving the current problem, but what could be done in the future to help prevent such a problem. It seems to me that the freedom to create extremely complex financial instruments enabled the present mess to happen. The idea is to avoid creating things we don't understand. As for solving the present problem, I sure don't know. I particularly like your idea of looking at price to rental ratios. They're nutty here in Silicon Valley. Anybody who bought in recent years has zero hope of coming even close to being cash-flow positive... but we also have Prop. 11 to make things weird. We're paying 20x what the previous owners paid in property taxes. Nick ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Nick Arnett [EMAIL PROTECTED] Yes, to the latter. I'm not talking about solving the current problem, but what could be done in the future to help prevent such a problem. It seems to me that the freedom to create extremely complex financial instruments enabled the present mess to happen. The idea is to avoid creating things we don't understand. I agree that highly-leveraged positions, often involving complex derivatives, are probably a bad idea. But I also think it is an extremely complex problem to determine what leverage ratios and what types and combinations of derivatives are optimal. Clearly, it would be folly to ban all leveraged positions or all derivatives. I think the government is making a huge mistake by bailing out companies, due to the moral hazard that is being created. If investors were more concerned about going broke by investing in such risky companies, then it is quite likely that the companies would take fewer risks. Instead, we have the government bailing out those who took the worst risks, and barring the short-sellers who tried to take the other side of the bet (i.e., favoring less risk). Credit default swaps (CDS) appear to be an important proximate cause of the recent market volatility. As I mentioned in another post, there is no centralized clearing organization for CDS, in contrast to other derivatives markets such as stock options and futures, which do have centralized clearing. Know one knows if their CDS counterparties will be able to pay off when a credit even occurs. If the government were to help facilitate a consortium of banks to create a CDS clearing organization, I bet it would help market stability. We're paying 20x what the previous owners paid in property taxes. If I had a choice, I would rather pay most of my taxes as property (land) taxes and sales taxes. If the various governments could arrange things to keep the same tax revenue, but make it all from property taxes and sales taxes, it would make me happy. That way, people who don't consume very much or don't take up much desirable land, don't pay very much tax. Those who consume the most and take up the most desirable land should be paying the most to keep the government running, I think. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
I think the government is making a huge mistake by bailing out companies, due to the moral hazard that is being created. If investors were more concerned about going broke by investing in such risky companies, then it is quite likely that the companies would take fewer risks. Instead, we have the government bailing out those who took the worst risks Hmm, how is this happening. Let's say I took a stupid risk (I didn't, but let's say I did) and bought AIG one year ago. I would have bought it for just under $70. Today's value is $3.00. I would have lost over 95% of my investment. I'll tend to agree with you that that, by rights, that should be 100%. But, 95% loss is close enough for me. By keeping AIG going, the Federal government eliminated the possibility that many who traded with AIG would be in a oh shit position in the short term, and a number of those companies would go under...etc. The Feds. got 80% of the company, which does have assets that will be worth something besides the toxic loans. So, given the fact that a cascade effect would drop tax revenues, it was probably a good bet for the Feds. to do the deal. The moral hazard that's involved is folks who bought into AIG foolishly only lost 95% of their money instead of 100%. Well, I can deal with that. And, if AIG somehow gets back up to even $30, then the Feds make a profit. So, I agree with you, folks who invest in companies that are bailed out should lose their shirts, their officers should be shown the door with 2 weeks pay (less if that's legal), and any moral hazard should be minimized. But, the risk of a cascade effect pulling in large numbers of companies that otherwise would be able to continue working is one that I strongly wish to avoid. So, risk aversion on my part leads me to think that the 5% moral hazard of having people lose _almost_ all of their money instead of all their money is an acceptable price. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Dan M [EMAIL PROTECTED] Hmm, how is this happening. Let's say I took a stupid risk (I didn't, but let's say I did) and bought AIG one year ago. I would have bought it for just under $70. Today's value is $3.00. I would have lost over 95% of my investment. I'll tend to agree with you that that, by rights, that should be 100%. But, 95% loss is close enough for me. Why are you neglecting the creditors? The bondholders and other lenders lost nothing. It is odd that you place so much emphasis on the credit market, and then suddenly ignore it. The Feds. got 80% of the company, which does have assets that will be worth something besides the toxic loans. So, given the fact that a cascade effect would drop tax revenues, it was probably a good bet for the Feds. to do the deal. Your model is far too simplistic. By bailing out the companies, the government affects many other variables which, compounded, could lead to huge losses. But all these things are unknowable by mere mortals. Bottom line, if the government is so good at predicting the future, why didn't they predict the current events? Bernanke and Paulson repeatedly got the housing and mortgage market predictions wrong. There is no good reason to trust their predictions now. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
-Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of John Williams Sent: Friday, September 26, 2008 2:27 PM To: Killer Bs (David Brin et al) Discussion Subject: Re: My contribution to the bail-out Why are you neglecting the creditors? The bondholders and other lenders lost nothing. It is odd that you place so much emphasis on the credit market, and then suddenly ignore it. Because I thought I covered that with the cascade effect. Are you arguing letting the cascade effect happening is the moral thing to do? Also, I would really like to know your background because it would help me understand what I can assume you know and what needs explaining. You seem to be arguing that if things are so complex that we cannot predict outcomes with certainty (as they certainly are with economics) that there is nothing predictable with any reasonable probability at all. My successes in the past are one small testimony to the falsity of this position. You seem to have a black and white version of complexity. If it were strictly true, chemistry would be impossible. :-) Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On Fri, Sep 26, 2008 at 11:12 AM, John Williams [EMAIL PROTECTED]wrote: Credit default swaps (CDS) appear to be an important proximate cause of the recent market volatility. As I mentioned in another post, there is no centralized clearing organization for CDS, in contrast to other derivatives markets such as stock options and futures, which do have centralized clearing. Know one knows if their CDS counterparties will be able to pay off when a credit even occurs. If the government were to help facilitate a consortium of banks to create a CDS clearing organization, I bet it would help market stability. That sounds like a good idea -- government regulation that yields market information. This flows, of course, from the elementary idea that markets can only be efficient when the participants have equal knowledge... which closely relates the scariness of the idea that nobody knows the value of mortgage-backed securities. I've done market forecasting on wild assumptions -- most emerging market research has a high degree of guessing -- but that was always for high-growth, high-risk markets where the consumers of my research were far more interested in how I thought about them than in my conclusions. I guess that having done that kind of work, I was perhaps particularly disturbed to see real estate, certainly not an emerging market in any fundamental sense, subject to the same sort of wild-ass analytics. Nick ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Dan M [EMAIL PROTECTED] Because I thought I covered that with the cascade effect. A big part of the recent volatility is due to excessive leverage. That means excessive lending. If you have 30 to 1 leverage, then the debt far exceeds the equity. Aren't you the one that likes to look at large causes? At the end of fiscal 2007, AIG had about $360 billion of long-term- , short-term- , and other senior debt. None of those creditors lost any money despite AIG being on the brink of bankruptcy. They were bailed out by the government. Similarly, the Bear-Stearns creditors did not lose money. Ditto for Fannie Mae and Freddie Mac creditors. I don't understand how you can ignore that in a model of moral hazard, especially when you just got done arguing that interest rates for corporate borrowing were either too low or too high or whatever result your simple model gives. Look, this is getting silly. If you understand the market so well, and can consistently outguess millions of people risking their own money, then why not prove it? Put your money where your mouth is. Start risking some of your own money, it should be easy for you to make a lot of money. Then, if you think there isn't enough lending going on, you can lend! Imagine, actually a direct solution with your own money rather than taking other people's money and giving it to people who have made bad decisions. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Nick Arnett [EMAIL PROTECTED] That sounds like a good idea -- government regulation that yields market information. Thanks, but I didn't mean government regulation. I was being as precise as I could when I wrote encourage. If you are familiar with the LTCM bailout, I mean something along those lines (no government money or written rules -- they basically called industry leaders into a room and suggested that they do something about it). By clearing organization, I mean something like the OCC, which is private, not government: http://theocc.com/ I was perhaps particularly disturbed to see real estate, certainly not an emerging market in any fundamental sense, subject to the same sort of wild-ass analytics. I certainly don't really know, but I think that an important ultimate cause of the recent volatility is excessive mortgage leverage. As I mentioned before, 20% downpayments used to be the norm, which is 4 to 1. During the height of the mortgage mania, 5% down or less was common. 19 to 1 or worse. Now, all the mortgage backed security issuers sliced and diced those mortgages to distribute that risk around, but it does not change the fact that 19 to 1 or higher leverage is much more risky than 4 to 1. I guess what I am getting at is that esoteric models like those you may have worked with don't seem that odd to me for extremely leveraged situations, whether or not the mortgages are sliced and diced into a multitude of risk tranches. Where were the conservatives when we needed them? :-) Keep the 20% down mortgage, it worked for many years! I guess they were shouted down by the Democrats who said we needed to fund mortgages for people who could not afford 20% downpayments. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: My contribution to the bail-out
Look, this is getting silly. If you understand the market so well, and can consistently outguess millions of people risking their own money, then why not prove it? Put your money where your mouth is. For the same reason that, although I know that playing the roulette wheel is a losing proposition, I cannot predict who will go to Vegas. Again, please please tell me what your background is, so I know the floor at which to start explaining standard ideas. Whatever you think, Buffet, Paulson, and Bernoski, Greenspan are not all idiots. Yet, (with the possible exception of Buffet), the market is efficient enough so they cannot predict it. Yet, that does not mean their knowledge is meaningless...which is the logical conclusion from your argument. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Dan M [EMAIL PROTECTED] For the same reason that, although I know that playing the roulette wheel is a losing proposition, I cannot predict who will go to Vegas. Bad analogy. Better analogy would be for you to invest in a casino, which expects to make money on roulette, provided they don't go broke, which they insure by limiting the size of the bets they will accept relative to their capital. Which still does not answer the question. It is relatively basic probability and statistics to model how much money to risk given the expected return and risk of the investment. Since you believe you have a superior understanding of those principles to the majority of the market participants, you should easily be able to make a lot of money. Why do you insist on risking other people's money instead of your own? Again, please please tell me what your background is It is sufficient to understand any argument you make that is reasonable for an email list such as this. The problem is not that I don't understand you, it is that you are trying to persuade me that you and people like you know better how to spend other people's money, even though you will not risk your own money in a similar environment, and I'm not buying it. Whatever you think, Buffet, Paulson, and Bernoski, Greenspan are not all idiots. Even the smartest people make mistakes (Bernoski? :-) And predicting the future of an extraordinarily complex system is difficult, even for geniuses. Bernanke, Paulson, and Greenspan all failed to predict the housing bubble and mortgage crisis. In fact, they all predicted the opposite. Regardless of their intelligence, their track record is horrible. Yet, (with the possible exception of Buffet), the market is efficient enough so they cannot predict it. Buffett is the only one of the 4 who primarily risks his own money. Which, incidentally, he got essentially a 10% perpetuity PLUS warrants at a favorable price for his $5B investment in Goldman. How much you want to bet that the government does do anywhere near as well with other people's money? ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
John Williams wrote: Look, this is getting silly. If you understand the market so well, and can consistently outguess millions of people risking their own money, then why not prove it? Maybe because His Superior Wisdom dictates that it's impossible to net-gain money from the market :-P Put your money where your mouth is. Start risking some of your own money, it should be easy for you to make a lot of money. Then, if you think there isn't enough lending going on, you can lend! Imagine, actually a direct solution with your own money rather than taking other people's money and giving it to people who have made bad decisions. Ok, let's make a simulation. Imagine that you, me, and a few other stupid guys believe that some stock prices will go up tomorrow by 10%. What should we do? Now suppose that some smart guy _knows_ that there's a 50% chance that tomorrow's price will raise by 100% and there's a 50% chance that tomorrow's price will get back to 0%, and that whenever he puts money in that, the g*vernment steals 1% from him. Would s/he be wise to put his/her money into this lottery just to prove that we are fools? Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On Fri, Sep 26, 2008 at 1:37 PM, John Williams [EMAIL PROTECTED]wrote: Nick Arnett [EMAIL PROTECTED] That sounds like a good idea -- government regulation that yields market information. Thanks, but I didn't mean government regulation. I was being as precise as I could when I wrote encourage. ;-) I used the r word to see if you'd go along with it. Not gonna let that sneak by, are you? Nick ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Alberto Monteiro [EMAIL PROTECTED] Imagine that you, me, and a few other stupid guys believe that some stock prices will go up tomorrow by 10%. What should we do? Not enough information. What probability will they go up by 10%. What are other possible outcomes and probabilities? How much money do we have to risk? Now suppose that some smart guy _knows_ that there's a 50% chance that tomorrow's price will raise by 100% and there's a 50% chance that tomorrow's price will get back to 0%, and that whenever he puts money in that, the g*vernment steals 1% from him. That is straightforward to profit from with any number of options strategies. Look up long straddle and long strangle for example. Would s/he be wise to put his/her money into this lottery just to prove that we are fools? I would. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Nick Arnett [EMAIL PROTECTED] I used the r word to see if you'd go along with it. Not gonna let that sneak by, are you? Heh, I just re-read my post and I wrote facilitate, not encourage. But yeah, I have little tolerance for most government regulation. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
