When I heard "CDSes are a valid instrument" in today's AIG CEO hearing I about gagged. Uh, not unless seriously reformed AND regulated.
So far that is my impression. These people are determined to hang onto these derivatives where even the base mathematical equation is fundamentally flawed.
But I think we need to go digging deeper to write about these things we find in layman's terms. I believe people jump on the executive bonuses because that is something they can clearly understand as outrageous...but digging around in financial products minefield to even figure out where the fraud lies...
is very hard. Even for financial people never mind lay people.
So, more "exercises for the reader" are in order.
I also caught from the AIG hearing today that CDSes are almost wound down but there are other derivatives, structured finance that I need to find out more about which is still $1.6 trillion at AIG alone in liabilities.
Reminds me of the interchange during a Senate hearing back around the late '90s or 2000, between the beleagured head of the FASB and that anti-American traitor and cretin, Phil Gramm, who absolutely would not have any standards applied to derivatives and securities, etc.
So, does that firm Markit still decide the valuation of credit default swaps???
... fiction of the value of these assets ... and since De Nile aint just a river in Egypt, much of Wall Street is still clinging to the idea that while they may have been "overvalued", they had "some value", which is "not adequately recognized".
Mark to market brings down the asset side of a balance sheet during a downturn. That's what liquid contingency reserves are for.
The problem of "how do we mark to market when there is no market" is also simple ... it should not be on the balance sheet "as if" it was a liquid asset if there is no established public market to provide that liquidity. It should be on the balance sheet as an investment asset, and its positive value entered as that value in realized in actual returns.
All that time that Post Keynesians and American Institutionalists were saying that the "efficient market hypothesis" was just an excuse to let Wall Street do what it wanted to do, and letting Wall Street do what it wants to do will always, inevitably, end in financial collapse ...
Gold, silver, oil, food, etc.
The laws of supply and demand don't stop just because other nations are devaluing their currencies as well. You double the amount of dollars without increasing the amount of goods, then the price of those goods are going to double no matter what happens to other currencies.
This step by the Fed is a statement that other nations are unwilling or unable to buy our debt as fast as we are issuing it.
Simple as that.
The next step will be when another nation refuses to sell us goods in exchange for dollars. This will probably happen with oil before anything else. I can't pretend to know when it will happen, but it will.
In 1934 FDR confiscated gold, and then devalued the FRN against it. Today all currencies are fiat and we are in a competitive devaluation spiral by all central banks. Essentially a zero sum game.
Remember that the dollar was devalued by FDR in 1934 by 60%. The dollar was devalued under Dubya by 40%. Now comes the real devaluation.
It's going to be very hard in the coming years. We are going to see high unemployment AND high prices too. I said it years ago that our fate was the same as Argentina's, and we keep getting closer and closer to it.
When they come for your retirement savings it will be too late. All those 401k's and traditional IRA's that the government has wanted you to get into are going to be sheeple pens.
But I believe I beat you to that very subject yesterday. :o) HA!
However, we can all look backwards and point fingers ... yadda, yadda, yadda .... but where are we going?
My suspicion is we are nearing a ginormous currency devaluation.
and while everyone is touting Ben Bernanke and his incredible wisdom of avoiding the monetary mistakes of the Great Depression, scant attention is being paid to the other side of this story, which is risk of default and hyper-inflation.
That's why in mark-to-market on enabling fictional evaluations....I put it in the terms I did, at least it would have kept the fictional money problem in the private sector instead of the U.S. taxpayers pocket.
I love your title of the "race to the bottom on currency evaluations". Just as a "big picture" evaluation doesn't it seem that globalization generally has created a series of races to the bottom? i.e. wages, labor standards, reduce social safety nets, reduce middle class, reduce regulation for secured investments, reduce public trust....
Makes me think of the concept of equilibrium. One has two ponds of different water levels, volume and each pond has a boat. Let's say there was a land bridge between the two pond. Let's say globalization is the thing that blows up that land bridge. The two ponds along with the two boats will flow to each other until they equalize....but overall the water level will not exceed the highest original pond.
variable-rate debt they often used interest rate swap to change over to fixed rate. It may difficult to track the amount but I know that investment banks loved this because it generated a lot of fees.
This is the first I heard about this and it probably would be useful to research it out...
but these friggin' derivative products are popping up over and over again causing massive losses.
I feel like we have traveling salesmen under the guise of financial advisers pushing their snake oil called derivatives, i.e. swaps.
What ever you do to research this out, screen for the stupid.
I just cruised the Internet reading various sites and so on and the commentary on AIG is pretty stupid. They are all going off on bonuses when the real issue is that London gambling hall and getting rid of this shadow banking system, toxic assets in addition to the AIG payouts and what they are doing specifically with these various derivatives. The bonuses are just a symptom.
of big business to want to maintain the status quo. What they fail to realize is that the status quo is not sustainable. Mankind cannot survive on debt alone.
I have no statistical evidence, but I have noticed that certain States of India, and certain Castes, seem to have a better chance of producing India Institute of Technology grads.
But I'd argue that the higher poverty and illiteracy rate in the lower castes is going to mean that the upper castes are more likely to grab these positions anyway. So you'd better have more than just anecdotal evidence.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
There's $67 trillion of unfunded pension liabilities just with respect to Social Security, accoring to the Congressional Budget Office. This does not include unfunded liabilities on behalf of States and their Employee Retirement systems. There's basically a black hole here that no one can really address at the moment. China is very concerned.
When I heard "CDSes are a valid instrument" in today's AIG CEO hearing I about gagged. Uh, not unless seriously reformed AND regulated.
So far that is my impression. These people are determined to hang onto these derivatives where even the base mathematical equation is fundamentally flawed.
But I think we need to go digging deeper to write about these things we find in layman's terms. I believe people jump on the executive bonuses because that is something they can clearly understand as outrageous...but digging around in financial products minefield to even figure out where the fraud lies...
is very hard. Even for financial people never mind lay people.
So, more "exercises for the reader" are in order.
I also caught from the AIG hearing today that CDSes are almost wound down but there are other derivatives, structured finance that I need to find out more about which is still $1.6 trillion at AIG alone in liabilities.
Reminds me of the interchange during a Senate hearing back around the late '90s or 2000, between the beleagured head of the FASB and that anti-American traitor and cretin, Phil Gramm, who absolutely would not have any standards applied to derivatives and securities, etc.
So, does that firm Markit still decide the valuation of credit default swaps???
... fiction of the value of these assets ... and since De Nile aint just a river in Egypt, much of Wall Street is still clinging to the idea that while they may have been "overvalued", they had "some value", which is "not adequately recognized".
Mark to market brings down the asset side of a balance sheet during a downturn. That's what liquid contingency reserves are for.
The problem of "how do we mark to market when there is no market" is also simple ... it should not be on the balance sheet "as if" it was a liquid asset if there is no established public market to provide that liquidity. It should be on the balance sheet as an investment asset, and its positive value entered as that value in realized in actual returns.
All that time that Post Keynesians and American Institutionalists were saying that the "efficient market hypothesis" was just an excuse to let Wall Street do what it wanted to do, and letting Wall Street do what it wants to do will always, inevitably, end in financial collapse ...
... uhm, seems like we were right.
Gold, silver, oil, food, etc.
The laws of supply and demand don't stop just because other nations are devaluing their currencies as well. You double the amount of dollars without increasing the amount of goods, then the price of those goods are going to double no matter what happens to other currencies.
This step by the Fed is a statement that other nations are unwilling or unable to buy our debt as fast as we are issuing it.
Simple as that.
The next step will be when another nation refuses to sell us goods in exchange for dollars. This will probably happen with oil before anything else. I can't pretend to know when it will happen, but it will.
It includes Matewan and the Redneck War that followed.
Would be a post about Matewan
Just a suggestion.
It has always been about class warfare.
In 1934 FDR confiscated gold, and then devalued the FRN against it. Today all currencies are fiat and we are in a competitive devaluation spiral by all central banks. Essentially a zero sum game.
So what do they devalue the FRN against?
It has always been about class warfare.
Or to put it another way, Beggar Thy Neighbor Part Deux.
Remember that the dollar was devalued by FDR in 1934 by 60%. The dollar was devalued under Dubya by 40%. Now comes the real devaluation.
It's going to be very hard in the coming years. We are going to see high unemployment AND high prices too. I said it years ago that our fate was the same as Argentina's, and we keep getting closer and closer to it.
When they come for your retirement savings it will be too late. All those 401k's and traditional IRA's that the government has wanted you to get into are going to be sheeple pens.
But I believe I beat you to that very subject yesterday. :o) HA!
However, we can all look backwards and point fingers ... yadda, yadda, yadda .... but where are we going?
My suspicion is we are nearing a ginormous currency devaluation.
It has always been about class warfare.
a good time to liquidate some of its treasury holdings before the market get flooded.
and while everyone is touting Ben Bernanke and his incredible wisdom of avoiding the monetary mistakes of the Great Depression, scant attention is being paid to the other side of this story, which is risk of default and hyper-inflation.
That's why in mark-to-market on enabling fictional evaluations....I put it in the terms I did, at least it would have kept the fictional money problem in the private sector instead of the U.S. taxpayers pocket.
I love your title of the "race to the bottom on currency evaluations". Just as a "big picture" evaluation doesn't it seem that globalization generally has created a series of races to the bottom? i.e. wages, labor standards, reduce social safety nets, reduce middle class, reduce regulation for secured investments, reduce public trust....
Makes me think of the concept of equilibrium. One has two ponds of different water levels, volume and each pond has a boat. Let's say there was a land bridge between the two pond. Let's say globalization is the thing that blows up that land bridge. The two ponds along with the two boats will flow to each other until they equalize....but overall the water level will not exceed the highest original pond.
i.e. globalization will not raise all boats.
It was only yesterday that I said the Fed would do exactly this.
They are going to push down long-term interest rates, but they are going to kill the dollar in the process.
Fortunately I listened to my own advice and went long foreign sovereign bonds and commodities yesterday afternoon.
derivatives:
Link
variable-rate debt they often used interest rate swap to change over to fixed rate. It may difficult to track the amount but I know that investment banks loved this because it generated a lot of fees.
This is the first I heard about this and it probably would be useful to research it out...
but these friggin' derivative products are popping up over and over again causing massive losses.
I feel like we have traveling salesmen under the guise of financial advisers pushing their snake oil called derivatives, i.e. swaps.
What ever you do to research this out, screen for the stupid.
I just cruised the Internet reading various sites and so on and the commentary on AIG is pretty stupid. They are all going off on bonuses when the real issue is that London gambling hall and getting rid of this shadow banking system, toxic assets in addition to the AIG payouts and what they are doing specifically with these various derivatives. The bonuses are just a symptom.
what their exposure is.
of big business to want to maintain the status quo. What they fail to realize is that the status quo is not sustainable. Mankind cannot survive on debt alone.
I have no statistical evidence, but I have noticed that certain States of India, and certain Castes, seem to have a better chance of producing India Institute of Technology grads.
And it hasn't gone unnoticed by the Indian Government and students of these institutions.
But I'd argue that the higher poverty and illiteracy rate in the lower castes is going to mean that the upper castes are more likely to grab these positions anyway. So you'd better have more than just anecdotal evidence.
-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.
There's $67 trillion of unfunded pension liabilities just with respect to Social Security, accoring to the Congressional Budget Office. This does not include unfunded liabilities on behalf of States and their Employee Retirement systems. There's basically a black hole here that no one can really address at the moment. China is very concerned.
Over leverage and underestimation of risk caused this crisis.
FASB 157 involves transparency something that financial conglomerates dread.
Eliminating FASB 157 will still not address the problem of insolvency. These financial conglomerates are dead and nothing will bring them back.
Here is the actual standard: Link
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