But how far down do things have to go .... So that the deluded masses stop believing this is a system in which they are going to win?
When the government can't even understand the derivatives market, the public has no hope of understanding the economic system on an intellectual level. The only way is through re-understanding the physical limits of the planet. There are still plenty of old folks around that remember what it was like to be poor, and thus frugal and perhaps a bit more realistic about how to live as they had no other choice.
you are the media you consume.
There's a lot of frankly wankish talk about 'quantifying risk' but the reality is that this is just one big boy's game. It's not even a casino, so much as organised extortion and robbery.
This fiasco is what you get when you left scientifically and mathematically illiterate idiots farm everyone else. They get away with it because their mentors - the rich billionaires with their adolescent libertarian ideologies - can afford to buy the narratives that define what's happening.
What people need to learn is that most of the starchy self-absorbed 'authoritative' people in suits are talking crap - utter, utter nonsense, far beyond the silliest fringes of the New Age or the most eccentric political and social beliefs.
Intellectually, they're flat earthers and extremist mullahs rolled into one. They have their degrees and their policy institutes and their funded programs, but they do not understand anything at all about real, non-ideological physically-grounded economics.
They're not only evil and stupid, they're also fantastically clueless and insulated from reality. This might sound shrill, but consider the historical record here - how much intellectual honesty do you need to realise that if you lend to people who can't afford to pay you back, and then sell on the loans, the results are guaranteed to be worthless?
Even this very simple level of insight seems so far outside of their imaginative scope that they can't even admit that it could be relevant to their computer models.
And yet they own almost everything, and want to own even more.
How much longer are we going to continue to put up with this plague of fantasists, chancers, apologists and self-inflating so-called experts?
The trouble is, traders are paid to make big money. If they risk big and win, a huge paycheck follows. If they risk big and lose, they just look for another job. The risk/reward is asymmetric and pushes you to take on more risk than is prudent. Optimists tend to get paid better than pessimists.
Couple that with group think reinforcing the momentum in the market and you have a recipe for ugly snap backs. Seen it more than once.
And don't kid yourself. You can't con an honest man easily. The people losing homes knew they couldn't afford them for the most part. As for the flippers -- f--k em. let them eat the losses.
Optimists tend to get paid better than pessimists
I wish! "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
the panic is in the corporate press types who see their white shoed buds heading for a major whacking. Cramer's croc tears for the people losing their houses is cover for a bailout for billionaire hedge fund managers who for the most part have the bulk of their money in their own funds.
Markets are stupid. We've had boom/bust cycles for centuries as greed gets out of hand from time to time. Without the pain to keep the bozo's honest (at least a little), speculation gets crazy. How can any sane person pay the value of a house for a tulip bulb? Or $5K for a frigging beanie babie? Yet people do it. Over and over.
Social benefit? What makes you think most people give a rats ass about social benefit? They care about THEIR benefit. Hence the Republican/Tory parties.
The sums are tiny. Less than we are pissing down a rathole in Iraq in a month.
Yes but people don't realize this.
If the central bank lent 500 billions USD worldwide for one week and saved a 10% interest spike to the private banks involved (all numbers are way above what happened) that makes it to less than one billion USD of "giveaway", that is less than four days of Iraq war cost (10 billions USD per month IIRC).
It's not a reason to do it, but that's not big money.
I'd say that's more than 'a bit.'
The Iraq war isn't really comparable, because that's treated as a straight outlay - effectively it's just public spending by one government.
But what's happening with the ECB and other national banks is that they're using their own reserves to try to solve a problem that was created in the US by the US money markets, and which should have remained local to the US.
The Fed meanwhile is hemming and hawing and throwing in some token liquidity to make it look as if it's doing something. But Bernanke has done almost exactly nothing so far - possibly because he knows he doesn't have to as long as Europe, Japan and the rest will provide the US with more cheap cash for a little longer.
we're getting close to a total of $200-$300 billion of liquidity injection from various central banks over the last week or so. I'd say that's more than 'a bit.'
That's loans to European banks, usually secured. The only real subsidy is that these funds were lent at 4% rather than the then prevailing 4.7% caused by the drying liquidity. So the actual subsidy would 0.7% of the above amount, if the money were repaid only in a year.
But Bernanke has done almost exactly nothing so far - possibly because he knows he doesn't have to as long as Europe, Japan and the rest will provide the US with more cheap cash for a little longer.
Not quite either: while the ECB has provide straightforward loans against deposits of treasuries to banks, the Fed has apparently lent against mortgaged-backed paper, i.e. the toxic underlying assets - if mortagages are the problem, then these amounts are much more likely to become actual subsidies - in any case, it makes the Fed one of the potential losers of the mortgage defaults.
Meanwhile, what the ECB has done is allow the European Banks to have enough liquidity to reduce their exposure to US "toxic sludge" without being forced to distress sales, i.e. without giving up a lot of the potential residual value. That allows European banks to eat their losses, but nothing more (panic would have forced them to take much larger hits). everybody is being hit by the underlying mess, but the scope of these losses is dwarfed by the potnetial losses if the whole pyramid unwinds brutally.
So the ECB has done its job, I'd say. And it would seem that they still intend to raise their main rate to 4.25% from the current 4% at the next meeting, thus showing that they intend to continur their tightening policies, even after that targetted intervention. In the long run, we're all dead. John Maynard Keynes
The private banks saved : (amount outstanding) * (number of days to maturity / 365) * (rate in spike mode - rate in normal mode).
Here: 500e9 * 7 / 365 * (x+10%-x) ) ~= 1e9.
We can say this is a subvention from central banks to private banks.
i thought it was an investment in our security from terror!
so cornfused... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
If the risks were genuinely understood, why are central banks in a panic?
I think they are panicking because the realisation is dawning. It reminds me of the realisation - post Piper Alpha - of the Lloyds' reinsurance spiral.
How corrupt and/or stupid do the markets as a whole have to be to keep repeating this cycle?
It's not really a matter of markets being corrupt or stupid so much as them being markets. They do what they do. Garbage in gives rise to garbage out.
Variations on this theme will continue and for as long as we have a deficit-based system we will see cycles of Schumpeterian creative financial destruction.
What exactly is the social benefit of any of this nonsense?
That depends upon how you define "Society" and whether or not you believe in the "trickle down" of the wealth siphoned off by the intermediaries running the system. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Money flows upward from poor to rich. That is the whole point and purpose. That is what it is for. It may not be quite right to call it a benefit . . . The Fates are kind.
hahahaha....
why it's those extra porsches and cartier watches....there's a reason they're called 'fundamentals' you know.
the feds just lowered the discount rate....
to combat the credit crunch...no need to worry about that, says sky news... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Ask a broker about Black-Scholes; it will be refered to more likely than not as a "black box".
If the brokers don't get it certainly the client isn't likely to but, as the broker says to the client who's taken a liquidity bath, "well I made money and my brokerage house did too (on fees and commissions); sorry you didn't but two out of three ain't bad!" Fai de bèn a Bertrand, te lou rendra en cagant
But don't conflate broker with trader. Brokers have no skin in the game or even their company's skin. Trader's are carrying the risk and hedge fund people are usually required to keep much of their huge paychecks inside their own fund.
Really, Ted.
But I do think it's a good idea to be very honest with each other, which might even mean saying that an argument is bloody stupid - if one really thinks it is. Though calling members of OUR team "flat earthers and extremist mullahs rolled into one... evil and stupid ... fantastically clueless", would be a bit "shrill" :-)
"Do not fear the enemies who hate you, fear the friends who flatter you." Nietzsche Maybe it's because I'm a Londoner - that I moved to Nice.
This is about real people losing real jobs and real homes and real health care. It's about a real eco-system being stripped bare with real physical effects. It's about real semi-permanent damage to seas and rivers and water tables that's going to take generations to correct itself - if it ever does.
It's about the biggest resource pillage in history, with very real and very literal strip-mining of energy, metals, top-soil, human labour, and other essential life-support elements, with no thought at all to managing extraction over a reasonable time-frame.
All of this is happening so these spivs and enablers can pontificate in their plummy pinstripe tones about how wonderful the markets are - while competing with each other about who has the biggest yacht and the biggest holiday home.
If there's something defensible going on here, it's really not easy to see what it might be.
Of course I think the situation is terrible too, but talking about people as "evil" and "mullahs" is the kind of thing I expect in one of Bush's speeches rather than here. I don't think your generalised harangues make it much easier to see what is going on -- or what to do about it - kill all those you deem to be "evil" ? But I'm sure writing them makes you feel better :-) Maybe it's because I'm a Londoner - that I moved to Nice.
But I don't apologise for lumping Free Market dogma in with the other religious follies of the day. They're indistinguishable as far as I can tell - with the difference that Market Fundamentalists are far more dangerous than other fundies because they have real power, rather than simply aspiring to it.
As for the ethics - what other words would you suggest for a system which has killed millions, ruined entire countries and done trillions of dollars of damage to a life support system that we all rely on?
Not terribly nice? A bit misguided? Possibly not the best of all possible worlds?
Les absents ont toujours tort.
