Quoting the Crisis

07/11/2009

» FT.com / Markets / On Wall Street - Greenlight Capital founder calls for CDS ban

When one of the world’s most renowned hedge fund investors turns 180 degrees on a key financial instrument that has been centre stage throughout the financial crisis, it is worth paying heed.

Link posted at 20:07

“ Clearinghouses are the wrong remedy for CDS, but that horse has left the barn and is already in the next county. And I must confess, they sound deceptively appealing (I was a proponent early on) until you dig further into how they would work for CDS. They need to be regulated intrusively, with the intent of shrinking the market considerably over time, and like insurance, with tough capital requirements and frequent examinations of the capital adequacy and claims-paying ability of the sponsor. But the real need is to cut off the air supply to CDS to reduce the size of the market so the product itself no longer represents a systemic threat. „

Yves Smith in The Fantasy of the Clearing House Magic Bullet « naked capitalism

Quote posted at 13:02

“

Productivity increased 9.5 percent in the nonfarm business sector during the third quarter of 2009 as unit labor costs fell 5.2 percent (seasonally adjusted annual rates). In manufacturing, productivity increased 13.6 percent while unit labor costs fell 7.1 percent…

Back in the 1930s there was a Polish Marxist economist, Michel Kalecki, who argued that recessions were functional for the ruling class and for capitalism because they created excess supply of labor, forced workers to work harder to keep their jobs, and so produced a rise in the rate of relative surplus-value.

For thirty years, ever since I got into this business, I have been mocking Michel Kalecki. I have been pointing out that recessions see a much sharper fall in profits than in wages. I have been saying that the pace of work slows in recessions—that employers are more concerned with keeping valuable employees in their value chains than using a temporary high level of unemployment to squeeze greater work effort out of their workers. I don’t think that I can mock Michel Kalecki any more, ever again.

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ZOMFG WTF!!!!! 9.5% THIRD QUARTER PRODUCTIVITY GROWTH NUMBER!!!! - J. Bradford DeLong’s Grasping Reality with All Eight Tentacles

pitchforks?

(via champagnecandy)

(via robot-heart-politics)

(via continuum)

Quote posted at 11:01

“ A market where everything is rising is not an efficient market: it’s a market which is failing to do its job of allocating capital efficiently to where it can be put to best use, and away from areas where it can cause big problems. „

Felix Salmon » Blog Archive » The roots of the coming crash | Blogs | (via nonolet)

Quote posted at 09:01

06/11/2009

» Michael Milken On The Five Biggest Systemic Threats

crazynutjob:

I applauded QtC for a series of posts that had great content from extremely dubious sources. This is in the same vein. Michael Milken, of certain dubious junk bond endeavors, on systemic risk (I should also point out that Milken has done quite a bit to rebuild his reputation, unlike certain other people).

Link posted at 23:06

“ Now maybe I am just hopelessly out of touch, or perhaps more accurately, the Fed has created such a ridiculously favorable environment for banks and traders that if you are moderately competent, making money is like shooting fish in a barrel. But a winning streak this consistent looks like a rigged game. Is this just, ahem, “information advantages”? Greater ease in pushing markets around that have fewer players? Just a function of those monstrously wide bid-asked spreads? I’m curious for a sanity check from people closer to the action. „

Yves Smith in Mirabile Dictu! Goldman Lost Money Only One Day in Last Quarter « naked capitalism

Quote posted at 21:06

“ And an indication of just how much of a hedge fund Goldman has become instead of a client servicer, the firm’s Equities Commissions revenue for the quarter dropped to $930 million from $1.2 billion YoY, while prop Equities Trading skyrocketed from $354 million to $1.8 billion YoY! And just in case you were wondering someone, somewhere was motivated to destroy Fixed Income powerhouse Lehman and Bear, look no further than Goldman’s Fixed Income, Currency and Commodities which did a gentle jump from $1.6 billion in Q3 2008 to $6 billion last quarter. And that explains all you need to know about motivations and backstops. „

Absolute Perfection: Goldman Loses Money On Just One Trading Day In Q3 | zero hedge

Quote posted at 19:06

“ Goldman lost money on just one trading day in Q3, making money on all the other 64. As a reminder, even in Q2 Goldman lost money on two trading days. The statistical probability distribution of 1 out of 65 is something that not the SEC, but Richard Feynman should be looking into, as Goldman Sachs, after rewriting the lass of risk/return, is now set to redefine normal distributions and other Statistics 101 concepts. „

Absolute Perfection: Goldman Loses Money On Just One Trading Day In Q3 | zero hedge

Quote posted at 17:05

“ My concern now is that it appears we haven’t learned anything from the turmoil that happened all of 8-12 months ago. As Nouriel Roubini recently pointed out, the correlation of all risk assets has approached one as all assets have all moved in one direction… up. „

EconomPic: Did We Learn Anything? Carry Trade Edition

Quote posted at 15:04

“ I’ve previously written about Goldman’s shift from an investment bank to a hedge fund, but hey at least they’re a VERY VERY profitable hedge fund. That said, with a 98% hit-rate while client orders are also flying about, the argument for front-running makes a lot of sense. „

AlphaNinja: Goldman’s q3 trading revenue down, hit-rate up (GS)

Quote posted at 13:02

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Municipalities dealt with the separation between taxes and expenses by borrowing. In the mid-1990s, states and cities were retiring as much debt as they were incurring. During the 2000s, though, they borrowed about $150 billion per year in aggregate, peaking at $215 billion in 2007 by which time $2.7 trillion in debt was outstanding, more than two years’ worth of tax receipts.

Barring some sort of miraculous boom in the economy and pension fund investment returns, state and local governments are headed for insolvency and default.

„

Philip Greenspun’s Weblog » The Coming Collapse of the Municipal Bond Market

Quote posted at 11:02

“ The priority now is not to revitalise asset markets, but to transform a bloated and dysfunctional financial sector towards one that supports the real economy in a sustainable and cost-efficient way. „

Dirk Bezemer in FT.com / Comment / Opinion - Lending must support the real economy

Quote posted at 09:02

05/11/2009

“

The same reckless lending that characterized the subprime mortgage business in residential was also characterizing what went on in commercial real estate in the mid 2000s.

Everything’s going in the wrong direction and I think we’re going to see quite a lot of tragedies in that sector.

„

Boom2Bust.com » Blog Archive » Wilbur Ross: Commercial Real Estate Crisis Still Looms

Quote posted at 23:05

“ Profit and capital gains may look much the same to the individual bank – a stream of revenues – but they have different macroeconomic consequences. Lending to the real sector is self-amortising: it creates a debt, but also the value-added to repay principal and interest. Such loans enlarge the economy in proportion to the debts created and are financially sustainable. By contrast, loans to create or buy financial assets and instruments are not, by themselves, self-amortizing. In a credit boom, successive owners may sell the asset at a profit, but their buyers will have to shoulder proportionally more debt in order to acquire the asset, balanced (for the time being) by the asset’s value. Asset trading may be individually profitable; but it is a zero sum game, sustainable only if the real economy furnishes enough money to support the rising debt burden. Beyond a point, the lure of capital gains diverts funds from real-sector investment, and households’ rising debt-service cuts demand for real-sector output. In both ways, excessive growth of financial asset markets is self-defeating. „

Dirk Bezemer in FT.com / Comment / Opinion - Lending must support the real economy

Quote posted at 21:05

“ But the correct conclusion to draw is not that major governments (such as Japan and the United States) can easily borrow as much as they want. It is that they can easily borrow as much as they want until confidence that they can do so evaporates — and we don’t know when, how or whether that may happen. „

Robert J. Samuelson - Robert J. Samuelson on whether America could go broke - washingtonpost.com

Quote posted at 19:05