Feb 8 posted
February 9, 2009 § Leave a comment
I like this paper. Basically a plea for higher margins and no derivatives.
They weren’t callous, just profoundly–and given the complexity of their firms, inevitably–ignorant of the risks. Nor were they the exceptions. The financial system is paralyzed by fear not just of financial institutions hiding bad loans, but also that the insiders who are supposedly in charge don’t know the magnitudes of their liabilities.
On the possibility of violent reactions. I think this is highly probable. The economy is unemploying people at the margins that re not counted. Living without cash is problematic. There is no farm to return to, and few viable family networks. See my scenarios
Could the jobs malaise translate into unrest? Two things cause concern. The first is the student movement, which in France includes high-school unions. Many politicians on the left emerged from student politics, which at university level is a potent lobby. Campus sit-ins in 2006 forced the then government to back down from a proposed flexible job contract for the young. Mr Sarkozy is even more worried about high-school unions. They are more unpredictable, and more easily influenced by hard-left or anarchist groups, or by teachers, who lose pay for days on strike and so prefer the students to come out instead. Should trouble break out in France, or elsewhere in Europe, there will be genuine fears of contagion
Government interventions were necessary to stabilize the financial system, but there is no resurrecting the old boom. The focus should instead be on supporting the financial and economic systems toward less dependency on credit growth and the asset markets. (Feb 2,’09)
Doug Noland looks at the previous week’s events each Monday.
Economics focuses on money – capital – because it is quantifiable, but the world is not.
The point of view of the archaic culture is that of forceful, pervading personality, whose unfolding life is the substantial fact held in view in every relation into which men or things enter.
Important video on wearable projection.
- Supersizing the Mind: Embodiment, Action and Cognitive Extension by Andy Clark
How We Were Ruined & What We Can Do
By Jeff Madrick
The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash
by Charles R. Morris
PublicAffairs, 194 pp., $22.95
Financial Shock: A 360° Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis
by Mark Zandi
FT Press, 270 pp., $24.99
a series of articles by Gretchen Morgenson et al.
The tiers are described, but leave a question. Why is the interest rate higher on the bottom level? if all goes well, how can they make more than the original mortgagee pay?
The first tier—or some 60 percent of all the investors in a mortgage-backed security—was to be paid interest and principal fully from the monthly cash flows of the mortgage holders and was therefore best protected. But these investors received the lowest interest rate. The more subordinate tiers were paid off after this senior tier received its payments, and thus earned higher interest because of the higher risk of nonpayment. The lowest tiers were the riskiest, the so-called toxic waste, which would get money last, and therefore lose money first if there were unanticipated defaults. But these investors were paid two to three percentage points more in interest to take the risk. This toxic waste was typically bought by hedge funds, the aggressive investment vehicles that took higher risks to earn higher returns for their investors, and often borrowed liberally to increase their returns on capital even further
It was principally the investor appetite for the mortgage-based securities and the easy profits made by the banks and mortgage brokers that led to the mortgage-writing frenzy in the 2000s, not encouragement by the federal government to lend to low-income home buyers.
Pasted from <