john eden
male pale and stale
Thanks for responding, Vim. Correct me if I'm wrong but I had assumed you would adopt a "non-interventionist" position and were not all that keen on Keynes?
global financial crash yay!
- Thread starter sufi
- Start date
Thanks for responding, Vim. Correct me if I'm wrong but I had assumed you would adopt a "non-interventionist" position and were not all that keen on Keynes?
IdleRich
IdleRich
The other thing that's strange about this for me is the way that they can just high-handedly change the rules of the system. What if you have a perfectly legitimate strategy that relies on your ability to take short positions to hedge - suddenly you won't be able to do that and you will be losing money because the goal posts have been moved with no warning. Must be a few pissed off people around I reckon. Maybe you could hedge by going short the future instead of the stock, can you still do that?
vimothy
yurp
Yeah, it's a pretty smart move.
IdleRich
IdleRich
Surely not
http://www.whatinvestment.co.uk/mak...hsbc-tight-lipped-on-rbs-merger-rumours.thtml
http://www.whatinvestment.co.uk/mak...hsbc-tight-lipped-on-rbs-merger-rumours.thtml
This would create some kind of huge hybrid megabank!
Grievous Angel
Beast of Burden
judging by the performance of the market today, apparently not.
IdleRich
IdleRich
In answer to your rhetorical question, yes, as you well know every short seller is buying back all their stuff so they don't look as though they're the cunt that brought the financial system to its knees when they have to reveal their positions in a few days - and they're trying to do it quickly before everyone else does it and forces the prices up.
vimothy
yurp
Dunno really. I think there's a certain amount of merit to both positions. On the one hand, it's easy to see in events like the Great Depression, government responses to a crisis that did more harm that good*, for instance, competitive tariff hikes (the infamous Smoot-Hawley), tax hikes, beggar-thy-neighbour currency devaluations, etc (take a bow Mr Hoover), which may well have been responsible for turning an ordinary downturn into the worst financial crisis in history. On the other hand, the system is not more important than the people it serves. If people will benefit from government intervention, or if the question (as it is so often) is not should the government intervene, but how should the government intervene, then its a matter of finding the right way to respond. Sometimes better regulation is needed, sometimes less regulation is needed: it's all about picking the least worst solution, no? Pity that Keynesianism is so focused on the short-term solution at the expense of the long-term viability of the economy, perhaps, but I don't blame Keynes for that...
*EDIT: E.g. we'll see if the ban on short-selling actually manages to bankrupt Wall Street in the next couple of weeks.
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dubble-u-c
Dorkus Maximus
I think it also has something to do with this:
Wall Street stocks extended their biggest rally in six years on the prospect of a vast government intervention in an attempt to stave off the worsening financial crisis, after Hank Paulson, US Treasury secretary, urged Congress to address financial market weakness by buying up risky loans.
Mr Paulson said this was the best long-run hope to save taxpayer’s money. “I will spend the weekend working with members of Congress of both parties to examine approaches to alleviate the pressure of these bad loans on our system, so credit can flow once again to American consumers and companies,” he said in a statement. “Our economic health requires that we work together for prompt, bipartisan action.”
Source:
http://www.ft.com/cms/s/0/fad66726-8640-11dd-959e-0000779fd18c.html
" privatize the profit socialize the risk"
Basically the american people are bailing the banks out to the tune of about a trillion dollars. I am not very happy about this.
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The alternative to mark-to-market accounting for derivatives and structured products is generally reckoned to be the system it replaced - historical cost. Critics of the current system argue that it exacerbates illiquidity by forcing banks and other investors to report valuation changes as though they were losses. Accounting standard setters argue that going back to historical cost would make matters worse by concealing asset deterioration.
Both sides are correct.
A few months back, the Institute for International Finance tried to kickstart some discussion about alternative approaches, but they ran into a political firestorm. Goldman (an IIF member) got wind of the plans and threatened to leave if the IIF went any further, so the IIF back-pedalled in a humiliating fashion ... and then Goldman left anyway.
But I don't think accounting issues have got the attention during the crisis that they merit (I posted about this on one of the "crisis" threads a few months ago): there's just no way that MBS and CDOs containing MBS are being valued correctly at the moment. I've spoken to a few people who have money tied up in these assets and they all say the same thing: in order for current valuations to be correct, there would need to be practically 100% default rates in the mortgages underlying the paper they're holding. That's not going to happen. In fact, most of this paper is still performing, in the sense that borrowers are repaying their home loans, the MBS / CDO cash waterfall is still functioning, and the probability is that they'll mature on schedule having made the investors the anticipated return over the life of the deal.
The only problem is that they can't be sold right now, because no-one has the capital or the risk appetite, so they just sit there. But the majority of these things will pay off.
If the US government now sets up a giant vulture fund to buy up these "toxic" assets, they will eventually make an absolute fucking fortune.
I dunno. But I'd guess so. In fact, there are any number of ways to hedge a long position on a stock - you could, for example, buy a default swap on the same name. Because credit spreads and stock prices are negatively correlated, your swap would gain in value as the stock lost value. It wouldn't be a perfect hedge, but it'd be better than nothing.
Or, simpler, you could buy put options - the option to sell at a certain strike would get more valuable as the underlying stock fell.
IdleRich
IdleRich
Yes of course.
Yes, I remember you making that point and it was a good one then and now.
Yes, or contracts for difference. But I wasn't so much thinking of a hedge for stock trades as what hedge you would use in trades where you would previously have used a stock as a hedge eg buying a call where you would want to sell stock as a hedge. A put wouldn't be such a good hedge for this as if the price rose the rate of the call's gain in price would increase while the rate at which the put decreased would slow. In other words hedging a call with a put could be delta neutral but would be very high gamma and so if if the price varied it wouldn't be delta neutral for long.
Apologies if that was all a bit garbled and in fact just plain wrong - I'm a bit drunk.
vimothy
yurp
Goldman, Morgan Stanley to become regulated banks:
Goldman Sachs and Morgan Stanley, the last surviving big investment banks on Wall Street, have become regulated banks.
In a statement issued at 9.30pm Sunday, the Federal Reserve said it had approved their applications to become bank holding companies, subject to regulation by the Fed.
In a statement issued at 9.30pm Sunday, the Federal Reserve said it had approved their applications to become bank holding companies, subject to regulation by the Fed.
bob effect
somnambulist
saw this as an explanation posted elsewhere, anyone more knowledgeable than me care to comment?