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Reasons the banking crisis isn’t a repeat of 2008

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Re: Reasons the banking crisis isn’t a repeat of 2008

#261

Post by blitzar »

JumpCrisscross wrote: post #16
maxbond wrote: post #11

Earlier quoted context omitted.

Why is that?

Our equity markets have always been weird, but they’ve gotten weirder in recent years. For most businesses, that volatility is fine. Customers of e.g. Nike aren’t checking its stock price before buying sneakers, and it mostly has enough cash on hand to conduct business if creditors get spooked. Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This…

> Our equity markets have always been weird, but they’ve gotten weirder in recent years

Never has is been so easy to shit talk a stonk online and have it matter. We are in the meme stonk phase of capitalism.

The real pros at the grift create SPACs and become stock market influencers.

Re: Reasons the banking crisis isn’t a repeat of 2008

#262

Post by rsync »

Dylan16807 wrote: post #229
fyzix wrote: post #117

Earlier quoted context omitted.

It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh. The fundamental problem is that price controls never work and the interest rate is the price of money. If you understand this, then it's easy to predict the endgame, whether it takes 10 or 20 yrs to fail, you will still be right once you position yourself for the windfall.

Position yourself for the windfall how? Let's say Alice will be wrong several times and then right once, and Bob will be right several times and wrong once. Both of them start with $10k. To give Alice every advantage, let's say her bets pay out 10x or nothing, and Bob's bets pay out 4x or nothing. We'll also say Alice magically knows which time she'll be right, but Bob won't know which time he'll be wrong. Alice will…

Your math is correct, of course, but these aren't the two strategies to choose between and there is a set of behaviors for which your parent is correct.

The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.

At the same time, you have the Alice strategy wrong: Alice makes regular, extremely leveraged hedge purchases - perhaps even 500:1 or more - and just ignores the steady outflow of her premia.

Eventually, Bob gets hit by a black swan event and loses 80 or 90 percent of his principal and Alice has a 500:1 return on her hedge.

These are the two strategies that are interesting to compare.

It may interest you to know that Taleb performed this in real life with his own money at risk[1]:

"A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices."

[1] https://www.bloomberg.com/news/articles/2020-04-08/taleb-adv...

Re: Reasons the banking crisis isn’t a repeat of 2008

#263

Post by Joel_Mckay »

I find it more interesting few seem able to recall what happened the year prior in 2007.

Recall the elevated marketing hype from those trimming portfolios knowing full well what was happening. What I see is a short term 30% sales bump in real-estate (ratio of debts in negative amortization) as the amateur tries to find inflationary shelters after getting disappointed by laggard bond markets.

Kind of reminds one of giving sugar-cubes to raccoons... knowing they wash their food in water as habit.

Rule #9: if people start answering odd questions you didn't ask, than one probably should be extra cautious.

My bag of popcorn is ready. =)

Re: Reasons the banking crisis isn’t a repeat of 2008

#264

Post by FredPret »

ljf wrote: post #236
FredPret wrote: post #226

Earlier quoted context omitted.

While it is true that the US mean is much higher than the median, the median person still benefits greatly from that wealth. The rich invest their wealth in business, real estate for rent, and real estate for themselves, making all these things better. I'm currently in the EU, in a country that outperforms the US in median wealth by about 20%. While it's clear that life here is good, I'm also struck by how much worse…

True, but look at the rental markets for the majority of Americans that don't live in the rich coastal areas. And talk about unprofessional business - you have unprofessional legal professionals in parts of the US. Where America is great, it is great. But for the rest of it, it can be a very differently life for most of the inhabitants.

Compare "poor" America with poor (insert geographic area here).

There's no comparison. It's hugely, vastly better in the States. The only other places that have large backwater areas that can compete are maybe Canada and Australia. This is due to investment by rich people in rental real estate and businesses such as Walmart, Costco, Amazon, etc.

When a family like the Waltons have a net worth in the 100's of $Bn's, this money isn't kept in gold bars in a safe. It's actively deployed in a variety of businesses. So the poor don't get a cut of the 100's of $Bn's, but they do benefit from the investment. And in very equal countries, the opposite is true. Everybody's OK, but there aren't really any systems that stand out as being amazing.

Re: Reasons the banking crisis isn’t a repeat of 2008

#265

Post by nmca »

arcticbull wrote: post #91
alxmng wrote: post #87

Who cares about keeping deposits safe when money isn’t worth anything? Americans don’t even have money in the bank. Median savings is $4500. Many people who perform socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation.

My money still seems to work great. Those are some serious fiscal and social (but not monetary) issues that should be taken up with Congress not the Fed, and not the FDIC. Who handled this all very well I might add. > Median savings is $4500. The average American family has a $748,000 net worth, according to Federal Reserve data, median $121,000. Savings isn't just what's in your 'savings' account. Mine definitely is…

mean is totally inappropriate here (but good that you provided median)

Re: Reasons the banking crisis isn’t a repeat of 2008

#268

Post by pjc50 »

tfourb wrote: post #216
FredPret wrote: post #195

Earlier quoted context omitted.

The other advantage is the total net worth as opposed to GDP. You hear a lot about GDP and the US has the biggest economy by far. But the total net worth per person in the States is even further ahead of the rest of the world. Only Switzerland is ahead of the US in per-capita net worth (only by a hair though) and one suspects that’s partly due to so many Americans parking their money there. Having had the biggest GDP…

Actually the U.S. in 3rd place behind Switzerland and Luxembourg in terms of mean wealth per adult and Hong Kong is not far behind. But you are right that the other countries on the upper ranks are mostly smaller nations with large banking sectors: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe... While I agree that the U.S. has an enormous built-in advantage over other countries, I would really highlig…

This has all sorts of distorting effects. It turns out that one guy was paying a substantial fraction of New Jersey's budget, and he moved. https://www.nytimes.com/2016/05/01/business/one-top-taxpayer...

(then ended moving back again, because Florida)

Re: Reasons the banking crisis isn’t a repeat of 2008

#269

Post by pjc50 »

TexanFeller wrote: post #198
Beached wrote: post #172

Earlier quoted context omitted.

within reason of course. it's a position of privilege, but that position used to below to the UK. they lost that position over/after the world wars, and we got it. it is possible that doing whatever we want could push people to the euro as the reserve or the pound. it seems far fetched, but I could see a world where the euro the the world's reserve currency

The yuan may be the competition we should fear. Since we disconnected Russia from our financial systems, Russia is willing to do business with our biggest rival, China, in their currency.

The yuan has capital controls. You can't move money freely in and out of China even (especially) if you're a Chinese national. Absolute non-starter for any kind of reserve currency idea.

Re: Reasons the banking crisis isn’t a repeat of 2008

#270

Post by pjc50 »

paganel wrote: post #242
safety1st wrote: post #175

Earlier quoted context omitted.

For sure China has a ton of people and a huge economy. Fair point that the regulatory framework there may be more homogenous, but it's also weaker. And it lacks all the other inbuilt advantages I mentioned. Remember, the USA can ship goods back and forth between itself and what... 90% of the ex-US global economy? With very little geopolitical interference. This is largely a function of geography, plop a cargo ship in…

I think this is a skewed perspective. In case of a war the Chinese leaders won't care about the fact that they won't be able to sell their plasticky stuff to Europe or the US, they'll only care to have enough food for their population and enough raw materials for their Army (it takes lots of iron and access to cheap energy to make lots of artillery shells). Lack of enough food for their population was what brought th…

The alternative of allowing Russia to conquer another state and openly threaten further states would be far worse. The West has disengaged with Russia (and Russian money and gas) only very reluctantly.
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