101–110 of 178 posts
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Exactly. Even when the money was made of gold, it was still worth exactly what people thought it was worth, nothing more or less.
Gold has an intrinsic value, 1 gram of cotton based paper with some ink on it, does not.
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As someone who is completely ignorant of investment strategies, would anyone explain how to make a fortune off of an impending financial collapse (when you predict the timing perfectly)? That sounds very interesting.
There are many ways to do this, but the simplest explanation is: you enter an agreement to borrow an asset and agree to give that asset back at a certain date in the future. You then immediately sell the asset. Then, on the date certain, you buy that asset back and give it back to the lender. This is called "shorting" and is very easy to do with fungible assets like publicly traded stocks, bonds, or even collateraliz…
If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. You can say you're a teacher making a million a year and what's supposed to happen is the application should be denied (and may be your credit score might suffer).
It is the responsibility of the bank, not the applicant, to make sure that the applicant can repay the loan. Issuing a loan to someone who you know is misrepresenting one's financial situation is fraud and a crime. When such a loan is issued, it is the bank defrauding the applicant (not the other way around). It's essentially loan sharking or extortion, which is a felony. In doing so the bank is also failing in its fiduciary responsibility to the depositors, which is a (separate) crime as well.
This was a lesson we needed to learn as a nation, not one we just need to blame on bankers. Many people participated in the fraud, many banks were complicit with the fraud. That means we should be locking up home buyers right along with the bankers. In fact many of the people interviewed here as whistle-blowers went on being complicit with fraud. None (except the one executive) quit their jobs or even protested in a significant fashion. They all just kept doing work they knew was wrong.
Disclosure: Im an ex-Journalist and an ex-Banker.
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Gold has an intrinsic value, 1 gram of cotton based paper with some ink on it, does not.
Legitimately curious... what exactly is the intrinsic value of gold? Are you basing it's "intrinsic" value on its commercial value or something else? There are a number of metals that have much more useful applications than gold. From what I've read, gold's intrinsic value was ultimately a western idea that, again, stemmed from a confidence in it's value. When the Spanish discovered gold in central Mexico, the Aztecs…
Computer electronics have more gold per ton than a gold mine, because of golds physical conducting properties.
So gold is needed to make efficient computers, which can again be used to produce real value in terms of production. I think that is fair to call that intristic value.
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I sent a similar email to the CEO of my bank in 2007 -- there was a product I was involved in that (it was clear) was not understood by our sales force or by our investors. I'll spare the details, but I was called into his office and reminded that the "e" in email stands for "evidence."
I cannot express how angry reading comments like this makes me. Clearly many of these guys at the top (bank CEO's, fund managers, ect.) were systematically defrauding everyone in order to turn a larger profit. Call me naive, but isn't this shit (the massive fraud perpetrated on us by banks) supposed to result in hefty jail sentences?
What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all.
Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have arranged a conference call with me or a colleague, no issue. That happened like, one time.
I think the concern that my firm had at this time was principally related to the likelihood that emails like this would hit the public domain at some point.
Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors).
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Exactly. Even when the money was made of gold, it was still worth exactly what people thought it was worth, nothing more or less.
Gold has an intrinsic value, 1 gram of cotton based paper with some ink on it, does not.
In the absence of other people and their ideas of value, given enough cotton paper I could make clothing or a fire. Given enough gold I could probably make a bludgeoning weapon...
Both have fairly minor value in the absence of shared delusion. And even beyond that, what the hell is 'intrinsic' value? Has the universe decreed that there is a property of matter called 'value'? Like particle spin, or atomic number?
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It's not that a special somebody wouldn't have listened. This wasn't as big an information problem as most people make it out to be. As this, and many other articles explain, bankers and underwriters knew bank fraud was widespread. The general public, who took out the loans, knew they were defrauding banks. Wall Street knew the rating agencies were full of shit. But everybody was making a killing as long as real prop…
As someone who is completely ignorant of investment strategies, would anyone explain how to make a fortune off of an impending financial collapse (when you predict the timing perfectly)? That sounds very interesting.
Likely a lot more approaches than I can think of are available to an entity with hundreds of millions of dollars with which to place a bet. I don't know the specific marketplace and id's when you start to get into products like credit-default swaps, but in general the derivative market allows two parties with opposing views of the future to bet against each other.
Suffice to say that you would create a position with a "short" effect for yourself on the soon-to-be-declining securities: through buying puts (pay now, get cash at expiration if the security's price drops), selling calls (get cash now, bear risk of the security price going up until expiration), shorting a security ("borrow" it now and plan to buy it back at a lower price later if you win, or a higher price if you lose) or sell a put + buy a call (same risk as shorting only no need to borrow the security and lower cost than simply buying a put, and more upside than selling a call).
The difference between institutions and mortals like us is that they are allowed to carry relatively massive positions compared to their capital, presumably because they are supposed to know what they're doing. So a player with $100M could probably take a $2B short position because of the leverage he's allowed, say 20:1 (probably conservative - I've heard of firms reaching 100:1). The effect is that a 5% move in the right direction doubles that $100M, and a 5% move in the wrong direction wipes out the player.
At least in theory said player's PhD quants in the "risk management" department minimize the daily volatility of the net effect of all of the bets placed by different specialists within the organization by placing still more bets. We've all seen stories of traders taking positions though that somehow didn't get flagged or adequately hedged by risk management.
Aside from the rare rogue trader, this obviously doesn't always work and companies "blow up" by accruing a loss larger than their capital. (unless say they're selected to be "bailed out" with extra capital) A "blow up" can cascade because of counter-party risk, meaning that firms on the other side of these trades won't get paid. That's why we had AIG get massively bailed out.
Due to SEC regulations however, we mortals are limited to about 2:1 leverage (or 4:1 intraday) for securities. Options and futures can effect a higher ratio though. If a retail investor gets squeezed, he must immediately deposit more cash or the brokerage will liquidate it for him involuntarily. If he still owes, it becomes a debt like any other.
This documentary implies that applicants were submitting fraudulant applications, which is not true. Most people (including the Frontline producers, apparently) still do not understand who was defrauding whom here. If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. You can say you're a teacher making a million a year and what's…
Lying is absolutely a crime if it's considered perjury, and many (all?) loan applications require you to certify the accuracy of statements under penalty of perjury.
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I cannot express how angry reading comments like this makes me. Clearly many of these guys at the top (bank CEO's, fund managers, ect.) were systematically defrauding everyone in order to turn a larger profit. Call me naive, but isn't this shit (the massive fraud perpetrated on us by banks) supposed to result in hefty jail sentences?
I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit. What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all. Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have…
Plugging a stealth mode startup? C'mon man spill it, you know you want to, and now we're all curious.