The banks’ secret endgame
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The banks’ secret endgame
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Re: The banks’ secret endgame
#2Link is broken. Anyone have a mirror?
Re: The banks’ secret endgame
#3Link is broken. Anyone have a mirror?
Re: The banks’ secret endgame
#4Google cache works - http://webcache.googleusercontent.com/search?q=cache%3Awww.g...
Re: The banks’ secret endgame
#5The discussion of the vice post from yesterday:
Re: The banks’ secret endgame
#6Why are investment banks casinos? what's so terrible about derivatives? They're not "pseudo" products, or any more "dangerous" than say a stock.
Firstly derivatives have been in use for thusands of years - first employed to lock in prices for future crop harvests. Now millions of businesses rely on derivatives to manage fx exposures, commodity exposures, interest rate exposures and so on. Without recourse to such products companies future cash flows would be much less predictable and expose companies to material risks. Contrary to what you might hear, derivatives ARE socially useful (e.g think the S.Korean business who hedges his USD-denominated payroll liabilities).
Secondly, IBs are not casinos. They take risks, but so do retail banks (they borrow short and lend long so you have a duration mis-match leading to credit, liquidity and interest rate exposures). The financial crisis was born out of over-enthusiastic mortgage lending - i.e your basic retail product. Even lehman brothers, a classic IB, went down due to it's large commercial property portfolio which tanked in the crisis (again, nothing to do with derivatives).
In all crises governments and the media need someone to blame. IBs are the scape goat this time. But the reality is a heck of a lot more complex than a simplistic "greedy IB assholes running amoke and stealing the world's wealth with nasty derivatives".
Indeed all the regulation that's now been implemented is incredibly counter-productive. It doesn't make banks safer (people can and will always make stupid business decisions no matter how much regulation you deploy), it increases costs and restricts lending - the very opposite of what's needed to finance a return to, or increase in growth.
Re: The banks’ secret endgame
#7Why are investment banks casinos? what's so terrible about derivatives? They're not "pseudo" products, or any more "dangerous" than say a stock. Firstly derivatives have been in use for thusands of years - first employed to lock in prices for future crop harvests. Now millions of businesses rely on derivatives to manage fx exposures, commodity exposures, interest rate exposures and so on. Without recourse to such pro…
In my country borrowing for your company became incredibly difficult (if not outright impossible) if you didn't 'hedge' yourself using derivatives. None of the (AAA) banks like Rabobank explained what the risks of using these products were. They were sold as 'safe' interest-fixed products.
Apart from that most were locked at the Euribor rate. You know, the one they forged...
Re: The banks’ secret endgame
#8Why are investment banks casinos? what's so terrible about derivatives? They're not "pseudo" products, or any more "dangerous" than say a stock. Firstly derivatives have been in use for thusands of years - first employed to lock in prices for future crop harvests. Now millions of businesses rely on derivatives to manage fx exposures, commodity exposures, interest rate exposures and so on. Without recourse to such pro…
>The financial crisis was born out of over-enthusiastic mortgage lending - i.e your basic retail product. Even lehman brothers, a classic IB, went down due to it's large commercial property portfolio which tanked in the crisis (again, nothing to do with derivatives).
How can you possibly say this? It was mortgage backed securities (derivatives) and collateralized debt obligations (derivatives of derivatives) that were the main product that allowed excessive lending, by obscuring the true risks. It was the markets for these securities that froze, causing the liquidity crisis that drove the financial crisis.
Re: The banks’ secret endgame
#9Why are investment banks casinos? what's so terrible about derivatives? They're not "pseudo" products, or any more "dangerous" than say a stock. Firstly derivatives have been in use for thusands of years - first employed to lock in prices for future crop harvests. Now millions of businesses rely on derivatives to manage fx exposures, commodity exposures, interest rate exposures and so on. Without recourse to such pro…
>The financial crisis was born out of over-enthusiastic mortgage lending - i.e your basic retail product. Even lehman brothers, a classic IB, went down due to it's large commercial property portfolio which tanked in the crisis (again, nothing to do with derivatives). How can you possibly say this? It was mortgage backed securities (derivatives) and collateralized debt obligations (derivatives of derivatives) that wer…
An MBS is NOT a derivative. It's a cash product. Either way you're missing the point. Securitisation is just a way of funding lending. Whether you use deposits, borrow from the money markets, or securitise loans, the money to make those loans has to come from somewhere.
Ultimately it was mortgage brokers and the retail banks (or retail arms of universal banks) that sanctioned these mortgages and lent money to highly unsuitable people. Yes they were securitised and sold on but as I say above this is just a funding mechanism. Yes the IBs have some responsibility for not checking the quality of the loans but then there's an argument that should have been done already by the retail side. And of course no-one imagined that default rates would ever get as high as they did - which did wipe out some MBS and CDO tranches resulting in large losses for the holders. As an indication these types of issuance were typically stressed at default rates of 10% - and that was considered extremely conservative. What actually happened was some of these mortgage pools were so crappy default rates hit 80% or 90%.
Re: The banks’ secret endgame
#10> But Lula's refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis.
I guess Australia doesn't exist in conspiracy theories.