181–190 of 316 posts
I am interested in this, but already confused on page 1. The book describes a bank needing to borrow swiss francs, but that doesn't make sense to me. Why not just borrow the money in their native currency? Does the book ever go into this?
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> The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. That is just one of the purposes; others are: - time-shifting of consumption: borrow when you study or build a house, then invest and save during work years, then live of retirement portfolio - maturity transformation enabling investment: extra cash goes in the bank (and can be redeemed…
> So, in real financial markets, all the arbitrage games etc. [2] at least support actual productive purposes. So without all those games, what would be substantially different?
This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?
I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…
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> lack of information/technology or centrally planned prices, some of which resulted in failed states (e.g. Venezuela and the Soviet Union) Venezuela has never had Soviet-style central planning. It's a market economy with a public sector only slightly larger than the OECD average. Their current situation is largely the result of excess social spending: first at the expense of investment and diversification away from…
While you're correct that high social spending that relied on high oil revenue was probably the primary cause of Venezuela's economic collapse, they had price controls on food starting back in 2003 and they began nationalizing major industries in addition to oil by 2008. From 2008, it was a full on centrally planned disaster.
Venezuela's level of interventionism is unremarkable by the historical standards of the developed world. The problem is their poor choice of interventions.
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> What about the crops they destroy because they would be less profitable? To clarify this point specifically, food self sufficiency is considered a national security issue. Consider the situation where a hostile country floods your market with cheap food products (below cost) until your country's farms go bankrupt due to an inability to compete. Once you stop producing food of your own, you give significant power to…
"floods your market with cheap food products (below cost)" The hostile country will eventually go bankrupt because they are producing products below cost.
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> The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. That is just one of the purposes; others are: - time-shifting of consumption: borrow when you study or build a house, then invest and save during work years, then live of retirement portfolio - maturity transformation enabling investment: extra cash goes in the bank (and can be redeemed…
> So, in real financial markets, all the arbitrage games etc. [2] at least support actual productive purposes. So without all those games, what would be substantially different?
A “game” implies non-productive or zero sum.
By definition, an arbitrage is not that. Any arbitrage is the result of an inefficiency in prices or the economy.
When someone arbitrages prices back to where they should be, they are performing a service that everyone else benefits from, and are rightly compensated for this. Now, are finance people compensated too much for correcting price discrepancies? If yes, then that’s another arbitrage opportunity!
But the question of what would be substantially different is easy. No arbitrage = no markets = top-down command economy. Check out North Korea, Cuba, USSR, the former Yugoslavia, etc. for what would be different.
Too bad it is not available in .epub format, I'd love to read it on my ereader.
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I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…
> The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. That is just one of the purposes; others are: - time-shifting of consumption: borrow when you study or build a house, then invest and save during work years, then live of retirement portfolio - maturity transformation enabling investment: extra cash goes in the bank (and can be redeemed…
Why? Now we have a trustless, decentralized, tech solution, why do you still want the "guys with guns" solution?
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Your parent literally said if, for example, your liquid net worth is 100x the replacement cost of your home. and for the vast majority of people, rebuilding their home is not feasible with their current net worth.
He's saying you are required by law to buy insurance for your house because of government regulation. There's no way of saying no.
The same is not true for auto insurance in most states, though most also have an option to self-insure by putting up collateral.