understanding credit default swaps, complex derivatives, and why our economy sucks

[SeventhSon]

http://www.npr.org/templates/story/story.php?storyId=89338743

Click on the "Listen Now" link...

Not surprising, the roots are Wall Street firms lobbying our politicians for completely unregulated markets.

[dg]

I listened to that yesterday. The point he made about how China & India are going to kick our ass unless we get away from this speculator-driven system and compete with them on a solid footing was dead on, imo. The other thing that really blew my mind was when he mentioned the guy who made $10B betting that the housing market would collapse. I guess there has to be 2 sides to any speculative equation, but that just seems fucked up that money is made without anything positive being generated.

[SeventhSon]

I listened to that yesterday. The point he made about how China & India are going to kick our ass unless we get away from this speculator-driven system and compete with them on a solid footing was dead on, imo. The other thing that really blew my mind was when he mentioned the guy who made $10B betting that the housing market would collapse. I guess there has to be 2 sides to any speculative equation, but that just seems fucked up that money is made without anything positive being generated.

because complex derivatives is just a euphemism for gambling!!!

US taxpayers basically paid off bear stearns' bad gambling debt.

why doesn't the government help me out when i lose big in vegas?!

[yard dawg]

I listened to that yesterday. The point he made about how China & India are going to kick our ass unless we get away from this speculator-driven system and compete with them on a solid footing was dead on, imo. The other thing that really blew my mind was when he mentioned the guy who made $10B betting that the housing market would collapse. I guess there has to be 2 sides to any speculative equation, but that just seems fucked up that money is made without anything positive being generated.

China and India are whippin us because we dont produce anything but debt. They get all that money from manufacturing while get get cheap crap from wal mart. If people in the US would do like Dave Ramsey teaches and get out of debt there wouldnt be any new money. We are a debt driven society and its got to stop. Broke people have no political power thats why we need the middle class back.

Remember when ya vote that there are hundreds of house and senate members up for re election. Check what they vote on before you decide. Im sure many of them voted to bail out these rich scum bags.

[shreddermon]

US taxpayers basically paid off bear stearns' bad gambling debt.

why doesn't the government help me out when i lose big in vegas?!

Because if you go bankrupt from gambling, it won't snowball into a complete collapse of the US banking system and the economy.

[rjohnstone]

If Bear Sterns was allowed to fall, the run on investment banks would have been a forgone conclusion.

People forget that the great depression didn't happen overnight.
We have checks in place to keep the stock market from ever truly "crashing", so another Black Tuesday is unlikely. Not impossible, but highly unlikely.
But the global economy is out of balance, the job market is in the tank and durable goods sales are way down. All we need is for the GDP to tank a bit more and we will officially be in a recession.
I'm not saying it will be 1929 all over again, but the shit is going to get worse than it is now before it gets better.
Hopefully we will never see 19% unemployment rates ever again. That is what scares me the most.

[SeventhSon]

Because if you go bankrupt from gambling, it won't snowball into a complete collapse of the US banking system and the economy.

wow, someone who defends the bear stearns bailout! your "sky is falling" premise is debatable.

but do you disagree that we should outlaw unregulated gambling via "complex derivatives" by investment banks?

[texasfury]

........

[Tashtego]

I think the Fed [edit] got all their best security holdings as collateral for the backing they provided Morgan when they stepped in.

It isn't clear that "Best" has anything to do with good though. The Fed will not identify them but assures that they are "investment grade".

[cookiemonster2]

Thanks for the link that was interesting. I think what was really scary was the process by which the industry was deregulated. Legislators passing thousand page bills that few probably understood. He talks about that politically connected rancher who oversaw deregulation, didn't understand derivatives. If you help industry, industry will help you. Another part of the solution is stop that nonsense. The type of corruption that isn't quite illegal but ought to be.

[dg]

Another problem is that no matter what laws are passed to try to regulate the industry (that is if any are passed, given the deep pockets of the lobby), the most brilliant financial minds are working for these firms & making huge $$, not working for the regulators or making the laws. The same guys who invented derivitives will come up with something else within the new regulations. Same principle as accountants. The best ones work for the fatcats figuring out how to exploit loopholes, not the IRS.

[åron]

Another problem is that no matter what laws are passed to try to regulate the industry (that is if any are passed, given the deep pockets of the lobby), the most brilliant financial minds are working for these firms & making huge $$, not working for the regulators or making the laws. The same guys who invented derivitives will come up with something else within the new regulations. Same principle as accountants. The best ones work for the fatcats figuring out how to exploit loopholes, not the IRS.

This is a little pessimistic and not really true. There are plenty of good accountants working at the SEC and other regulatory agencies. The thing is, the money and power to effect the congress lies with the corporations and they don't want regulation. I think corporate/right-wing people would like everyone to believe that no intelligent or, in some cases, sane person would go work in public service for less money than they can get in the private sector.

There's this assumption that entirely free markets work best and those that push that assumption don't pay attention to inconvenient evidence to the contrary. I occasionally flip on the local right-wing rant talk-radio and so much of it is raging aholes pitting the righteousness of corporate businesspeople against the incompetence of public officials. It's an interesting culture, very angry, very reductionist. Spoon fed crap, but it tastes good I guess.

Aside: reminds me of the prank pulled several years ago where a group posing as start-up company and an investment opportunity outlined a bogus technology to take the excrement (poop) of the public and reprocess it into a food source to sell back to them. The investors that showed up to their seminar loved the idea and couldn't wait to sign up. The same stunt at a college campus provoked visceral outrage from the attendees. Greed pushes people to extremes.

[Tashtego]

Well, I can't wait for smart, clear sighted statist/left-wing people to step in and fix up everything. It is going to be a paradise.

[petedz]

The NPR link is very informative.

I occasionally flip on the local right-wing rant talk-radio and so much of it is raging aholes pitting the righteousness of corporate businesspeople against the incompetence of public officials. It's an interesting culture, very angry, very reductionist. > Spoon fed crap <, but it tastes good I guess.

Aside: reminds me of the prank pulled several years ago where a group posing as start-up company and an investment opportunity outlined a bogus technology to > take the excrement (poop) of the public and reprocess it into a food source < to sell back to them. The investors that showed up to their seminar loved the idea and couldn't wait to sign up. The same stunt at a college campus provoked > visceral outrage < from the attendees. Greed pushes people to extremes.

I may not agree with your politics, but I gotta admit you're on a roll!

[SeventhSon]

Well, I can't wait for smart, clear sighted statist/left-wing people to step in and fix up everything. It is going to be a paradise.

so you're arguing that we should continue with a completely deregulated shadow market? the one that is directly linked to the subprime mortgage blowup and the bear stearns collapse?