Tuesday, Feb 24, 2009
New Yorkers the economy and derivatives
Village Voice News: What Cooked the World's Economy?
It's been a tough century so far: 9/11, Iraq, and now this. At least we have a bright new president. He'll give you a job painting a bridge. You may need it to keep body and soul together.
Posted by tudorian @ 08:02 AM (359 views) Add Comment
10 Comments
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1. gardeniadotnet said...
"The heart of darkness was the AIG Financial Products (AIGFP) office in London, where a large proportion of the derivatives were written."
Interesting.
Would "the net is closing in" be an appropriate response?
2. bob1 said...
At last an article that clearly differentiates 'credit' derivatives from the generally benign regular derivatives market.
Hidden deep in this article is the real reason that regulators were asleep at the wheel. 9/11/2001 caused bush to divert FBI and other law enforcement agencies away from their regular work and into counter terrorism. While this was significant, it was an unintentional side effect. The root cause of the mess we are in was was the American preoccupation with defying the terrorists by stimulating economic growth. I was living in America in 2001 and I distinctly remember that people thought that the terrorists had primarily attacked their economy. There was an all pervading sense of chest beating, we'll show 'em attitude. In other words, the wild economic ride of 2002 to 2008 was a direct consequence of a uniquely American response to the the bombings. Alan Greenspan crashed interest rates and blind eyes were turned to shoddy dealings because growing the economy was seen as the ultimate defiance of terrorism
3. 51ck-6-51x said...
This is a good article, albeit a little wordy.
credit derivatives (especially synthetic CDOs) are indeed near the root of the problem. However once these are traded through clearing houses - or even on exchange there would be no such issue.
The root is, in my opinion, the hodge-podge of regulation (including taxation, subsidies and barriers to trade) - rules which are destined to always remain at least one step behind the game. I advocate removing these constraints, however we are going to make the age old mistake of democracy and put more rules in place, which will be designed to be "flexible", but which will ultimately lead to other, "new" problems further down the line.
gardenia - note the phrase directly after the but you quoted "AIG had placed this unit outside American borders, which meant that it would not have to abide by American insurance reserve requirements." - regulation must keep up with regulation across international borders as well as with the game itself. Regulation of so called free-markets is destined to fail! (Borders are another thing we should aim to be rid of.)
"Today, the real question is whether the Morgan quants knew the swaps didn't work and actually were grenades with pulled pins. Like Joseph Cassano, such people should consult attorneys" - no I do not believe it is, because they do work - they are financial bets which may be used to hedge or speculate, it's not the product it's human nature we must question.
4. gardeniadotnet said...
@3 51ck-6-51x said... it's not the product it's human nature we must question
Yes indeed, pesky people spoiling your equations!
Saw this today and thought of you (in purely a platonic sense, you understand):
In real life, I assure you, there is no such thing as algebra.
- Fran Lebowitz
5. bob1 said...
garden:
Your attitude reminds me of the treatment dolled out to that brilliant University Challenge contestant. Resenting and lambasting clever people who understand ‘stuff’ is a pernicious UK disease that chokes off excellence. 3 51ck-6-51x clearly understands derivatives and has taken the time to offer a thoughtful post. What the hell has allegebra got to do with derivatives??? From yesterdays posts it is obvious that you don’t remotely understand derivatives. Your attitude appears to be that, any and all, financial products should be banned and that anyone connected to then should be dunked in your vilage pond. Do you understand that if you got your wish, most of the HPC posters would be lining up at a soup kitchen. Financial products are part of the modern world. Get with the times Wurzel.
6. 51ck-6-51x said...
gardenia -
Heh, not much of an authority though, eh? By referring to "real life", she de-objectifies the statement, since it now hinges on a philosophical subject. I'd relate it to this quote:
"As far as the laws of mathematics refer to reality, they are not certain, and as far as they are certain, they do not refer to reality." - Albert Einstein.
bob1 -
Don't be too harsh on our local botanist, as long as someone is not a troll and listens to my opinions I'm cool with hearing theirs.
:)
7. iguana said...
bob1
Surely the creation and valuation of CDO's and their illegitimate offspring the CDS is base purely upon an algebraic formula......... it is rocket science?
8. gardeniadotnet said...
@5. bob1
Your post is so wrong and includes so many false assumptions that I don't know where to start.
...so I won't... lol
9. James said...
No, gardenia, 666 and bob are more or less right (though the practise of derivatives is very quantitative). The problem is you don't listen. You have your beliefs and just seem to ignore people explaining things to you. Thus you persist with your muddleheadedness.
10. rumble said...
Rubbish at Garden critics. He argues within the limits of his understanding, and when provided with clarification of something he does not understand, he says so - reference conversation about net vs gross derivatives positions sometime this week. What's the alternative, to shut-up and hope that eventually someone will clear up an issue by chance? Consider that we don't all speak finance - there may be a communication gap and if you are unable to bridge that gap then you may well be dunked in your village pond.