Sunday, September 6, 2009

Vince Cable, Gillian Tett and Paul Mason invited by Mark D’Arcy

The Credit Crunch

- Bubbles have been driven by the financial services - Bankers riding away for as much as they could - CDOs creation compared to the Enron case to push away things from the books

Posted by mander @ 03:46 PM (858 views)
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7 thoughts on “Vince Cable, Gillian Tett and Paul Mason invited by Mark D’Arcy

  • Good discussion by 3 of the few people who can speak both knowledgably and disinterestedly on the subject. One thing which struck me was Paul Mason’s remark about the median earner in the US having an income worth less than 30 years ago, subsequently borrowing to keep out of poverty (or close to it). I was dimly aware of this but hadn’t realised quite how severe the impact of globalisation was as managed by Western economies. To put it another way, the majority is financially oppressed by the minority, and we can certainly see that in the UK, if not to such an extreme degree.

    All are pessimistic about the future of our economy, which chimes with most of us here. Well worth the 35 minutes to watch. Good post mander.

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  • have been listening to Gillian’s book its pretty good. However the bloke who reads it is a bit pompous (strange for an American). Super senior which wasnt was a teeny problem. At the end of the day the party carried on until…. it didnt. CDS was a great idea – they just carried it too far… but they would wouldn’t they!!

    Its all about the cycles …. greenbay says he didn’t believe in them caveat emptor RIP. The analogy could be heroine as they say, the weed isn’t wicked its the abuse of it that is, same with CDs.

    Its all about boom and bust… isnt it?

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  • mander – “CDOs creation compared to the Enron case to push away things from the books” hmmmm sort of. I think one of the main problems were the SIVs of the banks themselves. 19.10 in Gillian says that she thought it would end in 2005. As i said its when the bubble bursts that is the problem – easy to look a complete d1ckhead, be short and get killed.

    Of course just as difficult to determine the end of the retracement after the initial fall.

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  • I should have waited for the last 3 minutes – that on its own is worth it – especially the bit about paying down debt. The issue in my view is this:

    The governments have spens $Bns trying to convince the people that the problems can be solved. Its now down to 2 things:

    1. Whether the people believe em… and 2. IF they do then will they stop believing pretty soon?

    No prize for guessing what i think!

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  • Paul Mason refers to derivatives and compares them to Enron case where things were pushed away from the books.

    I am not able to compare derivatives but creating money without driving it wisely took us here and derivatives were supposed to protect us from failures.

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  • Yes he does but its a bit of a simplified comment.

    CDOs where just sliced and diced debt. CDOs were essentially investments which replicated an income stream. The idea was that the underlying ABS including Mortgage BS wouldnt all tank at once. So if some tanked you would be protected by the others that didnt. Since there hadnt been a country -wide fall in property since the great depression, then the theory was that it was very unlikely that they would all go belly up.

    CDS were supposed to insure the defaults of companies which went into liquidation or restructured. SIVs invested in these things and took the instruments off balance sheet. That way they didn’t have to be counted in the capital ratios for regulatory purposes.

    Hence my sort of comment! Wasnt (on this occasion) trying to be a smart ar5e. Of course its all very complex – hence the books (i have only “read” GTs book but i dont know if people that have read the others can comment).

    All in all thats my understanding but it is admittedly a bit weak, so i am open to being flambed in this case!

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  • This is a very good explanation IMO:

    http://pharmagossip.blogspot.com/2008/10/cdos-explained.html – 1st one shows that the problem is CDO of CDO , and the second explains CDS.

    If you like it was all leverage on the good times continuing and the economy always expanding – i.e. no more BUST!!

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