global financial crash yay!

Grievous Angel

Beast of Burden
Idon't think we are quite at the bottom, but still...

Any news on failed German bond issues? Was a topic of conversation at the weekend and I know nowt about it.

See this for a conservative economist writing in the Telegraph about why government borrowing and spending is the right response: http://www.telegraph.co.uk/finance/...ing-those-responsible-for-this-recession.html

Note to David Cameron - go and learn some fucking economics.

Note to Labour - ditto, when you criticise the Tories for suggesting "unfunded" spending, you should note that in a depression, that sort of spending is the best...
 
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swears

preppy-kei
imgad


We're all gonna die!!!!!
 

craner

Beast of Burden
Vimothy, what's your opinion on the bank bonuses farago?

(I'm not entirely sure you are, but) what's the libertarian argument on this? I assume that, despite the fact that the State owns these banks, the bonuses should be none of their business?

I probably asked this all wrong; my grasp of economics, down to my own small supply of money, is woeful.
 

vimothy

yurp
(I'm not entirely sure you are, but) what's the libertarian argument on this? I assume that, despite the fact that the State owns these banks, the bonuses should be none of their business?

I think most libertarians would argue that failing banks should go bankrupt, and not be in a position to pay bonuses. But that's probably a bit irrelevant at the moment.
 
How and when the global financial system completely collapsed

This is revealing...



The Capital Markets Subcommittee Chair, Rep. Paul Kanjorski of Pennsylvania, tells C-Span how the world economy almost collapsed in a matter of hours.

At 2 minutes, 20 seconds into this C-Span video clip, Kanjorski reports on a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars." According to Kanjorski, this electronic transfer occured over the period of an hour or two.
Kanjorski: "The Treasury opened its window to help. They pumped a hundred and five billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn't be further panic and there. And that's what actually happened. If they had not done that their estimation was that by two o'clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed."
"It would have been the end of our political system and our economic systems as we know it."

via boingboing
 

craner

Beast of Burden
Doesn't seem to be the Samizdata preference, bit I'm not an acute reader of them, though I kind of like them (good taste in booze).
 

vimothy

yurp
Well, because governments have by and large prevented them from going bankrupt. Not up-to-date on Samizdata, I'm afraid. Presumably, they think a nationalised bank should still pay the going rate?
 

Grievous Angel

Beast of Burden
The bonus issue is not as simple as it first appears.

First there's the bonuses for "ordinary" banks staff who had nothing to do with the crisis. Lets dispense with that, the cost isn't that great.

Then there's bonuses for bank staff that are contractually guaranteed - you generate the profit, you get the bonus, guaranteed. And lots of bank traders have been generating legitimate profits - even since the crash (as Idle Rich noted upthread). If you break contracts out of prejudice against bankers you set a dangerous and unethical precedent.

(The important side question is, how legitimate were the profits? Were mid-level traders paid for actual realised profit or just for "imputed profit", i.e. profit on CDSes and other derivatives contracts that weren't concluded and seemed like they weren't under water. I don't have a good grasp of that. Vim? Rich?)

Then there's the fact that senior management at banks already get their bonuses for long term performance, not short term performance. Their paid in options to buy shares in their banks whose price rises as a result of their performance - and those shares did rise, hence their historic bonuses. Of course those share prices in the toilet now, but the "cash" component of profits, based on operating profit, still applies.

Then there's the fact that much of the trouble was not caused by banks but by other FIs that exploited the fact that they were not subject to the same level of regulation as banks - especially insurance firms like AIG - who were able to expand their liquidity ratios way beyond what banks could do (but see the note below). Non bank FIs wrote vast volumes of CDSes and other instruments, betting the farm in the belief that they'd hedged their bets.

To me, the issue with bank bosses, to focus just on them, is that they deliberately tried to compromise their regulatory responsibilties and destroyed their liquidity ratios by leveraging up so much that tiny movements in underlying asset prices wiped out their entire capital, as happened with Bear Stearns, where a 0.3% drop in the value of CDSes BS held destroyed the bank. If they had simply followed the spirit and the letter of existing banking regulation then they wouldn't have got into trouble. They plainly did not. Yet they whine that regulation was too weak.

------------------------------------------------------------------------------------------

On a separate note, I don't think that even from a libertarian point of view that the banks should have been allowed to fail - not wholesale, not systemically. It might be intellectually satsifying. But the real human collateral damage would have been far worse.
 

matt b

Indexing all opinion
And yet they can't prevent these bonuses, it seems? It makes no sense. I don't get it.

Of course the gvt could prevent the bonuses- would any banker go to court in order to claim that which is 'legally theirs'? I doubt it. Even so, the gvt could claim that the bankers wouldn't have a job without the bailout.

Brown et al are still in love with the bankers world view- Fred Goodwin was Brown's economic guru, and the bankers are making arguments such as 'we made £££ for the country over the past 15 years', forgetting that the credit crunch shows how illusionary it all was.

That money was lent by gvt to banks without strings (e.g. forcing lending etc) was idiotic (the banks are now hoarding cash); and that they refuse to nationalise the banks is political game playing/folly at its worst.
 
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crackerjack

Well-known member
The bonus issue is not as simple as it first appears.

First there's the bonuses for "ordinary" banks staff who had nothing to do with the crisis. Lets dispense with that, the cost isn't that great.

Then there's bonuses for bank staff that are contractually guaranteed - you generate the profit, you get the bonus, guaranteed. And lots of bank traders have been generating legitimate profits - even since the crash (as Idle Rich noted upthread). If you break contracts out of prejudice against bankers you set a dangerous and unethical precedent.

(The important side question is, how legitimate were the profits? Were mid-level traders paid for actual realised profit or just for "imputed profit", i.e. profit on CDSes and other derivatives contracts that weren't concluded and seemed like they weren't under water. I don't have a good grasp of that. Vim? Rich?)

Then there's the fact that senior management at banks already get their bonuses for long term performance, not short term performance. Their paid in options to buy shares in their banks whose price rises as a result of their performance - and those shares did rise, hence their historic bonuses. Of course those share prices in the toilet now, but the "cash" component of profits, based on operating profit, still applies.

Then there's the fact that much of the trouble was not caused by banks but by other FIs that exploited the fact that they were not subject to the same level of regulation as banks - especially insurance firms like AIG - who were able to expand their liquidity ratios way beyond what banks could do (but see the note below). Non bank FIs wrote vast volumes of CDSes and other instruments, betting the farm in the belief that they'd hedged their bets.

To me, the issue with bank bosses, to focus just on them, is that they deliberately tried to compromise their regulatory responsibilties and destroyed their liquidity ratios by leveraging up so much that tiny movements in underlying asset prices wiped out their entire capital, as happened with Bear Stearns, where a 0.3% drop in the value of CDSes BS held destroyed the bank. If they had simply followed the spirit and the letter of existing banking regulation then they wouldn't have got into trouble. They plainly did not. Yet they whine that regulation was too weak.

------------------------------------------------------------------------------------------

On a separate note, I don't think that even from a libertarian point of view that the banks should have been allowed to fail - not wholesale, not systemically. It might be intellectually satsifying. But the real human collateral damage would have been far worse.

Wouldn't it be easier just to shoot them?
 

matt b

Indexing all opinion
To me, the issue with bank bosses, to focus just on them, is that they deliberately tried to compromise their regulatory responsibilties and destroyed their liquidity ratios by leveraging up so much that tiny movements in underlying asset prices wiped out their entire capital, as happened with Bear Stearns, where a 0.3% drop in the value of CDSes BS held destroyed the bank. If they had simply followed the spirit and the letter of existing banking regulation then they wouldn't have got into trouble. They plainly did not. Yet they whine that regulation was too weak.

The past 3 months has highlighted how the debt driven model of running a company is flawed- companies going bust because they have a bad month of sales. wtf? There was a mass delusion in place that meant everyone (from the bankers to people taking equity out of their house) simply assumed that values/sales/profits would increase. See Brown's 'end of boom and bust' speech.

wev'e all become fcuking infants
 

vimothy

yurp
Let me just say that I agree with you Grevious, but think that there is a libertarian position that holds that the financial crisis was (probably) caused by the government, that the government is making the crisis worse, and that the government has no business in propping up failing financial intermediaries. Just read, say, Larry White's essay at Cato Unbound.

But I confess that I'm not quite sure exactly what Oliver is refering to -- are you thinking of something specific, Ollie, or just the issue of bonuses generally?
 
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