global financial crash yay!

IdleRich

IdleRich

IdleRich
"Is that really his argument?"
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It may be part of it but it wasn't what I took as the main thrust of it.

"I can't see demand for labour in the financial sector not being affected by the end of a massive credit cycle. Disregarding complexity -- do you really think that a couple of years from now it will be back to easy-credit/business as usual and everyone will be making tons of money again? Think of this: a bubble by definition misallocates capital. But you suggest that there was no misallocation of human capital, and that after we've finished saving the financial sector from itself, demand for labour will return to its credit-cycle peak. There will be no end to the age of leverage. There will be the same high returns. No one will complain about conflicts of interest or public servants reaping massive rewards. I don't buy it."
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I think this is right but in a while this will all be forgotten and banks will (try and) find a new way of making money. Obviously I can't predict what it will be but if it's successful it's quite possible that it will involve taking on some more people once again though maybe not to the same level.
One of my friends got made redundant from a bank on Monday completely out of the blue. Well, there was no indication prior to that that there were going to be any redundancies in his department anyway, I guess you can't really say any banking redundancies are out of the blue at the moment.
 
vimothy

vimothy

yurp
IdleRich said:
I think this is right but in a while this will all be forgotten and banks will (try and) find a new way of making money. Obviously I can't predict what it will be but if it's successful it's quite possible that it will involve taking on some more people once again though maybe not to the same level.
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Probably. But I suspect that what we might call the Liar's Poker era of Wall Street was in itself a discontinuity, and so there can be no return to the way things have always been. Things haven't always been. Things have always changed. So, sure, maybe we'll snap back to another 20-odd year business-cycle-free business-cycle (aka the Great Moderation) in a couple of years and repeat the whole process as if it had never happened. Maybe.
 
IdleRich

IdleRich

IdleRich
Probably. But I suspect that what we might call the Liar's Poker era of Wall Street was in itself a discontinuity, and so there can be no return to the way things have always been. Things haven't always been. Things have always changed. So, sure, maybe we'll snap back to another 20-odd year business-cycle-free business-cycle (aka the Great Moderation) in a couple of years and repeat the whole process as if it had never happened. Maybe.
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Sure, I'm not saying anything as strong as that though. I just think that the next few years will be characterised by caution and a lack of exotic products but those who think that the era of exotic products is over for good are probably wrong. I wouldn't want to say much more than that.
 
D

DWD

Well-known member
vimothy said:
As far as I'm concerned, politically, the current level of growth cannot continue. If it does, it will be at the expense of the rest of society and merely prolong the eventual readjustment, when the bubble in financial services eventually does burst. But I don't think it will. How can it? I'm not talking about complexity, I'm talking about volume, business model, leverage, appetite for risk, regulation, returns, etc, etc. The world has changed.
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Has it? In a way that means banks can't earn lots of money any more? I don't think so.

Banks will definitely make less money over the next few years and they'll cut their cloth accordingly. But they'll be back. It's not like all the CEOs are sitting around in dazed despair, weeping and wailing about how they can't sell CDOs of ABS any more. The same thing happens after every bubble - banks adjust, re-allocate their resources, and start making money again. Why would this be different?

I don't think you appreciate how little things have changed in some respects. I know a guy who runs a trading outfit which makes its money from transactions that are every bit as complex as a synthetic CDO. They're expecting to earn four times as much profit as they did in 2007 - which itself was a record year for them. Now, that's not common - but it's not exactly rare, either. All of the big dealers will have desks that can tell a similar story.

And, yep, it's near-impossible to trade with leverage these days. But so what? You don't need leverage to make money in volatile markets. The only reason people were trading on borrowed money was because unleveraged returns were so low and borrowing was so cheap. Now spreads are so wide that you can earn a fortune if you don't mind putting your own money at risk. These are the kind of markets that traders love. There are people out there who are relishing what's happened, loving it. A lot of trading desks might have less freedom for a while, but trading as a business is not going away.

vimothy said:
Is that really his argument?
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Well, I think my one-sentence summary might have missed some of the subtleties of Taleb's argument. It's not a million miles off, though.
 
vimothy

vimothy

yurp
And, yep, it's near-impossible to trade with leverage these days. But so what? You don't need leverage to make money in volatile markets. The only reason people were trading on borrowed money was because unleveraged returns were so low and borrowing was so cheap. Now spreads are so wide that you can earn a fortune if you don't mind putting your own money at risk. These are the kind of markets that traders love. There are people out there who are relishing what's happened, loving it. A lot of trading desks might have less freedom for a while, but trading as a business is not going away.
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Well, that makes sense. Sorry to rant -- I guess I'm thinking out loud more than responding directly. Maybe we're not talking about exactly the same things. I think that, referring back to the education paper I posted, growth in the financial sector as a proportion of the economy has tracked the growth of the credit bubble. In that period, supply and demand for financial labour both grew at a pace out of sorts with the real economy, certainly here in the UK, and I suspect in the US and other major financial centres as well. (What is it that Lewis says, something like prices for labour in financial labour markets never responding to supply excesses in a way that you would expect based on what you learnt in econ 101)?

And yeah, I'm sure banks will still make money, but I think that they also made money before half of all male Harvard graduates worked there too. You agree that markets will be different, at least near-term (wider spreads, more volatility, more zero-sum -- fewer winners and more losers). Don't you think that this will result in organisational differences for firms and aspirational differences for individuals?
 
vimothy

vimothy

yurp
Let me throw up a couple of possibly weaker, more subjective ideas, DWD, and see what you make of them:

In many advanced nations, over the past twenty or so years, the financial sector grew at a rate greater than that of the real economy, and wages in the financial sector grew at a faster rate than in the rest of the economy -- in fact, wages in the real, non-financial, economy have been stagnant for some time. This not great. In addition (perhaps in parallel), over broadly the same time period, inequality in the developed world exploded upwards. I'm not trying to imply direct causality, but it's obviously a contributing factor. Furthermore, as the rewards to financial labour have increased, more of society's best educated workers from the most vital disciplines have gone to work there, at, I argue, a significant opportunity cost to the rest of society. Better for the health of all of us if this does not continue in exactly the same vein.
 
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vimothy

vimothy

yurp
DWD said:
The same thing happens after every bubble - banks adjust, re-allocate their resources, and start making money again. Why would this be different?
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Right -- in that sense, there's no reason that right now would be any different. Stuff blows up, everyone readjusts and gets back on with it. Things go wrong all the time. But they don't go wrong in exactly the same way. Banks are always going to make money -- if anything, the last year has underlined how essential they are to the harmonious functioning of the economy. But they won't necessarily make money in exactly the same way, and they won't necessarily make the same amount of money. What will be the nature of the adjustment, how will the regulatory environment change, how will investors react -- I think those issues will affect the aspirations of the suppliers of financial labour and the decisions of firms on the demand side. I am very bad at predicting the future, though, so maybe I should just give it a rest...

Well, I think my one-sentence summary might have missed some of the subtleties of Taleb's argument. It's not a million miles off, though.
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Maybe more accurate to say that Taleb blames the edifice of financial theory for deluding decision makers into thinking that they more accurately understand and control risk? He is, or was, a quant himself, after all.
 
Grievous Angel

Grievous Angel

Beast of Burden
Conservative economic commentator Samuel Brittan at the FT:

Public spending won't result in a massive burden on tax-payers = fuck the Tories and their economic illiteracy. But tax cuts are better than big public works schemes, and work faster. I agree. Cut the bottom rate of tax, I say, since the poorest will spend, not save.

And again, budget deficits are not necessarily a bad thing - argued from Milton Friedman...

Can I be the first person on Dissensus to call Bernie Madoff a cunt? Thank you.
 
vimothy

vimothy

yurp
Cut the bottom rate of tax, I say, since the poorest will spend, not save.
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I agree.

On the Madoff debacle, from LOLfed:

chris-cox-math-is-tough.jpg
 
vimothy

vimothy

yurp
Paul Krugman in his NYT column -- The Madoff Economy:

In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents....

...how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?
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vimothy

vimothy

yurp
"Urgent Response Required"

Mr. Ogechukwu Kanma (Bank Manager)
Union Bank PLC

Lagos Branch

Lagos, Nigeria

Attn/President/CEO



Dear Sir,

I am Ogechukwu Kanma, Bank Manager of Union Bank PLC, Lagos Branch. I got your contact from the World Trade Center (W.T.C.) Regional office in Lagos, Nigeria although the details of my intention was not made
known to them. Actually, I listed your name amongst four other names and prayed over them and God revealed
you to me and I decided to contact you directly. I have a very urgent and confidential business proposition
for you for our overall mutual interest.

For the past 18 years, an American Business Executive, one Mr Bernard Madoff has made a number secret deposits valued at USD$50,000,000.000.00 (Fifty Billion American dollars) into an account at my Branch. I recently sent a routine notification to his forwarding address and called his telephone but got no reply. Then I see the news that he is in jail! On further investigation I found out in the fine print that for this type of account Mr Bernard Madoff must come personally to my branch to withdrawal the funds.

This sum of USD$50,000,000,000.00 is still sitting in the Bank and the interest is being rolled over with the
principal sum at the end of each year. And he cannot come forward to claim it, since Mr Bernard Madoff is under house arrest with a designer ankle bracelet. According to Nigerian Law, in such cases, the money will revert to the ownership of the Nigeria Government if nobody applies to claim the funds.

Consequently, my proposal is that I will like you as a foreigner, with a foreign-sounding name, to stand in as the next of kin of to Mr. Bernard Madoff so that the fruit of this old man's labor will not get into the hands of some godless and corrupt government
officials.

The plan is simple:

(1) I will like you to provide me immediately with your full names, address, social security number, and credit card details (including the expiration date and little number on that back that they always ask you for when you make purchase over the telephone), your mother's maiden name, your email, and driver's license number so that the attorney will prepare the necessary documents and affidavits, which will put you in place as the next of kin.



(2) We shall employ the services of two attorneys for drafting and notarization, and obtain the necessary documents and letter of probate/administration in your favor for the transfer.

(3) A bank account in any part of the world, which you provide, will then facilitate the transfer of this
money to you as the beneficiary/next of kin of Mr. Bernard Madoff. The money will be paid into your account
for us to share!! in the ratio of 60% for me and 40% for you. There is no risk at all as all the paperwork
for this transaction will be done by the attorney and my position as the Branch Manager guarantees the
successful execution of this transaction. If you are interested, please reply immediately via this private email address.

(4) And don't worry about your bank being suspicious about the transfer as I will make sure to split up the wires into units of less than 10,000 ($9,999.99) to avoid detection on the Fed wire. If I make 10 of these per business day (excluding Nigerian Public Holidays & Fela Kuti's birthday) we will complete the transfers in only 500,000 business days!! Imagine the happiness of your soul to receive your 40% of USD$100,000 for the next 500,000 business days!

Upon your response, I shall then provide you with more details and relevant documents that will help you
understand. Please observe utmost confidentiality being certain that whatever you do DO NOT CONTACT THE SEC or anyone by the name of Arpad Busson as they might spoil our little deal.

Rest assured that this transaction would be most profitable for both of us because I shall require your assistance to invest my share in your country - hopefully in a nice and safe hedge fund or fund-of-hedge-funds, preferably one with consistently high returns and low-risk. 



Awaiting your urgent reply via this email above, and please save me the anxiety of endless waiting.

God bless you.


/signed/
Mr. Ogechukwu Kanma

Union Bank PLC,

Lagos,Nigeria
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P

polystyle

Well-known member
From beginning > towards end

Interesting to read back over tread, from Sufi's beginning -
and to see where we are by now ...

Bailouts - anyone else lining up ?
think we know the answer there ...
Cheers all
 
P

polystyle

Well-known member
Perfect ... storm !
Now let's blow things up in the middle east again ,
throw the deaths, ripples and repercussions from this into the mix.
Someone's definitely saying 'yah' , somewhere ...
 
vimothy

vimothy

yurp
On the other hand, I did notice this over at Deal Journal:

Now, the full week’s data are in, and it is looking certain at least that the credit markets are more open than they have been for at least a year and investor appetite is allowing for multibillion-dollar deals. Last week, companies raised $152.6 billion by selling debt to investors. That is the highest volume since the first full week of 2008, when volume was $176.3 billion, according to Thomson Reuters data.
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