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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: DuckTapeSunroof who wrote (29573)	9/17/2008 7:44:09 PM
From: TimF	Read Replies (1) \| Respond to of 71588

Totally unregulated normally doesn't bother me much. It might keep me from directly participating esp. if there is transparency concerns but I don't consider it automatically bad or evil, sometimes its even a plus. As for $62tril, many of those net out. The actual value of real money or asserts is nowhere near that, add in the lost or fraudulent claims of money or assets and it still nowhere near that. You have the fraction that represents zero sum debt that actors in the market directly or indirectly owe to themselves. Then you have the much larger factor about how the these derivatives are totaled up. (see below) None of which changes the fact that there is a huge amount of highly leveraged complex risk out there that is now causing problems. But it isn't really equivalent to the gross production of the world, even though the headline numbers would make you thinks so. Even if only 2% of that represents actual money at risk, and only 10% of that is really lost, you would still be talking about over $124bil in losses. ---- In fact,derivatives can be written on more than the face value of ll the actual bonds that exist (ever heard of the ABX index(s)?). If I buy a derivative for $1 that says Megan pays me $5 dollars if the value of a specified $1,000,000 General Motors bond declines to say, $950,000, then the ISDA statistics will say we have a $1 million derivative, even though in reality it is a $5 "bet" it is quite easy to demagog these numbers, which is why people do so Tell me, what bank or hedge fund has failed due to over-indulging in credit default swaps? Posted by Jozef \| April 16, 2008 6:30 PM meganmcardle.theatlantic.com

To: DuckTapeSunroof who wrote (29573)	9/17/2008 7:48:30 PM
From: TimF	Read Replies (1) \| Respond to of 71588

Fraying the Social Contract posted by Nate Oman The bail out of Bear Sterns (and before it, Long Term Capital Management) is a bad thing. As Dave (and President Bush) points out, we seem to be enabling financial addicts, giving more money to those who have demonstrated their ability to invest it badly. Perhaps the domino effect of a BS failure really would shake the financial universe to its foundations, and avoiding such risk justifies creating enormous moral hazard problems. I seriously doubt it, but I am not a finance and banking guru, so I may be wrong. Regardless, however, having the government step in to save wealthy and sophisticated investors from themselves is bad. It is bad because beyond the moral hazard problem, it strikes at the legitimacy of modern finance capitalism. As I see it, contemporary capitalism rests on an implicit social contract. Risk-takers get to keep the upside of their investments. When they place their money on the line because they think they have a good idea and it pays, we all agree to regard their gains as legitimate. On the other hand, when you take a risk and lose, you also have to eat the downside. That is the social contract. Implicitly, I think it is what keeps envy and confiscatory populism at bay. It lets society live with the inequality that results from modern capitalism, and allows it to bustle along its way producing the wealth, innovation, and productivity that we all ultimately benefit from. Or so I believe. On the other hand, when the social contract is broken, when the risk takers get the up side and the public foots the bill for the down side, the social contract is eroded and with it the public legitimacy of capitalism. And when the legitimacy of capitalism tumbles, the communists -- or at any rate the economic populists -- come marching in. This isn't especially original stuff, but these ideas have been bubbling in my mind for the last little while as I read about congress blaming gas prices on futures markets or proposals for "windfall profits taxes." My worry is that these aren't simply examples of your run of the mill stupid political grand standing on economics, but rather are symptomatic of a fraying social contract. It is a cost that I hope Bernanke and others bear in mind when faced with the next "too [FILL IN THE BLANK] to fail" enterprise coming hat in hand to hunker down at the public trough. Posted by Nate Oman at July 24, 2008 02:21 PM concurringopinions.com