A sincere question for Zero Hedge (or anyone else):
Background: In the past (prior to all of this "quantitative easing" [i.e. the US gov't buying its own debt] ), the US Treasury yield curve was a fairly decent predictor of "forward rates", economic activity, inflation, etc.
For instance, note this article from the summer of 2006 which discusses the very unusual shape of the yield curve. (with a very prophetic shape) www.econbrowser.com/ar...
Now my question: To what extent has the yield curve's predictive "power" now been distorted by all of this recent "quantitative easing"? ... and would that distortion be quantifiable? (Could be a good subject for a future article.)
How Can We Regain Confidence in Financial Professionals? [View article]
There is, indeed, a tremendous difference between the rigor and challange of the CFA program and that of a typical MBA program.
I would quickly agree that my MBA education (as well as the MBA programs of more famous universities ) was / is NOT adequate to properly prepare someone to manage a complex investment portfolio. (Hence the reason my account name is "An MBA Still Learning".)
However, the curriculum of the CFA program is substantially more advanced. It is a series of 3 increasingly complex exams (not a single exam as "Bill Herbert" implied above). I have passed the Level I exam, but my attempts, so far, to pass the Level II exam have not yet been successful. The Level II exam is signifcantly more difficult than the Level I exam.
While the Level I exam might fit the description of "memorizing terms and number crunching", the Level II exam involves significantly greater problem-solving complexity. Meanwhile, the Level III exam (with which I'm obviously less familiar) involves still more complexity. Consequently, I have the utmost respect for CFA charterholders.
I can credit my partial progress in the CFA program with at least giving me the wisdom in 2007 to steer my investments away from any companies dealing with Collaterallized Debt Obligations (and related derivatives).
Certainly, no certification program is perfect.
I do like the idea of periodic re-certification. (I understand the Credit Default Swaps did not exist until the mid 1990's).
Inflation vs. Deflation: Pick Your Poison [View article]
Hmm... if only the real world could operate according to this theory.
I don't recall my own salary increase last year (or the year before) being large enough to compensate me for paying dramatically higher prices for gasoline and groceries.
Consequently, like many other Americans, I compensated for this inflation by reducing my spending on less important things. Unfortunately, a substantial number of Americans also responded to this inflation by defaulting on their debts.
Your theory about wages keeping up with inflation would be more true if every human were a commision-paid employee, an entrepreneur, or an independent contractor. Unfortunately, a very large portion of the workforce is not employed in any of those categories.
In response to what I have just described, one might offer the theory that, over time, existing companies and entrepreneurs will respond to commodity inflation by expanding capacity and, consequently, beginning to compete with each other for more labor - thus, driving up wages and salaries.
Unfortunately, it didn't work that way last year.
Footnote: The business media has not given sufficient coverage to the impact that inflation had on the economy last year. Instead, they hyped the "credit crunch". I don't dispute that the credit crunch was, indeed, a critical issue. However, it was only part of the whole story.
Financial Regulation: What Can We, Or Congress, Do? [View article]
I agree with the above comments from "Cautious Investor" and John Gordon.
Without detracting from those comments, I would also add that some of the factors described above were also exacerbated by the false sense of security provided by inadequately-supported Credit Default Swaps (such as those sold by AIG).
One consequence of CDS's is that they added yet another 'degree of separation' (beyond the 2 or 3 'degrees of separation' already coming from Collateralized Mortgage Obligations') between the person making loan approval decisions and the entities which were intended to bear the ultimate risk for those decisions.
I don't yet have a firm opinion on the best way to regulate the use of CDS's, but it would be another worthy topic for discussion.
For starters...At this link is a proposal by Shah Gilani, a former hedge-fund manager, who writes for the web site, "Money Morning". www.moneymorning.com/2.../
I do like the idea of restricting the purchase of CDS protection to only those entities who actually hold the underlying bond or loan.
It has also occurred to me that we could impose a Federal sales tax upon the sale of CDS protection. This could, in part, re-capture the value of the "negative externalities" (i.e. "bailouts") whose burden has been placed upon the American taxpayer. Futhermore, it seems that the prices of CDS protection were found to be poorly correlated to the actual risk of the underlying bond or loan. (Regarding this last point about pricing, I am basing it merely on anecdotal reports. So, if you have data which refutes or supports this last point, please feel free to share it.)
What about placing a sales tax on the sale of Credit Default Swaps?
What would be the resulting "pros" and "cons" of doing so?
Should the tax be based upon the notional value of the "underlying" bond? (forgive me if I am abusing terminology here)
Or should the tax simply be based on the market value of the CDS, itself?
My personal opinion is that such a tax would, perhaps, be a less effective solution than simply adding solid, firm regulations regarding CDS transactions. Nevertheless, the idea has some appeal.
Although a tax might be expected to introduce some market inefficiency, it has been said that CDS's have not done a very good job of measuring risk, anyway: They have made high-risk CMO tranches look "wonderful" and they have been blamed for bankrupting companies prematurely (see this link). www.moneymorning.com/2.../
Certainly, negative "externalities" have already resulted from the use of Credit Default Swaps and the American taxpayer is currently being burdened with the cost of paying for those negative "externalities". Thus, in that sense, a CDS sales tax could somewhat "even the score".
Many of you know much more about Credit Defaults Swaps than I do. I look forward to hearing your perspective.
Just to clarify my last comment: The "duty" of Goldman Sachs which I mentioned above was to it's own "stakeholders" (shareholders, etc) to make sure that their strategy for "risk mitigation" (buying CDS's from AIG) would be an adequate strategy to protect its own "stakeholders".
Hypothetically, if AIG had been allowed to go bankrupt, GS would have fared somewhat differently with that particular risk mitigation strategy. (Perhaps GS would then have only received part of their claim on those CDS's rather than their full claim.)
Goldman Sachs also had a duty to first assess the "capacity" of AIG to honor those same AIG CDS obligations. GS goofed and got it wrong.
In a true free market economy, investors and businesses, must, bear the potential penalties of the risks they undertake. Their reward for bearing this risk is their "economic profit". We should not reward mistakes in judgement.
Even though Goldman Sachs has already repaid the US government loans which were made to them directly, I wonder if they could also be so kind as to repay the American taxpayer for those AIG Credit Default Swaps which the US Government chose to guarantee for them?
Will the Democrats' Massive Borrowing and Spending Binge Kill the U.S. Economy? [View article]
Mr Jackson, I believe you could sell your ideas better if you were to follow the example of today's (July 14th) article by Peter Morici ("Why Obama's Economic Policies are Failing"). Although the article is a critique of Obama's policies, it also acknowledges the profound shortcomings of the previous administration (which your recent articles have not done). It is likely that you quickly lose your credibility among your non-liberal readers with your recent practice of making Obama the PRIMARY scapegoat for most of today's economic problems (and simultaneously giving a "pass" to the Bush / Cheney administration).
I'm not saying that Obama's ideas are perfect, but every American knows that this economy was performing poorly before Obama took office. When you ignore that fact, you look rather foolish.
A person can be critical of the Bush / Cheney policies without necessarily being an "Obama cultist".
At the risk of again being a smart*ss, let me point out some important facts: - The Chairman of the "Federal Reserve" is appointed by the President of the United States (and then confirmed the Senate, if the Senate so agrees). - In 2004, President Bush re-appointed Greenspan to continue his chairmanship. (It would, thus, seem that Bush was satisfied with his performance prior to that time. What does that say about Bush's judgement?) - It was President Bush who later appointed Bernanke to the Chairmanship of the "Federal Reserve". (What does that say about Bush's judgement?) - Obama's first official day in office [and Bush's last day in office] was January 20th, 2009 (and not any earlier than that).
I actually agree with several elements of Austrian economic theory (but not all of them).
Will the Democrats' Massive Borrowing and Spending Binge Kill the U.S. Economy? [View article]
Can you also describe what you liked best about the Bush / Cheney energy policy? Can you illustrate for us how the Bush / Cheney energy policy helped to maintain stable energy prices? (and, thus, helped our economy to prosper)
It is too soon to call this "Obama's economic failure". This economic failure was in place long before Obama took office.
Obama's role, so far, has been analagous to that of a emergency room surgeon who is trying to repair the injuries following the aftermath of several reckless-driving teenagers crashing into "whatever". He did not create this mess. Rather, his team is trying address the aftermath. Unfortunately, his "nursing staff" is Congress. (I do, indeed, agree with the comments of "Cautious Investor" above.)
The names of the reckless teenagers are many. They include members of BOTH parties (Christopher Cox, Alan Greenspan, Phil Gramm, Robert Rubin, Bill Clinton, Henry Paulson, the plutocractic Cheney / Bush Presidency, and the corrupt bond-rating agencies). The root cause of their crash was getting drunk on a blend of deregulation and the easy money sourced from inadequately-regulated Collateralized Debt Obligations and Alan Greenspan.
Ultimately, too many economic resources were caused to flow into the residential real estate bubble (over the past several years). Now those excess resources have to reallocate themselves to other areas where society has a greater need. Ideally, this is best done via the free market. Unfortunately, for many, the necessary transition period for this to happen can mean homelessness, hunger, and untreated disease when no safety net exists.
A key variable that has not been explicitly mentioned in this discussion is "monetary velocity". It is the catalyst by which money supply can be converted to inflation. Right now it is very low. Perhaps that could be good topic for a future article?
The return of soldiers from World War II (and World War I) likely caused a significant increase in "monetary velocity". This probably compensated for the reductions in government expenditures that were made at those times.
What alternative economic fix are you proposing, instead? Say's Law (supply-side economics), perhaps? or simply Darwinian Laissez-Faire?
Goldman Sachs: Thoughts on the Developing Stolen Trade Secrets Scandal [View article]
I have forwarded this article and a few by "Tyler Durden" to one of the Senators representing my state (Robert Casey of Pennsylvania). Those of you who can vote in the United States should also contact your respective Senators and Representatives about this matter.
The Fed's Treasury Shell Game [View article]
Background: In the past (prior to all of this "quantitative easing" [i.e. the US gov't buying its own debt] ), the US Treasury yield curve was a fairly decent predictor of "forward rates", economic activity, inflation, etc.
For instance, note this article from the summer of 2006 which discusses the very unusual shape of the yield curve. (with a very prophetic shape)
www.econbrowser.com/ar...
Now my question: To what extent has the yield curve's predictive "power" now been distorted by all of this recent "quantitative easing"? ... and would that distortion be quantifiable? (Could be a good subject for a future article.)
Thanks,
Bryan Kay
How Can We Regain Confidence in Financial Professionals? [View article]
I would quickly agree that my MBA education (as well as the MBA programs of more famous universities ) was / is NOT adequate to properly prepare someone to manage a complex investment portfolio. (Hence the reason my account name is "An MBA Still Learning".)
However, the curriculum of the CFA program is substantially more advanced. It is a series of 3 increasingly complex exams (not a single exam as "Bill Herbert" implied above). I have passed the Level I exam, but my attempts, so far, to pass the Level II exam have not yet been successful. The Level II exam is signifcantly more difficult than the Level I exam.
While the Level I exam might fit the description of "memorizing terms and number crunching", the Level II exam involves significantly greater problem-solving complexity. Meanwhile, the Level III exam (with which I'm obviously less familiar) involves still more complexity. Consequently, I have the utmost respect for CFA charterholders.
I can credit my partial progress in the CFA program with at least giving me the wisdom in 2007 to steer my investments away from any companies dealing with Collaterallized Debt Obligations (and related derivatives).
Certainly, no certification program is perfect.
I do like the idea of periodic re-certification. (I understand the Credit Default Swaps did not exist until the mid 1990's).
Bryan
Was the AIG Bailout a Goldman Bailout by Proxy? [View article]
seekingalpha.com/artic...
Inflation vs. Deflation: Pick Your Poison [View article]
I don't recall my own salary increase last year (or the year before) being large enough to compensate me for paying dramatically higher prices for gasoline and groceries.
Consequently, like many other Americans, I compensated for this inflation by reducing my spending on less important things. Unfortunately, a substantial number of Americans also responded to this inflation by defaulting on their debts.
Your theory about wages keeping up with inflation would be more true if every human were a commision-paid employee, an entrepreneur, or an independent contractor. Unfortunately, a very large portion of the workforce is not employed in any of those categories.
In response to what I have just described, one might offer the theory that, over time, existing companies and entrepreneurs will respond to commodity inflation by expanding capacity and, consequently, beginning to compete with each other for more labor - thus, driving up wages and salaries.
Unfortunately, it didn't work that way last year.
Footnote:
The business media has not given sufficient coverage to the impact that inflation had on the economy last year. Instead, they hyped the "credit crunch". I don't dispute that the credit crunch was, indeed, a critical issue. However, it was only part of the whole story.
Financial Regulation: What Can We, Or Congress, Do? [View article]
Without detracting from those comments, I would also add that some of the factors described above were also exacerbated by the false sense of security provided by inadequately-supported Credit Default Swaps (such as those sold by AIG).
One consequence of CDS's is that they added yet another 'degree of separation' (beyond the 2 or 3 'degrees of separation' already coming from Collateralized Mortgage Obligations') between the person making loan approval decisions and the entities which were intended to bear the ultimate risk for those decisions.
I don't yet have a firm opinion on the best way to regulate the use of CDS's, but it would be another worthy topic for discussion.
For starters...At this link is a proposal by Shah Gilani, a former hedge-fund manager, who writes for the web site, "Money Morning".
www.moneymorning.com/2.../
I do like the idea of restricting the purchase of CDS protection to only those entities who actually hold the underlying bond or loan.
It has also occurred to me that we could impose a Federal sales tax upon the sale of CDS protection. This could, in part, re-capture the value of the "negative externalities" (i.e. "bailouts") whose burden has been placed upon the American taxpayer. Futhermore, it seems that the prices of CDS protection were found to be poorly correlated to the actual risk of the underlying bond or loan. (Regarding this last point about pricing, I am basing it merely on anecdotal reports. So, if you have data which refutes or supports this last point, please feel free to share it.)
Bryan Kay
Bair Wants a Bank-Size Tax [View article]
What about placing a sales tax on the sale of Credit Default Swaps?
What would be the resulting "pros" and "cons" of doing so?
Should the tax be based upon the notional value of the "underlying" bond? (forgive me if I am abusing terminology here)
Or should the tax simply be based on the market value of the CDS, itself?
My personal opinion is that such a tax would, perhaps, be a less effective solution than simply adding solid, firm regulations regarding CDS transactions. Nevertheless, the idea has some appeal.
Although a tax might be expected to introduce some market inefficiency, it has been said that CDS's have not done a very good job of measuring risk, anyway: They have made high-risk CMO tranches look "wonderful" and they have been blamed for bankrupting companies prematurely (see this link).
www.moneymorning.com/2.../
Certainly, negative "externalities" have already resulted from the use of Credit Default Swaps and the American taxpayer is currently being burdened with the cost of paying for those negative "externalities". Thus, in that sense, a CDS sales tax could somewhat "even the score".
Many of you know much more about Credit Defaults Swaps than I do. I look forward to hearing your perspective.
Bryan Kay
Why Goldman Sachs Isn't Evil [View article]
The "duty" of Goldman Sachs which I mentioned above was to it's own "stakeholders" (shareholders, etc) to make sure that their strategy for "risk mitigation" (buying CDS's from AIG) would be an adequate strategy to protect its own "stakeholders".
Hypothetically, if AIG had been allowed to go bankrupt, GS would have fared somewhat differently with that particular risk mitigation strategy. (Perhaps GS would then have only received part of their claim on those CDS's rather than their full claim.)
Why Goldman Sachs Isn't Evil [View article]
In a true free market economy, investors and businesses, must, bear the potential penalties of the risks they undertake. Their reward for bearing this risk is their "economic profit". We should not reward mistakes in judgement.
Why Goldman Sachs Isn't Evil [View article]
seekingalpha.com/artic...
Will the Democrats' Massive Borrowing and Spending Binge Kill the U.S. Economy? [View article]
I believe you could sell your ideas better if you were to follow the example of today's (July 14th) article by Peter Morici ("Why Obama's Economic Policies are Failing"). Although the article is a critique of Obama's policies, it also acknowledges the profound shortcomings of the previous administration (which your recent articles have not done).
It is likely that you quickly lose your credibility among your non-liberal readers with your recent practice of making Obama the PRIMARY scapegoat for most of today's economic problems (and simultaneously giving a "pass" to the Bush / Cheney administration).
I'm not saying that Obama's ideas are perfect, but every American knows that this economy was performing poorly before Obama took office. When you ignore that fact, you look rather foolish.
A person can be critical of the Bush / Cheney policies without necessarily being an "Obama cultist".
At the risk of again being a smart*ss, let me point out some important facts:
- The Chairman of the "Federal Reserve" is appointed by the President of the United States (and then confirmed the Senate, if the Senate so agrees).
- In 2004, President Bush re-appointed Greenspan to continue his chairmanship. (It would, thus, seem that Bush was satisfied with his performance prior to that time. What does that say about Bush's judgement?)
- It was President Bush who later appointed Bernanke to the Chairmanship of the "Federal Reserve". (What does that say about Bush's judgement?)
- Obama's first official day in office [and Bush's last day in office] was January 20th, 2009 (and not any earlier than that).
I actually agree with several elements of Austrian economic theory (but not all of them).
Will the Democrats' Massive Borrowing and Spending Binge Kill the U.S. Economy? [View article]
Can you illustrate for us how the Bush / Cheney energy policy helped to maintain stable energy prices? (and, thus, helped our economy to prosper)
Will the Democrats' Massive Borrowing and Spending Binge Kill the U.S. Economy? [View article]
Obama's Economic Failure [View article]
seekingalpha.com/artic...
Obama's Economic Failure [View article]
Obama's role, so far, has been analagous to that of a emergency room surgeon who is trying to repair the injuries following the aftermath of several reckless-driving teenagers crashing into "whatever". He did not create this mess. Rather, his team is trying address the aftermath. Unfortunately, his "nursing staff" is Congress. (I do, indeed, agree with the comments of "Cautious Investor" above.)
The names of the reckless teenagers are many. They include members of BOTH parties (Christopher Cox, Alan Greenspan, Phil Gramm, Robert Rubin, Bill Clinton, Henry Paulson, the plutocractic Cheney / Bush Presidency, and the corrupt bond-rating agencies). The root cause of their crash was getting drunk on a blend of deregulation and the easy money sourced from inadequately-regulated Collateralized Debt Obligations and Alan Greenspan.
Ultimately, too many economic resources were caused to flow into the residential real estate bubble (over the past several years). Now those excess resources have to reallocate themselves to other areas where society has a greater need. Ideally, this is best done via the free market. Unfortunately, for many, the necessary transition period for this to happen can mean homelessness, hunger, and untreated disease when no safety net exists.
A key variable that has not been explicitly mentioned in this discussion is "monetary velocity". It is the catalyst by which money supply can be converted to inflation. Right now it is very low. Perhaps that could be good topic for a future article?
The return of soldiers from World War II (and World War I) likely caused a significant increase in "monetary velocity". This probably compensated for the reductions in government expenditures that were made at those times.
What alternative economic fix are you proposing, instead? Say's Law (supply-side economics), perhaps? or simply Darwinian Laissez-Faire?
Bryan
Goldman Sachs: Thoughts on the Developing Stolen Trade Secrets Scandal [View article]
Bryan