Perspectives on the global economic meltdown

Raja Bose
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Re: Perspectives on the global economic meltdown

Postby Raja Bose » 02 Mar 2009 02:51

If we get to a stage where Math is able to mimic reality with 400% reliability....then everything will be deterministic...might lead to end of human civilization! :shock:

Basically as it stands...no matter how sophisticated the model...it works within a very restricted domain and list of assumptions. Ignoring them leads to what we are seeing now. As far as most are concerned it is still largely random behavior where prediction guarantee is worth as much as a Paki Rupee.

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Re: Perspectives on the global economic meltdown

Postby John Snow » 02 Mar 2009 03:36

Analog models dont work for economics because of Econ 101

Free market
Free & instamtaic flow of information
Rational Behaviour
Risk avoidence

which is never true


Investment based on simulation lead to govt stimulus packages :mrgreen:

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 02 Mar 2009 04:29

IMHO the way forward is so clear that none have seen it yet ..... it is shouting so hard to be heard that it has gone beyond the pitch mere humans can tune into.....

Its time to declare the great wall st collapse as an act of financial terrorism and include it in the GWOT. Instead of SEC and FDIC officials raiding bank HQs, have DHS folks rush in guns (and cameras) blazing.....

Let the great hearings before congress take place not in DC but in nearby Gitmo.....

Then alone shall confidence restore in the shattered system, I deem....

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 02 Mar 2009 06:10

European Banks May Need 25 Trillion Bail-Out, Secret EC Document Warns

European banks sitting on GBP16.3 trillion of troubled assets may suffer massive losses, The Daily Telegraph reports, citing a confidential Brussels document.

European Commission officials have estimated that impaired assets may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the trading book total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets. In addition, so-called ‘available for sale instruments’ worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.

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Re: Perspectives on the global economic meltdown

Postby vina » 02 Mar 2009 06:28

Raja Bose wrote:Basically as it stands...no matter how sophisticated the model...it works within a very restricted domain and list of assumptions. Ignoring them leads to what we are seeing now. As far as most are concerned it is still largely random behavior where prediction guarantee is worth as much as a Paki Rupee.


No no, Hakim Sahib. The problem is not a "misapplication of math" by ingenues / sorcerer's apprentices. The problem is more fundamental.

John Snow garu got it right. The modern financial theory rests on a set of assumptions that everyone thinks is self evident and true. ie stuff like "Equilibrium" , "Rational Behavior" and "Risk Neutral" are the basis of all economics.

Yes, they might be true at a macro level /long run/, but everyone and his father in law knows that markets behave irrationally for extended periods of time. Look at the year 2000 , when the chatter was "When will Nasdaq rise above the Dow ?" :rotfl: , or the real estate bubble and the infrastructure bubble and the L&T at a P/E of 72 bubble , ICICI at ridiculous prices bubble ? Ol' Vina was hollerin about 'em hiyar and also had to get into running fights with Sensex at 25K boosters, who had theories on "de coupling" , on "hidden value in subsidiaries waiting to be unlocked".. etc :rotfl: :rotfl:

The point is markets can stay irrational, longer than you can stay solvent!.

Now all that the "math guys" did, was that they were inventing "better mouse traps" , but what they didnt account for was that the "underlying reality" they were modeling was fundamentally flawed. Assumptions on assumptions, like our Commie Ding Dongs in JNU who live in make believe reality make. Same mistakes saar.

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Re: Perspectives on the global economic meltdown

Postby Rahul Mehta » 02 Mar 2009 09:06

.

So far, turmoil in US, West is only a "turmoil in balance sheets of people and companies". Where as China and many non-West countries are seeing "turmoil on balance sheets" as well as "turmoil in real lives".

So far, in US, very few have been evicted and made homeless. Everyone in US has food, clothes, house, medicine, school for kids, a/c, heating etc. Whereas in China and many non-West countries , where doles etc are not omnipresent, the "turmoil of balance sheets" has become "turmoil in real life".

Now as per turmoil in balance sheets in US, who lost money? Most Americans were in debt and so when value of dollar falls, the value of their debt decreases. So lenders and investors loose. And a big chunk of these were foreigners. In past 5 years, Americans have purchased better cars, better houses and have enjoyed their lives to fullest. In addition, they have increased their weapons' arsenals and have acquired all the oil wells in Iraq. Some of this was financed by loans from foreigners and now foreigners have lost most of their money.

It Americans, West has gained, and non-West countries have lost big time. (aside : And many non-West countries' losing individuals cant even cry in pubic. eg Say Sharad Pawar has Rs 10000 cr in Swiss Banks and he invested in Dow Jones. He lost half of his money, and now he cant even cry in public. )

====

It seems that turmoil has caused much bigger damage to non-West countries than West.

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Re: Perspectives on the global economic meltdown

Postby ramana » 02 Mar 2009 09:10

OK I get the US economy in doldrums. But why is the EU in this mess? They werent known for such exuberance or creativity. Now looks like UK and EU are in greater per captia mess. How is it possible?

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Re: Perspectives on the global economic meltdown

Postby Sanjay M » 02 Mar 2009 09:34

Certainly, the global entanglement of international capital meant European banks had exposure to sub-prime. Furthermore, the current economic malaise has spread far beyond sub-prime to affect the other previously more secure sectors of the market.

We can see that the entire global economy has slowed down, with even the price of oil dropping. In such an economic slowdown, the loan-heavy newly-liberalized East European economies are particularly vulnerable, as they don't have the size and economic strength to tide themselves through the trouble.

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Re: Perspectives on the global economic meltdown

Postby Singha » 02 Mar 2009 09:45

eastern europe, portugal, spain, italy, UK and ireland were following the US model.

only france and germany were a bit "conservative" during the credit party I think.

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Re: Perspectives on the global economic meltdown

Postby ldev » 02 Mar 2009 09:52

Raja Bose wrote:If we get to a stage where Math is able to mimic reality with 400% reliability....then everything will be deterministic...might lead to end of human civilization! :shock:

Basically as it stands...no matter how sophisticated the model...it works within a very restricted domain and list of assumptions. Ignoring them leads to what we are seeing now. As far as most are concerned it is still largely random behavior where prediction guarantee is worth as much as a Paki Rupee.


This reminded me of an excerpt from Nassim Nicholas Taleb's book "The Black Swan", about the difficulty in arriving at precise assumptions regarding forecasts and projections. Its difficult enough in hard sciences let alone where outcomes are determined based on free will.

......This multiplicative difficulty leading to the need for greater and greater precision in assumptions can be illustrated with the following simple exercise concerning the predictions of the movements of billiard balls on a table. I use the examples as computed by the mathematician Michael Berry. If you know a set of basic parameters concerning the ball at rest, can compute the resistance of the table (quite elementary), and can gauge the strength of the impact, then it is rather easy to predict what would happen at the first hit. The second impact becomes more complicated, but possible; you need to be more careful about your knowledge of the initial states, and more precision is called for. The problem is that to correctly compute the ninth impact, you need to take into account the gravitional pull of someone standing next to the table (modestly, Berry's computations use a weight of less than 150 pounds). And to compute the fifty-sixth impact, every single elementary particle of the universe needs to be present in your assumptions! An electron at the edge of the universe, separated from us by 10 billion light years, must figure in the calculations, since it exerts a meaningful effect on the outcome. Now consider the additional burden of having to incorporate predictions about where these variables in the future.

..........Note that this billiard ball story assumes a plain and simple world; it does not even take into account these crazy social matters possibily endowed with free will......

In a dynamical system, where you are considering more than a ball on its own, where trajectories in a way depend on one another, the ability to project into the future is not just reduced, but is subjected to a fundamental limitation. Poincare proposed that we can only work with qualitative matters - some property of systems can be discussed, but not computed. You can think rigorously, but you cannot use numbers. Poincare even invented a field for this, analysis in situ, now part of topology. Prediction and forecasting are a more complicated business than is commonly accepted, but it takes someone who knows mathematics to understand that. To accept it takes both understanding and courage

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Re: Perspectives on the global economic meltdown

Postby Singha » 02 Mar 2009 10:02

"hidden value in subsidiaries waiting to be unlocked"

there is a report that RPL will merge with RIL (this after netting its promoters 1000s of crores in IPO)

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Re: Perspectives on the global economic meltdown

Postby Anujan » 02 Mar 2009 10:30

ramana wrote:OK I get the US economy in doldrums. But why is the EU in this mess? They werent known for such exuberance or creativity. Now looks like UK and EU are in greater per captia mess. How is it possible?

Ramana saar - There are some clues. See here for example

During his trip, Mr Greenspan visited the Bank of England’s monetary policy committee. He told them the US financial system had been resilient amid the bursting of the internet bubble. Share prices had halved and there had been massive bond defaults, but no big bank collapses. Mr Greenspan lauded the fact that risk had been spread, using complex derivative instruments. One of the MPC members asked: how could this be? Someone must have lost all that money; who was it? A look of quiet satisfaction came across Mr Greenspan’s face as he answered: “European insurance companies.”

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Re: Perspectives on the global economic meltdown

Postby Raja Bose » 02 Mar 2009 10:38

vina saar, Absolutely. When what are being held as ground truths are in itself flawed, like the distorted reality one sees after ingesting too many herbs, any fortress built on top of that is still a castle in the air. I think people expect too much from expectation forgetting that long term can be pretty long term. :((

As per what you are saying the math guys invented the dung and the illiterate non-math managers stirred that cow dung even more in non-halal ways causing the current stink. In that case, first bredator hamla should be on the U.Chicago, NYU et. al economics lalprafessars who earned their Nobels on false pretenses. :mrgreen:

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Re: Perspectives on the global economic meltdown

Postby Singha » 02 Mar 2009 10:52

send in the B-52 squadrons on columbia, princeton, yale and chicago. punish the culprits...(and make sure level westchester county and the hamptons)

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Re: Perspectives on the global economic meltdown

Postby vina » 02 Mar 2009 11:29

Yes. But also divert a strike formation to Bawhstun to level Haarbird and MIT (most of the Econ gurus/ no bulls came from there), also maybe one to precision strike Stanford as well. And an equally heavy force to strike U Penn Wharton.

That will take care of the "nerdy sounding priesthood" .

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Re: Perspectives on the global economic meltdown

Postby Bade » 02 Mar 2009 17:50

And to compute the fifty-sixth impact, every single elementary particle of the universe needs to be present in your assumptions! An electron at the edge of the universe, separated from us by 10 billion light years, must figure in the calculations, since it exerts a meaningful effect on the outcome. Now consider the additional burden of having to incorporate predictions about where these variables in the future.


If Taleb has said this, then it is utter nonsense. :rotfl: If that is true even 10-day weather forecasts made today would not have been possible. Econ-gurus of all kinds talk from their Musharaffs.

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Re: Perspectives on the global economic meltdown

Postby Singha » 02 Mar 2009 18:47

AIG has recorded a astonishing quarterly loss of $60 billion and will need more life support.

I just got some unconfirmed news from IIM-B placement....from a parent...
seems day0 saw around 8 people places vs nearly all of the batch last yr.
day3 seems to be over and 40% are still unplaced. salaries (indian) have basically halved dowm from 20-25 down to 10-12 range. and even thats a fight and people who got in are glad to get anything at all.

truth will slowly leak I expect,,,

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Re: Perspectives on the global economic meltdown

Postby Singha » 02 Mar 2009 18:58

IIM-B tightlipped about Day Zero placements

Express News Service
First Published : 28 Feb 2009 08:29:00 AM IST
Last Updated : 28 Feb 2009 08:57:01 AM IST

BANGALORE: Owing to a blanket ban on media placed by the placement centre, details about the Day Zero placements for the 2007-09 bat ch of Pos t Graduate Programme(PGP) at Indian Institute of Management , Bangalore ( I IM-B) are vague at best. The placements commenced on Friday.

With most investment banks bleeding money owing to the global meltdown, sources in the know suggested that their number is much less this time around than it is usually.

This seems to be a nightmare like situation considering the dreamrun the students of previous batch had. Last year saw IIM-B fashion its fastest ever placement process with all 256 students placed on the first day of Slot 2. Out of the 256, nearly 133 students were placed in Slot Zero itself. The B-school held its head high while saying that the highest number of investment banks came to IIM-B “amidst concerns of a global recession”.

Slot Zero in 2008 at IIM-B featured companies that have struggled in the wake of the global recession such as Lehman Brothers, Mer r i l l Lynch, Goldman Sachs and Citigroup. The majority of offers in 2008 came from the consulting sector (37 per cent), followed by investment banking (21 pere cent ), fi - nance(19 per cent) , marketing(7 per cent), IT (6 per cent) and others (10 per cent).

IIM-B director Pankaj Chandra foresaw a bleak situation considering he said in November that the premier institute would be looking at non-financial sectors such as media, advertising and manufacturing too for placements. Other Bschools have also reported a similar decline in offers during recently held placement rounds. IIM Ahmedabad, which had its Day-Zero on Wednesday, had only seven companies visiting the B-school, compared to 25 companies last year.

IIM Calcutta held the first phase of its final placements last week, with 207 offers for its 265 students, which is a rarity.

The second phase is set to kick off on March 2.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 02 Mar 2009 19:52

Singha wrote:AIG has recorded a astonishing quarterly loss of $60 billion and will need more life support.
......
truth will slowly leak I expect,,,


Rumors first had it that Paulson bailed out AIG so strongly and speedily because GS was at the other end of many of AIG's CDSes. Now the story gets murkier and turns out that had AIG gone under, GS would have suffered but that was small fry compared to the effect it would have on Europe's banking and insurance sector.

Apparently gunpoint negotiations happened whilst midnight oil burnt. Threats to dump the dollar and other such dire things morphed from implied to articulated and so on. Eurostan is truly in far deeper soup than yamerika. Must be soup-e-rear eurostani regulation and socialist concern for the poor onlee, I'm sure.

As to Ramana's question of why EU is in deeper soup than USA, well, demographics is part of the answer.

Eurostan is ageing rapidly, median age inches up every yr. And the Eurostani elderly rely on the state to bailout their retirements, especially since the primary support system of yore - the family - has broken down beyond recognition there.

And the elderly form a formidable vote bank, unlike the dwindling youngistani popn which seldom votes.

Point is that the pressure to manufacture returns as reitree demands rose was immense. And short cuts, otherwise imprudent risks etc started to seem kosher. To csee that consider that EU banks were twice as leveraged, on avg, than US banks, for Pete's sake!

Well, what goes around comes around. European bad karma is turning out to be ***** onlee. Expect no sympathy from this heathen SDRE, at least. I still wait and fondly hope UKstani establishment will bite the dust in my lifetime....Aaah. The joys of karma coming to collect....

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 02 Mar 2009 20:58

The humility, the humanity, the hoopla, the selfless magnanimity.....oh, all hail the new messiah-mahatma combo act!

Brown woos Obama on global deal

GORDON BROWN hopes to forge a partnership with President Barack Obama in Washington this week, to call for a “global new deal” to lift the world out of recession.


Only thou could have done it O Brown sahib!

As he prepares for his first White House visit since the president’s inauguration, the prime minister has hinted that he is ready to make further tax cuts to boost the UK economy.


Obviously, UKstani coffers must be overflowing with tax revenues despite the golimaro bailouts.

The prime minister will borrow from the rhetoric of Franklin Roosevelt, who introduced the government-financed New Deal to tackle the US Depression of the 1930s. He will argue that his 21st century “global new deal” will also require public spending on a huge world-wide scale.

Writing in The Sunday Times today, Brown calls for “universal action to prevent the crisis spreading, to stimulate the global economy and to help reduce the severity and length of the global recession”.{Dass the famed stiff upper hip talking, no doubt}

His stress on continued economic “stimulation” will increase speculation about next month’s budget. No 10 sources said that, while no final decision had been taken about further tax cuts, the prime minister would do “whatever it took” to pull the UK out of recession. {Failing which he will pull a miracle recovery out oif his musharraf just in time to save the UKstan and hence the world}


Brown sahib is indeed ze new mahatma for the 21st century. Anybody who disagrees is a communal-fascist-right wing-hatemonger onlee.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 02 Mar 2009 21:20

ss_roy: All I want to say is you are not reading my posts clearly and comprehending my points. I take it as a negative point against me for not communicating clearly.

You create lots of straw-men based on my posts, and go ranting against them. I have not erected those points neither am I against Capitalism or for that matter even Socialism. They are all fine and dandy, everything has a place and a time. You talk about spirituality, after all the underlying economic activities isn't the bottom line about individual's (or society's) happiness. It is safe to generalize that humans do not work with an end goal being sadness, right? Be it philosophy, economic theories or spirituality or any other mumbo-jumbo label the end goal that most of us chase is happiness - definition of which again differs from individuals and cultures.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 02 Mar 2009 21:39

One of the biggest problem with indians is that they want to believe that humans are honest and decent (without external pressures). I think that is naive..

I am an Indian, and I don't believe that. Even a abridge readings of Puranas would never lead a person to believe that. Well you might not like me bringing in our Puranas into the discussion whilst you bring Adam Smith's discussion. Maybe you will entertain Arthasastra into the discussion. Kautilaya underlying suggestion through out his work is the usage of spies. It is very clear Indians like other humans on this planet do not think humans are always honest and decent. Your assessment is wrong.

This global crisis, gives us an opportunity to revisit our own Indic treatises and experiences and examine them once more. We should dismiss them only after due diligence.

Another problem with Indians is that they want to believe in spiritual or moral superiority.

Did I say we were superior to others? Did I bring in spirituality? Reading my posts or others, whatever makes you say that?

Consumerism is not bad, bad rampant consumerism for the sake of creating jobs is bad. If there are more people than jobs, then it points to other problems. The solution is not asking humans to just go and consume. By virtue of our very existence, we are going to consume. When we left the huntere-gatherer mode of living, we started to depend MORE on services from others.

Culture believing in Ahimsa? Wow, let us not even get into that for now. Because any simple reading of our history would not believe you to come to that conclusion.

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Re: Perspectives on the global economic meltdown

Postby Raghav K » 02 Mar 2009 22:55

ss_roy wrote:Another problem with Indians is that they want to believe in spiritual or moral superiority. I think that such beliefs border on the delusional.

Let me explain with a few examples.
The Haber-Bosch process that produces the vast majority of nitrogenous fertilizers in the world was mainly funded by germans who wanted to be independent of chilean saltpeter for their chemical/ agricultural industry. Without that process WW1 or WW2 would not have been possible.. but neither would the green revolution. Would a culture that believed in ahimsa ever get to developing this process? Ironically food shortages would kill more people in the ahimsa-loving culture than the himsa-loving culture. So ahimsa ends up killing more people..


Please do not confuse yourself with the concept of Karma and Himsa. Indian Mythological history does have a lot of Himsa with the Devas trying to kill the Asuras and the two greatest wars in Ramayana and Mahabharata.

Ahimsa was just an individual's interpretation and this has nothing to do with Spirituality.

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Re: Perspectives on the global economic meltdown

Postby Ameet » 02 Mar 2009 23:22

Jim Rogers telling us what he really thinks in BW interview

http://www.businessweek.com/magazine/co ... 811535.htm

In 1970 a young Wall Streeter named Jim Rogers hooked up with George Soros to start the legendary Quantum Fund. The ensuing decades have seen Rogers build an iconoclastic career as an author, adventurer, and creator of the Rogers International Commodities Index. And throughout, Rogers—now based in Singapore—has remained an outspoken global investor. Today is no different. He has harsh words for former Fed Chairman Alan Greenspan, suggests President Barack Obama and his economic team are not up to the task, and thinks tough love is the answer for America.
MARIA BARTIROMO

What do you think of the government's response to the economic crisis?
JIM ROGERS

Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.

You have said Bear Stearns and Lehman (LEHMQ) would still be around if Greenspan hadn't bailed out Long-Term Capital Management in 1998. Can you explain?

Well, if Long-Term Capital Management had been allowed to fail, Lehman and the rest of them would've lost a huge amount of money, their capital would've been impaired, and it would've put a terrible crimp on Wall Street. It would've slowed them down for years. Instead of losing capital, losing assets, and losing incompetent people, they hired more incompetent people.

Should AIG (AIG) have been allowed to fail, too?

First of all, banks and investment banks and insurance companies have been failing for hundreds of years. Yes, we would've had a terrible two years. But you're dragging out the pain. We had 10 years of the worst credit excesses in world history. You don't wipe out something like that in six months or a year by saying: "Oh, now let's wake up and start over again."

What about Citigroup (C)? What about the car companies?

They should be allowed to go bankrupt. Why should American taxpayers put up billions to save a few car companies? They made the mistakes! We didn't make the mistakes! I'm sure they'll give them the money, but I'm telling you, it's a mistake. It's a horrible mistake.

I totally understand what you're saying, but the banks are under massive pressure.

They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Who was that guy who was the head of Merrill Lynch (MERR)?

Stan O'Neal?

Right, Stan O'Neal. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae (FNM), Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac (FRE) alone did nothing but pure fraudulent accounting year after year, and yet that guy's walking around with millions of dollars. What the hell kind of system is this?

Are you worried the economic crisis will lead to political turmoil in China and elsewhere?

I absolutely am. We're going to have social unrest in much of the world. America won't be immune.

What does all this mean from an investment standpoint?

Always in the past, when people have printed huge amounts of money or spent money they didn't have, it has led to higher inflation and higher prices. In my view, that's certainly going to happen again this time. Oil prices are down at the moment, but that's temporary. And you're going to see higher prices, especially of commodities, because the fundamentals of commodities are enhanced by what's happening.

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture's been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You're going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they'll be working for the farmers. It's going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that's where the money's going to be in the next couple of decades.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 03 Mar 2009 05:23

Precisely!...Any Indian who has read those books in their original language (or a good translation) knows that many schools of philosophy in ancient India were rational and agnostic. The important words are "any indian who has read the books in their original language (or a good translation)". The sad reality is that most have not.. Most indians exposure to various schools of philosophy in ancient India is through the writings of leftist nutters who have taken over the education system.

Unfortunately the attitudes of these jholiwallahs and china-lovers are being imprinted on the majority who do not know better. The reality is that "bhakti" based schools of thought became prominent only after the 10th century AD. However most indians have the misconception that "bhakti" was the only major contribution of indian philosophy, when atomists, rationalists and atheists were infact a much larger influence before the 10th century AD. It is necessary to promote the true diversity and depth of Indian philosophy.

I am an Indian, and I don't believe that. Even a abridge readings of Puranas would never lead a person to believe that. Well you might not like me bringing in our Puranas into the discussion whilst you bring Adam Smith's discussion. Maybe you will entertain Arthasastra into the discussion. Kautilaya underlying suggestion through out his work is the usage of spies. It is very clear Indians like other humans on this planet do not think humans are always honest and decent. Your assessment is wrong.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 03 Mar 2009 05:30

Most of you must have realized by now that UK is only a larger version if Iceland.. the ratios are the same.

Mervyn King: 'Impossible to say' how much capital needed to shore up banking system

Mervyn King, the Governor of the Bank of England, has said it is "impossible to say" how much capital will be required to shore up the British banking system.

By James Kirkup, Political Correspondent
Last Updated: 8:50PM GMT 26 Feb 2009

http://www.telegraph.co.uk/finance/news ... ystem.html

Singha
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Re: Perspectives on the global economic meltdown

Postby Singha » 03 Mar 2009 08:37

UK = iceland + nuclear weapons => too big to be allowed to fail

where have we heard this before?

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Re: Perspectives on the global economic meltdown

Postby Najunamar » 03 Mar 2009 08:41

Bade wrote:
And to compute the fifty-sixth impact, every single elementary particle of the universe needs to be present in your assumptions! An electron at the edge of the universe, separated from us by 10 billion light years, must figure in the calculations, since it exerts a meaningful effect on the outcome. Now consider the additional burden of having to incorporate predictions about where these variables in the future.


If Taleb has said this, then it is utter nonsense. :rotfl: If that is true even 10-day weather forecasts made today would not have been possible. Econ-gurus of all kinds talk from their Musharaffs.


How so? I am not a fizzy-cyst or anything but know that individual predictions for 1 object versus statistical models for an agglomeration of objects are very different - for example, I can predict with greater accuracy, what a group of molecules can do such as a glass of water versus what an individual molecule will. To get an even better example - I heard this on NPR (don't remember the source)- BBC conducted a survey of respondents at a fair who were asked to guess the weight of a bull, (and not its excreta!) the average of a 1000+ responses was amazingly close to the actual value.

But, I agree with Singhaji in the sense, the same applies to the analogy employed by Talebsahib and thus is again misleading to say the least.

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Re: Perspectives on the global economic meltdown

Postby Bade » 03 Mar 2009 09:01

I did not understand your question.

In any case, the analogy with electrons that Taleb draws on is confusing and misplaced. For point like particles, say electrons exact calculations can be done and measurements made as an ensemble of large number of events. 'Bhabha scattering cross-section' is an exact calculation and there is no need to take into what electrons at the edge of the universe are doing, when you do your electron-electron scattering measurement in a lab sitting on earth.

The problem is with inappropriate use of analogies from physics being used out of context and little meaning.

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Re: Perspectives on the global economic meltdown

Postby Anujan » 03 Mar 2009 09:24

Bade wrote:I did not understand your question.
In any case, the analogy with electrons that Taleb draws on is confusing and misplaced. For point like particles, say electrons exact calculations can be done and measurements made as an ensemble of large number of events. 'Bhabha scattering cross-section' is an exact calculation and there is no need to take into what electrons at the edge of the universe are doing, when you do your electron-electron scattering measurement in a lab sitting on earth.
The problem is with inappropriate use of analogies from physics being used out of context and little meaning.


Taleb is quite right in his billiard ball analogy. The keyword in your objection is that "exact calculation" can be made for a "large number of ensembles". But what of a specific event taken in isolation ? Let us assume I toss a fair coin. Over many tosses, you can safely say that the number of times I get a heads is roughly 50%. Precise enough answer. What of a single toss ? What are the factors you would consider ? How much force I used to flick the coin, where in the air I caught it, air resistance, temperature, humidity, windspeed, the contour of my palm... the list is endless. What does windspeed depend on ? Temperature of a neighboring city maybe. Cloud cover, time of the day.

Would you then object that the calculation is baloney anyway, because exact results of an ensemble of coin tosses can be computed (50% heads) and it has nothing to do with cloud cover ?

Bade wrote:If Taleb has said this, then it is utter nonsense. :rotfl: If that is true even 10-day weather forecasts made today would not have been possible. Econ-gurus of all kinds talk from their Musharaffs.


Our ability to model and predict aggregate behavior in a reasonably accurate manner, says nothing of our ability to predict and model the behavior of isolated events. I can predict with reasonable accuracy and confidence that it is going to be hot as hell in chennai in June. Why waste time and money sending up satellites and develop weather models ? Or conversely, is our inability to predict the trajectory of a cyclone with meters of resolution, preclude our ability to predict that it will rain over a large area ?

Taleb is trying to argue that exact prediction of the behavior of isolated events (rather than aggregate phenomena) is impossible and I agree.
Last edited by Anujan on 03 Mar 2009 09:29, edited 1 time in total.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 03 Mar 2009 09:26

Taleb is talking about the difference between absolute certainty and 99.9999% certainty. Over a long period of time a 0.0001% chance can be quite problematic and undetectable (till it is too late).

In any case, the analogy with electrons that Taleb draws on is confusing and misplaced. For point like particles, say electrons exact calculations can be done and measurements made as an ensemble of large number of events. 'Bhabha scattering cross-section' is an exact calculation and there is no need to take into what electrons at the edge of the universe are doing, when you do your electron-electron scattering measurement in a lab sitting on earth.

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Re: Perspectives on the global economic meltdown

Postby Bade » 03 Mar 2009 09:49

Well in the real world of physics measurements the concept of absolute certainty is non-existent. Every measurement has an associated error estimate or measurement.

So are all economists just stating that they cannot make exact measurements, which is a well known fact and just being touted around as some new found enlightenment ?

BTW, the uncertainty or error estimate is never (or cannot be) explained in any detailed manner of what each individual constituent that makes up to the sum total of the error term. If you knew there would be no error term. So you need to carry it along when you state your measurement or forecast. In weather forecasting there are forecasting errors too which is stated. The weather channel on TV does not carry it, but the modelers do.

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Re: Perspectives on the global economic meltdown

Postby Nandu » 03 Mar 2009 10:49

Singha wrote:UK = iceland + nuclear weapons => too big to be allowed to fail

where have we heard this before?



They will soon be negotiating with a gun held to their own head.

Or maybe they already are. :rotfl:

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Re: Perspectives on the global economic meltdown

Postby svinayak » 03 Mar 2009 12:03

Some Banks Must Die So the U.S. Economy Can Live: Caroline Baum
Email | Print | A A A

Commentary by Caroline Baum

March 2 (Bloomberg) -- In the government’s rush to stabilize the financial system, get the U.S. economy moving again, craft bailouts for institutions and entire sectors of the economy, and re-craft bailouts that aren’t doing the trick, the voices of limited government have been all but silenced.

In Washington, the GOP has been shamed into submission. It’s not that Republicans don’t see a role for the government in the economy, says Karl Rove, former adviser to President George W. Bush, in his weekly op-ed column in the Wall Street Journal. It’s just that they don’t see the same role as the one envisioned by President Barack Obama.

That role, laid out in his first budget last week, will be larger than at any time since 1945. Government spending is projected to soar to 27.7 percent of gross domestic product in fiscal 2009, which ends in September, according to the White House Office of Management and Budget. That compares with an average of 20.4 percent over the last 30 years.

In an era when we’ve all become interventionists -- when doing something, anything, is preferable to doing nothing and risking being blamed for any outcome -- it’s good to hear a few voices pointing to the danger of government overreach.

Historical evidence suggests that “bad government policies are responsible for causing great depressions,” write Timothy J. Kehoe, professor of economics at the University of Minnesota, and Gonzalo Fernandez de Cordoba, professor of economics at Universidad de Salamanca in Salamanca, Spain, in “The Current Financial Crisis: What Should We Learn from the Great Depressions of the Twentieth Century?”

Future Shock

It turns out the source of the shock, be it internal or external, that triggers a depression “is less important than the reaction to the shock by the economy and, in particular, the government,” the economists write.

Before you dismiss Kehoe’s views as those of a card- carrying libertarian, consider that he was trained as a Keynesian, is a “lifelong Democrat, voted for Obama,” and believes in universal health care, he tells me in a telephone interview.

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Re: Perspectives on the global economic meltdown

Postby Singha » 03 Mar 2009 14:28

business std:- salary median is being kept "secret" right now, but its a open secret
to anyone having friends or relatives there.

----
IIM-B extends placement for second week
Bibhu Ranjan Mishra / Bangalore March 03, 2009, 0:14 IST

The global financial slowdown, perhaps for the first time in recent years, has forced premier B-school IIM-B to extend the placement process for the second week, which otherwise would have been completed in the first week itself. Industry sources say this is the problem with most other IIMs as there is not much of demand for the elite management graduates this year.

The gravity of the problem can be understood from the fact that while earlier recruiting companies were in a hurry to come for the placement at the earliest to take away the best of the students, now the placement committee is preferring to wait for the ‘preferred’ companies (recruiters) till they come for the placement as they are showing no sign of hurry.

“I am glad they are coming to us even in such a bad time. This year, definitely, there is not much demand in the market. In the absence of clear visibility on when the placement process will get over, we are prepared for an open-ended placement till the entire batch gets placed,” Prof Sourav Mukherji, chairperson (placement), IIM-B told Business Standard.

He said everybody is trying in his own way in bringing the best companies for the placement. The final placement in IIM-B started on Friday last week. According to sources in the placement cell, so far about 60 companies (including about 15-20 companies that attended the lateral placement happened in January-February this year) have participated in the process. There was, however, no comment on the number of students who have got offers as of now.

Most recruiting companies are going for campus interviews to the IIMs as they don’t want their relationship with the premium B-schools to be affected. “We went there this year, as we don’t want to damage our relationship,” said Nandita Gurjar, Senior vice-president and group head of HR, at Infosys Technologies.

According to industry sources, there has been a very little or even no increase in salary offered to most of the IIM students this year. This has not, however, dampened the spirit of the students, as they understand this is a temporary phenomenon. :rotfl:

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Re: Perspectives on the global economic meltdown

Postby Singha » 03 Mar 2009 17:24

ABC news

How Does a 4 Percent Mortgage Sound?
Jim Cramer and Suze Orman Suggest 4 Percent Refinancing for All But Experts Say It's Unlikely
By NED POTTER
March 3, 2009

Here's a thought: What if America tried to steer itself out of its economic mess by reducing the interest on every new mortgage to 4 percent? And what if the country did this not just for people under water or facing foreclosure, but for absolutely anyone?

Would you go for a 40-year mortgage at a fixed 4-percent rate? Some high-profile television money personalities -- Jim Cramer and Suze Orman -- have been talking it up, and generating a popular response.

"My thoughts were and are that if interest rates could come down to about 4 percent across the board -- for everyone -- that could start to stimulate the real estate market," Orman said in an e-mail to ABC News. "For many, it may mean that they can keep their homes."

Four percent interest, eh? Right now -- if you qualify -- you can, on average, get a 30-year mortgage at a fixed rate of about 5.3 percent.

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Re: Perspectives on the global economic meltdown

Postby John Snow » 03 Mar 2009 21:23

It will not stimulate the Housing market but it will stimulate consumer spending on white goods etc and the disposable income for existing mortgage holders decreases.

Yes a 4% interest rate may skew the 28/35 ratio towards more number of people qualifying.

It is possible to do that because Beta is near zero or negative (if you count the inflation) so banks have to decrease their spread and pass on the low interest benefits.

Yes it would be good idea or else USG can start Mortgage corporation of America and directly disburse the mortgages ( with out front loading with large bureucracy or overheads)

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Re: Perspectives on the global economic meltdown

Postby Anujan » 03 Mar 2009 21:57

John Snow wrote:It will not stimulate the Housing market but it will stimulate consumer spending on white goods etc and the disposable income for existing mortgage holders decreases.


The talking heads like Cramer, probably dont understand the problem, or understand it anyway and are just looking to protect their interests. The problem with american economy is much more fundamental. All this "consumer spending stimulation" will just create one last gasp before the economy gets its 72.

So what is the problem ? The problem is the people.

There are 2 factors in the growth of any economy. Productivity and efficiency.

Let us talk of efficiency first.

Indian markets are notoriously inefficient. Why ? Derivatives are non-existant. Let us assume Ramana is willing to borrow 100Rs at 10% interest rate and Shiv is willing to lend 100Rs at 5% interest rate. Let us furthermore assume that regulations exist for Ramana to not borrow directly from Shiv. I cannot step in, create a new instrument backed by Ramana's loan agreement as collateral, borrow 100Rs from Shiv and lend it to Ramana, thereby making sure money is available to the borrower, the lender makes money and I make money as well. There is too much regulation. Dont even get me started on the commodities market. 70% of our economy is agriculture based, and just look at the cyclic fluctuation of the prices ! Plus all this mess about minimum support price by the guvrmand, not knowning that they should import onions before the entire country eats up their onion stocks ! All this could have been avoided by a efficient commodities market. All the rakshaks taking pride in Indian Banks' resilience against the current crisis should also understand that they were insulated because of regulation against modern instruments and transactions anyway. Kinda like not bothering much about the oil crisis because we use bail-gaadis. They played it 400% safe and are lumbering inefficient behemoths. But thats another story.

So how can efficiency be achieved in the financial markets ? There is a supply of capital. That capital is then invested. That investment is then carefully and judiciously re-invested with risk adjustment. Thats what amri-khans started doing. Except they missed out on a keyword: There is a supply of capital

Let us revisit the basics. Q: Why is that a typical American can afford a far more luxurious life than a typical Indian ? A: Because he has far more money. Q: Why does he have far more money ? A: Because he is more productive. A typical american, through automation and the production of high value goods, in an absolute sense (well, as absolute as it gets), produces more value than a typical Indian. Take the farm sector for example. I am talking about ploughing with a bailgaadi vs American farm majors running their tractors all over the place. The american makes a lot more money because he produces a lot more goods of a lot more value. Then the american spends about 60% of what he earns, banks the 40%. The banks have a steady supply of capital, which then they loan out to businesses and an ultra-efficient system takes over to use that capital. Except, in the past few decades, the american wants flat screen tv and Ipods and has stopped manufacturing anything.

The famed wall street with the complex machinery to squeeze out the last ounce of efficiency from capital has run out of raw material. So what do they put in ? Capital taken from the masses that they do not have ! Well, start making loans out to everybody, get the money, squeeze efficiency. Now there is another avenue for squeezing efficiency: the loaning process itself ! Let us, for example, make out loans of 100$ to 3 people, who each have about 33% chance of returning the loans. I will divide the pool into 3 tranches, the first tranche of 100$, sold to investors who is guaranteed to get his money back if atleast 1 pays back his loan (a near certainty). I will rate it AAA+. The second tranche, sold to investors who are guaranteed to get their money back if atleast 2 of them pay back their loans (a high probability) rate it B+, a third tranche, highly risky, payout only if all three pay off their loans.

At first look, this scheme looks brilliant ! in an effort to squeeze out avenues for lending, we have given out loans to 3 notoriously unreliable borrowers and managed to make a AAA+ investment tranche from them ! Except one day the fundamentals are going to come back and collect its Karma. Please notice that NOBODY in the country is saving, all of them are spending and the more you lend to them, the more they spend. One day, when the economy sneezes, all three catch a cold, dont repay the loan back and the AAA+ investment is not worth the paper it is printed on. To make matters worse, the three idiots have been spending their money on stuff from China. HOW ARE YOU GOING TO GET YOUR CAPITAL BACK ???!!

Well, we will sell treasury notes to China. In effect, attaching the vast middle class of China's population, who save 40% of what they make, as an extension of american population, as a source of capital. Is it a viable solution ? Who does the capital go to ? What kind of efficiency has been achieved by this round about route of capital ? Well turns out all is not hunky dory with this arrangement.

What is the solution out of this impasse ? To truly make credit costly and the american population more productive, make them more healthy so they work longer and start a culture of saving. That is the philosophy underlying a section of the Dems' spending bill. Will it work ? I dont know. They do seem to realize that trying to restart productivity in traditional manufacturing is a lost cause. Hence all this hoopla about "green energy" and "medicare" and stuff. Highly risky stuff. Has the potential to tank the economy further if manufacturing does not pick up and the Public debt keeps increasing.

What to the GOP/ Cramer/ Talking heads want ? Tax cuts and a 4% mortgage rate to "stimulate consumer spending". This has a 400% certainty of sinking the economy. UNBELIEVABLE !!! There are two explanations for that
1. They are idiots
2. They just want to stock market to gasp one last time and go up for them to ditch their stocks, invest in commodities and buy house and supplies for a convenient rest of their lives.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 03 Mar 2009 22:24

1. Regular manufacturing for the vast majority of low tech products is simply not cost competitive anymore in much of the developed world, IMHO. The only way to squeeze cost competitiveness out of the G7 is either to lower wages and/or to hinder imports using tariffs, environmental standards, labor standards and all that jazz. Bottomline, there's a downward pressure on incomes and an upward pressure on prices of everyday, low tech items. Purchasing power in real terms takes a hit. Living standards in the west are in for a serious correction, IMO.

Hence all this focus on 'services', esp financial services as a panacea. Plan has stumbled and its doubtful anyone can revive the glory days of old n the fin industry anymore.

As for complex derivatives etc, IMO the desi mkt should go in cautiously for these innovations. Have heavy dose of regulation in place, design good dose of slack in the system to counter unexpected events and shocks. Time Des built its own corporate bond mkt and built institutions to facilitate capital flows within the Indian economy.

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Re: Perspectives on the global economic meltdown

Postby Raghav K » 03 Mar 2009 22:27

The Greatest Depression Under Way
Gerald Celente
3-3-9

KINGSTON, NY, 2, March 2009 - "The Greatest Depression" that The Trends Research Institute forecast, well before Wall Street or Washington would acknowledge recession, is upon us.

The global financial markets are collapsing.

All the pundit's cautious predictions and business media's hopeful expectations at the New Year for an economic turn around and imminent market bottom were dead wrong. There will be no turn around in the second quarter of 2009 or 2010 or 2011 America and much of the world has entered "The Greatest Depression."

The global financial system, built on endless supplies of cheap money, rampant speculation, fraud, greed, and delusion is terminally ill and will not be coaxed into remission by stimulus packages nor restored to health by government buyouts and bailouts.

Today, the MSCI World Index of stocks in 23 developed nations fell 4.9 percent to 713.75, the lowest closing level since March 2003, and its Emerging Markets Index slid 5 percent. The Dow followed, plunging 300 points, closing below 7,000 for the first time since 1997.

There is no stock market bottom in sight. The only figure that can be forecast with confidence is that the Dow won't reach zero! :eek:

As the crisis worsens, governments will take draconian measures to prevent total economic collapse and public panic. We have cautioned the likelihood of such measures before. But the rapidity and severity of the economic unraveling now demands immediate attention.

Expect massive bank failures, runs on banks, and bank holidays. Even if deposits are FDIC insured, quick access to money is by no means assured. At minimum, have reserves on hand for emergencies.

Trendpost: When the ship is sinking there are very few options: Life boats, life rafts, life preservers and for the late to act, possibly a few pieces of floating debris to cling to.

We are trend forecasters, not certified financial advisors legally empowered to provide such advice. Although gold prices declined today some $15 to $925 per ounce, we forecast that gold will be one of the few life saving investments that will continue to increase in value, reaching $2,000 per ounce and beyond.


The Trends Research Institute
lmartin@trendsresearch.com
www.trendsresearch.com
845.331.3500 Ext. 1


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