Perspectives on the global economic meltdown

SwamyG · Post by **SwamyG** » 28 Feb 2009 04:33

A human being, the society and the planet pays a price for "creating" that wealth.

ss_roy · Post by **ss_roy** » 28 Feb 2009 05:23

I think many on this thread either do not understand or want to understand how capitalism is supposed to work. I would recommend reading all of adam smith's works.

The idea behind capitalism is that human beings are greedy and amoral. The question then is- how do you convert the greed and amorality of human beings into a better life for everyone. If you have ever read adam smith, you would have realized that he was cynical about business, professions, governments and human beings in general. Capitalism is about balancing the greed and excesses of one group with another, till everyone balances each others excesses. Similar to the concept of 'balance of power'..

Even though he is most often quoted for his 'invisible hand' concept, he did not believe that "markets will always regulate themselves". He strongly supported the role of a fair and neutral government, impartial law enforcement, transparency, accountability, progressive taxation etc. He despised lobbies and such associations.

He believed that people should be allowed to do what they want unless someone is getting killed, maimed or imprisoned. So if you wanted to start a business, you should be able to do so and run it profitably unless you killed or hurt someone or participated in lobbying or price fixing. He also realized that positive incentives to play "fair" and competitors keep people more honest than byzantine laws, subsidies and quotas.

Personally, I cannot disagree with any of his major points.

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..

ss_roy · Post by **ss_roy** » 28 Feb 2009 05:43

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..

Modern machining techniques were developed to make better guns, boats and other weapons of war. European states were the biggest users and funders of such technology Without himsa, there would be no semi-automated machine tools or mass production. I can say the same about integrated circuits, CPUs, supercomputers etc.. Pretty much ever good thing created by science has its origins in people wanting to kill/ dominate others. Therefore peace and ahimsa is the true path to hell.. ironically.

Consumerism, for all its spiritual emptiness, creates jobs. It makes sure that money flows through a society and spreads wealth such that even poor people have reasonable lives. Does christianity, islam, hinduism or buddhism do that much good? Why would you care about a belief system that does not keep people hopeful, fed, clothed and generally comfortable with dreams of a better future. What eternal truth do religions offer? What is the use of that eternal truth.. and what is the authority of the person who says it?

The problem with our current situation is that a religion-like belief in do-anything capitalism destroyed the foundations of the system. A good analogy is a fire.. it is useful to cook, heat your home etc.. but it can also burn down your house if you are not careful. If that is the reason behind your choice to not use fire.. go ahead.

vsudhir · Post by **vsudhir** » 28 Feb 2009 06:20

Bankers to Obama: Stop trashing us

The American Bankers Association has a message for the president: Stop talking trash about banks.

In his unofficial State of the Union address Tuesday night, Barack Obama said that it's "unpopular ... to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions."

In a letter to the White House, ABA CEO Edward Yingling says bankers across the country were "disappointed and concerned" with rhetoric like that.

"Mr. President, of the over 8,000 banks in this country, very few ever made a single subprime loan, and they did not engage in the highly leveraged activities that brought down Wall Street firms," Yingling said.

Yingling referred the president to statements made by Rep. Barney Frank (D-Mass.), the powerful chairman of the House Financial Services Committee, in which he said that the toxic mortgage lending that sparked the current crisis was done by mortgage brokers and others not subject to the strict rules that govern commercial banks.

"Mr. President, the failure to distinguish between Wall Street and the thousands of FDIC-insured banks across the country undermines the confidence in our banking industry, the industry which is the foundation on which our economic recovery must be built," Yingling said.

vsudhir · Post by **vsudhir** » 28 Feb 2009 06:27

The problem with our current situation is that a religion-like belief in do-anything capitalism destroyed the foundations of the system. A good analogy is a fire.. it is useful to cook, heat your home etc.. but it can also burn down your house if you are not careful. If that is the reason behind your choice to not use fire.. go ahead.

Who are you ranting against? Who here holds fire to be useless or violence against the wicked to be useless? Who here says capitalism is all bad and consumer spending is the root of all evil??

Who is saying don't use fire or don't develop tech? Who is to say that but for a series of misfortunes starting with the advent of Islam, India would not have continued on her path of all round development (that includes scientific development also, perhaps)?

Are you saying sir that we Indians (and thank for implying you consider yourself above our SDRE selves) are delusional and foolish and what not and that but for your wisdom, we would have been lost and utterly unable to comprehend the big bad world outside? If true, say so and you'll earn even more respect for honesty, I guess.

/
Yeah, my rant is over.

Peace!

svinayak · Post by **svinayak** » 28 Feb 2009 07:39

ss_roy, Lot of poster think BRF is a dumb forum. THey make the mistake initially but not later.

Atish · Post by **Atish** » 28 Feb 2009 07:54

Leave Capitalism out of it. Everybody has his own idea of what it is. If anybody believes that wealth creation is impossible or can only be done by harming individual, planet et al, he will by definition be against it (provided he understands what it is).

The level of discourse can be raised by talking about specific rules, regulations systems etc. I wish I had kept an inventory of good articles on the topic on the subject (WSJ is best source in my knowledge). I have touched on some major problems in my posts.

1. Allowing large investment banks to be converted from partnerships to corporations (agency problem).
2. Repeal of the Glass Stiegal Act in 1999.
3. Greenspan constant bias towards easy money.
4. Quasi government power to private rating agencies whose incompetence and lack of accuracy is and has been well known.
5. Repeal of uptick rule.
6. Forcing banks to lend to poor (non creditworthy)
7. fiscal policy that taxes productive activities while leaving idle wealth relatively untouched (prop 13 in California)
8. Idiotic energy policy based on environmental madcaps and global warming hysteria.
9. Public promotion of home ownership as 'good' and renting as 'evil'.
10. Total undermining of Anti trust laws particularly in case of Microsoft.
11. Idiotic Land Use restrictions including rent control and "open space" destroying public housing on a mass scale.
12. Allowing Lehman to fail based on strange notions of moral hazard.
13. Domination of Government Sachs in government.
14. Top economists and regulators acting as political hacks and/or ideologues. Ayn Rand and Marx rule while Basic Logic and Arithmetic are ignored.
15. Corporate governance rules that discourage shareholder activism and promote manager misdeeds.
16. Regulatory agencies (SEC etc) brim full of economics-ignoramus legal brains and concentration on box ticking.

This is a partial list compiled by me on cursory research done as a hobby or simply reading the financial newspapers. I am an ignoramus too, and the real list is probably much longer.

But if ppl want to bash capitalism and the west and The Corrupt Nature of Man. They can carry on.

Cheers.
Atish.

Najunamar · Post by **Najunamar** » 28 Feb 2009 08:24

http://en.wikipedia.org/wiki/Executive_Order_6102

According to many sources (one is cited in the Wiki article linked above) Roosevelt in 1933 confiscated ~500 Tons of Gold and resold/sent to France & other European nations at $35/Oz instead of the $20.67/Oz it was purchased at. Even forgetting the 4% stealing in the form of coins versus bullion that was promised to the TFTA French, this was tantamount to sucking out and reissuing in money $230B (14.33*500/31.10348 = 230). As this was pretty close to the 4x US GDP

http://www.usstuckonstupid.com/sos1933.html, this is truly brazen and breathtaking. My question to Guru log here is, Is our beloved Prez who wants to emulate Roosevelt in all & sundry matters (and not Herbert Hoover), about to confiscate wealth again? If so, what will that do to the $ and rest of the world currencies/economies? If not, why is it so inconceivable when even WWIII is being considered by some Rakshaks as a possibility?

TIA for a scintillating discussion this is proving to be and hopefully will continue to be.

ss_roy · Post by **ss_roy** » 28 Feb 2009 09:41

I have never said that the majority of posters are stupid. It is just that very clever but ideologically rigid people are more likely to make more serious mistakes than simpletons.

Example- Alan Greenspan, Ben Bernanke, Hank Paulson are very clever people, but they made some horrible mistakes because they started believing their own c**p.

Indians are very clever, but often let their ideological positions to get the better of objectivity.

svinayak · Post by **svinayak** » 28 Feb 2009 13:58

http://www.youtube.com/watch?v=bRK_YEXzrGA

Historical home values from 1900 explained from 1-30 min
Watch this and decide for yourself ... we're entering Great Depression phase now.

vsudhir · Post by **vsudhir** » 28 Feb 2009 20:06

Sharper Downturn Clouds Obama Spending Plans

Allen Sinai, chief global economist at the research firm Decision Economics, sees a 20 percent chance of “a depressionlike possibility,” up from 15 percent a week ago.

“In the housing market, the financial system and the stock market, we’re already there,” Mr. Sinai said. “It is a depression.”

Yet, in drawing up the budget, the White House assumed the economy would expand by a robust 3.2 percent in 2010, with growth accelerating to 4 percent over the next three years.

“It’s a hope, a wing and a prayer,” Mr. Sinai said. “It’s a return to a sanguine view of the economy that is simply not justified.”

If, as is widely anticipated, the economy grows more slowly than the White House assumes, revenue will be lower, forcing the government to cut spending, raise taxes or run larger deficits.

The warning signs are all there.

But as Niall Fergasson crooned yesterday in an interview to a Canadian newspaper, the US appears to paradoxically be rewarded despite igniting the crisis because the US' reputation as a safe haven has gotten relatively much stronger due to the crisis, you see. Ta da.

Yup, moi been watching the bond mkts and so far he's right. But if, as is now increasingly likely, unkil starts posting trillion dollar deficits annually, then a decade down, late but not never, the mkts will respond.

Economists also criticized as unrealistically hopeful the assumptions by the Federal Reserve as it began so-called stress tests to gauge the health of the nation’s largest banks. In testimony, Ben S. Bernanke, the Fed chairman, said that the nation’s unemployment rate would most likely reach 8.8 percent next year.

“That forecast just doesn’t seem realistic,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, “and I don’t think it helps the Fed’s credibility to make these sorts of forecasts right now.”

The enduring visions of depression are those of unemployment, which some estimate peaked at 25%. Unemployment is the biggest enemy at this stage, I reckon. All else can be managed.

Sagar · Post by **Sagar** » 28 Feb 2009 23:36

Abhijeet wrote:
SwamyG wrote:Wealth has to be created from something, right? For everything there is a price to pay for. And that is what I mean by transfer.
But this is not just a transfer, that's the point. Wealth is created, not just transferred, in the process of taking a raw material and converting it into a finished product of higher value. The wealth was not simply transferred, there was a value addition during the transformation.

In the case of software/tech companies, they can create wealth out of almost nothing - just human creativity, and arranging a series of bits in the right sequence (almost zero marginal cost). This gives us the power to create wealth on a scale probably unprecedented in human history.

Wealth is perception.
Before Nov. 2008, Americans felt wealthy. Now they don't. What has changed? some zeroes in balance sheets. Nothing else.

SRoy · Post by **SRoy** » 28 Feb 2009 23:48

Abhijeet wrote: In the case of software/tech companies, they can create wealth out of almost nothing - just human creativity, and arranging a series of bits in the right sequence (almost zero marginal cost). This gives us the power to create wealth on a scale probably unprecedented in human history.

Not true.
The input (or raw material if you call is) is collective human experience, solutions to problems, tried and tested to be workable, tried and tested to be repeatable and crafted / expressed in a manner to be understood by machines.
Enabling a piece of iron and silicon junk to think, act and take decisions like humans is *not* nothing.

ldev · Post by **ldev** » 01 Mar 2009 00:14

But as Niall Fergasson crooned yesterday in an interview to a Canadian newspaper, the US appears to paradoxically be rewarded despite igniting the crisis because the US' reputation as a safe haven has gotten relatively much stronger due to the crisis, you see. Ta da.

In a world of blind men, the one eyed man is king.

vina · Post by **vina** » 01 Mar 2009 06:01

More bashing of mathematical modeling. JNU/DSE/ISI ding dongs, roll over and die.

This time from Warren Buffet on Mortgages.

The New York Times

March 1, 2009
Buffett Accepts Blame and Faults Others
By DAVID SEGAL

The renowned investor Warren E. Buffett chided himself and the business world at large in his annual letter to shareholders of his holding company on Saturday as he sifted through the wreckage of his worst year in four decades.

Mr. Buffett’s company, Berkshire Hathaway, reported a 62 percent drop in net income for 2008 and posted a decline in book value per share for only the second time since he took control in 1965. Shares of the company, which peaked in late 2007 at more than $148,000 apiece, closed Friday at $78,600.

With characteristic candor, Mr. Buffett, 78, took the blame for some of the declines, stating that he “did some dumb things,” lamenting in particular an ill-timed bet on oil and the purchase of shares in two Irish banks, which have fared poorly. But he also needled regulators and an assortment of unnamed chief executives as he predicted that fallout from the credit crisis would leave the stock market a shambles through 2009.

The letter, as ever, gives shareholders an overview of Berkshire’s annual performance, but it also doubles as a folksy state-of-the-economy address from Mr. Buffett, one of the country’s most revered investors.

In language that was by turns blunt and witty, he decried what he called “a series of life-threatening problems within many of the world’s great financial institutions.” An inveterate optimist about the American economy, Mr. Buffett also forecast an eventual recovery, asserting that the country has faced even more severe economic travails in the past.

“Without fail,” he noted, “we’ve overcome them.”

Despite its record losses, Berkshire Hathaway still has about $25 billion of cash on hand and has been buying preferred shares of General Electric and Goldman Sachs, as well as the debt of companies like Harley-Davidson and Tiffany & Company. Mr. Buffett is shopping for bargains while the share prices of most companies are sliding — his own portfolio included.

Shares of many of his top 20 holdings suffered losses last year, among them Coca-Cola, American Express and ConocoPhillips.

Since the beginning of the recession, Mr. Buffett has taken on a part-time and unofficial role as the United States economy’s éminence grise. He also served on President Obama’s transition team. In his letter, though, he lambasted the decisions and habits that led to the credit crisis.

In reviewing the performance of Clayton Homes, a Berkshire Hathaway subsidiary that sells manufactured homes, he pointed out that its lending arm had managed to keep foreclosure rates to less than 4 percent, even among subprime borrowers, or those with weak credit ratings.

He contrasted that relative success with the failures of just about everyone else in the same business.

“The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors,” he wrote.

He went on: “These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible. They then made this experience a yardstick for evaluating future losses. They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn’t afford.”

Also blissfully ignored, he wrote, were the perils of relying on mathematical models devised without worst-case situations in mind. Too often, he wrote, Americans have been enamored of “a nerdy-sounding priesthood, using esoteric terms such as beta, gamma, sigma and the like.”

(note.. just love that language. nerdy sound priesthood with terms such as distance function,"pareto" and other mumbo jumbo and "factor based models", no one has called the jokers at ISI and Planning Commission to account, along with the Kangress party for the disastrous economic model of the past. No one has stripped the Commies and the JNU ideologues of their "voice power" yet and shown them for absolute nincompoops yet.. that is the weakness of Indian society)

Some skepticism about these models is overdue, he added. “Our advice: Beware of geeks bearing formulas.”

Mr. Buffett was just as scathing on the subject of derivatives, which he had likened to weapons of mass destruction long before they started eviscerating the balance sheets of banks around the world.

In his letter, Mr. Buffett explained that the danger of derivatives was not merely the difficulty in assessing their value; rather, it was the “web of mutual dependence” they create among financial institutions. Derivatives contracts keep various parties entangled for years, which, as he vividly explained, can create real hazards once those assets start deteriorating.

“Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease,” he wrote. “It’s not just whom you sleep with, but also whom they are sleeping with.”

Mr. Buffett’s report was greeted with sighs of relief among some shareholders. “I’m delighted,” said Janet Tavakoli, a derivatives expert and author of “Dear Mr. Buffett,” about the credit crisis of 2008.

“Of course it was a tough year — the toughest year of his life. But I was concerned about the impact in operating earnings and I was prepared for much worse.”

vsudhir · Post by **vsudhir** » 01 Mar 2009 07:10

Bill Gross, the $747 billion bond man, declares the death of equities

Yawn.
As a rule of thumb, whenever 'experts' proclaim the death of something, chances are the phenom will continue to survive and perhaps even thrive. Sala, how many times haven't we on BRF predicted the death of TSP? Some things don't die, they just fade away. And equities will be resurrected in a decade's time if not sooner, IMHO.

ramana · Post by **ramana** » 01 Mar 2009 08:08

Vina, have you heard of Ravi Dattatreya ex-GS and a hedge fund mgr?

Raghav K · Post by **Raghav K** » 01 Mar 2009 08:33

"Our Tier 1 Ratio Is Strong!"

Yeah, but your balance sheet is full of lies.

Reported this afternoon:

Citibank: Carrying loans on book at $660.9 billion; 10K filed today discloses that "fair value" is $642.7 billion - a "discrepancy" of $18.2 billion dollars.

Bank America: Carrying loans on book at $886.2 billion; "fair value" of $841.6 billion, a shortfall of $44 billion.

Wells Fargo: Carrying on book at $843.8 billion; "fair value" of $829.6 billion, a discrepancy of $14 billion.

This is all off 10Ks filed this afternoon - after the market closed - and referring to earnings reported during the last quarter's releases.

Maybe someone can tell me why:

1. You can "report earnings" and not include this in the release, when it is a very material piece of information, thereby making your company look like it made more (or lost less) than it actually did.
2. You can then "amend" your report in the 10Ks, thereby "copping" to your original lie.
3. And I suppose you're going to tell me that there was no inside information being traded on today too, right?

Folks, we are sitting this evening below critical support levels. This sort of "tape bomb" is exactly the sort of thing that can crash a market in this condition and it is exactly what I was talking about last night in my speech - the fact that our capital markets have become nothing other than a liars den where the fabrication of the day is trotted out, thereby making it absolutely impossible for any investor to value companies.

I see no way to invest in this environment and it is not possible to hold a trade beyond the closing bell either.

As for you President Obama and your claim of a "transparent administration" and "honesty", well, I allege that you're lying through your teeth.

Let me explain how serious this situation in the markets is.

A huge number of big multinational companies - firms that have so far held up reasonably well in the indices (and in fact are all that is holding up the indices) have tremendous unfunded pension obligations on their books.

These firms have in many cases seen half of their net equity value destroyed due to MTM losses on these funds. These liabilities can only be discharged through a bankruptcy (transferring them to the PBGC), and yet that would wipe out their common stockholders.

Now here is your exercise for the weekend:

Take the large-cap companies that have held up "reasonably well" thus far and also are "legacy" firms - that is, firms that have been around for a long time and thus have pension obligations on their books.

Zero the stock price of 30-50% of those.

Now compute what that does to the index they are in.

Make sure you're sitting down when you do this computation.

President Obama and the rest of the clown-car brigade in Washington DC - you have until Sunday Night when the Asian Markets open before this last charade likely translates over into those markets.

If that happens, and Europe has another day like it did today, the odds are we will open down so far off the support levels that were breached today that we will simply have no bid in large parts of the market - quite possibly including Treasuries and equities.

You own it Barack, along with the insane ramp in unemployment that will result.

Oh, and the GDP revision (which you knew about I'm sure) is already worse than the "stress test" you intend to impose; you are already running under too rosy of a scenario.

You've played smarmy politician one too many times Mr. President.

Good luck.

http://market-ticker.denninger.net/

vsudhir · Post by **vsudhir** » 01 Mar 2009 08:33

Very interesting hypothesis from Mish

link

First some context though:

Over the past four years the U.S. private sector has borrowed an astonishing $3 trillion from the rest of the world. The money, directly and indirectly, came from countries such as China, Germany, Japan, and Saudi Arabia, which ran huge trade surpluses with America. Foreign investors trusted their funds to U.S. financial institutions, which used much of the money for mortgage loans.

But American families took on a lot more debt than they could comfortably afford. Now no one is sure how much of that towering sum the U.S. is going to pay back—and all the uncertainty is roiling the financial markets.

The Washington bailout debate boils down to this question: Who is going to bear the burden of the $3 trillion mistake?

Will low- and middle-income borrowers have to cut back on spending to pay their mortgage bills? Will taxpayers have to chip in big bucks to pay for defaults on those debts? Or will Washington act in a way that imposes large losses on foreign investors—in effect, repudiating some of the debt? The best outcome is shared sacrifice among borrowers, taxpayers, and foreign investors—but that result may be politically difficult to achieve.

And now, the interesting part. Seems GOTUS is doing what it is ('avoiding nationalization' not becoz its against US culture but because doing so means it can no longer haircut the bondholders, you see....)

Finally, in The Great Repudiation Revisited, Mandel mentions the above Institutional Risk Analyst article and concludes "At some point the bondholders are going to have to take a big haircut."

We can now see that the plan is to slowly boil the frogs in order. In other words, the government preferred shareholders need to be wiped out first in a manner that offends foreign investors the least. That manner was to wipe out US government (taxpayer) preferred shares along with foreign governments common equity and preferred positions.

The next frog to be boiled will be after Citigroup fails the stress test. At that point, there will be no way to avoid "an adult conversation" between the US government and foreign bondholders.

Meanwhile, the government is avoiding an outright nationalization of Citigroup hoping to avoid pressure by foreign governments for the US to make good on a full repayment of bank bonds. If the government limits its stake to 40% or less, US Government guarantees of bank debts may be skirted, or at least postponed. {Aha. Cat's outta the bag finally. Suspected so and now it seems confirmed. Elaborate drama onlee}

Tying it all together, what's really happening has nothing to do with the announced plan to boost banks' TCE, tangible common equity. Rather, the plan is to repudiate the bondholders, step by step, boiling each frog in order, hoping to minimize the fallout from foreign bondholders.

Read it all.

svinayak · Post by **svinayak** » 01 Mar 2009 12:23

Vsudhir, Read the interview of Rajan posted earlier. He does not imply the political fallout

Another one here.
The cycle keeps going
http://www.gold-eagle.com/editorials_03 ... 60903.html
Economic, Financial and Banking decline
Only a war will avoid this decline

Jim Puplava's Perfect Storm is unfolding, characterized by an economic recession, a bear market in stocks, and a USDollar decline. It is being powered by the dollar decline and desperate acceleration in monetary expansion. To expect that new money (credit) creation might compensate for debt default is utter insanity, since they come and go in different places. New money creation is really extension to credit, and will succeed only in powering the storm vortex differential. Imbalances will only worsen.

http://www.financialsense.com/series2/rogue.html

ROGUE WAVES & ROGUE TRADERS ON OUR FINANCIAL SEAS

We are experiencing similar phenomena in the world’s financial system. Severe storm fronts have been buffeting the financial system since the stock market crash of 1987. We've seen rogue waves hit in the peso crisis of 1994 and the Asian and Russian Debt crisis of 1997 and 1998. We have also seen the emergence of the rogue trader. First there was Orange County Treasurer, Robert L. Citron, who pushed Orange County to the brink of bankruptcy. Then we saw Nick Leeson bring down Barings, the British investment bank. Leeson put an end to 325 years of banking tradition in one weekend. More recently we saw Long Term Capital Management's disaster in 1998. In the case of Long Term Capital Management, it was a group of traders, including two Nobel Laureates.

Experts Agree on Our Vulnerability

It may be hard for one to imagine risk at a time of our current prosperity. Up until this year, the financial markets have gone up every single year for the last 17 years. At the same time, we are enjoying the longest running economic expansion in history. For precisely these reasons, policy makers in the U.S. gathered together last fall to discuss the vulnerability of the U.S. financial markets. They deemed the most dangerous near-term threat to U.S. leadership in the world would be a sharp drop in the U.S. securities market. A decline in our equity markets would hobble our economy, impair our financial health, create political instability, and damage U.S. security. A decline in U.S. prosperity would also impact financial security around the globe. A major crash in the U.S. stock market could ignite a chain of financial disturbances around the globe. It would impair our economy when it is needed most to strengthen the health of other nations, like Asia, who are just pulling themselves out of crisis conditions.

As a result of those meetings, experts drew several conclusions from past crises. One lesson was that virtually every major financial crisis since the 1970’s has been a liquidity crisis. That is why you see the Fed rush in to liquefy the markets ¾ whether it was 1987 stock market crash, the Asian tsunami in 1997 or the Russian debt and the LTCM derivative crisis in 1998. [ i ]

http://www.321gold.com/editorials/willi ... 43003.html

SK Mody · Post by **SK Mody** » 01 Mar 2009 14:36

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..

Ironclad logic

. This is like saying, for example, that the medical world is composed of people who wanted to get MBBS Degrees. Would there be any doctors if no MBBS degrees were offered? Would a culture that had no MBBS degrees ever develop any doctors? Doctor induced diseases would not have been possible but neither would there have been a cure for the common flu. Would a culture without MBBS ever get to developing a cure for the common flu? Pneomonia would kill more people in an MBBS free world. Hence it follows that we cannot do without MBBS degrees.

Modern machining techniques were developed to make better guns, boats and other weapons of war. European states were the biggest users and funders of such technology

and hence ... [ Unfortunately there is no smiley for "record breaking long jump".

]

Without himsa, there would be no semi-automated machine tools or mass production. I can say the same about integrated circuits, CPUs, supercomputers etc..

and therefore it immediately follows that ...

Pretty much ever good thing created by science has its origins in people wanting to kill/ dominate others. Therefore peace and ahimsa is the true path to hell.. ironically.

I'm not sure if you are being sarcastic, but the leaps of logic are astounding.

Consumerism, for all its spiritual emptiness, creates jobs. It makes sure that money flows through a society and spreads wealth such that even poor people have reasonable lives. Does christianity, islam, hinduism or buddhism do that much good? Why would you care about a belief system that does not keep people hopeful, fed, clothed and generally comfortable with dreams of a better future. What eternal truth do religions offer? What is the use of that eternal truth.. and what is the authority of the person who says it?

What is your authority in saying this?

JMT and Peace.

Nayak · Post by **Nayak** » 01 Mar 2009 16:10

vina wrote:Some skepticism about these models is overdue, he added. “Our advice: Beware of geeks bearing formulas.”

Huh, is that a reference to Yum Bee Yays ???

Btw, that is supposed to rhyme as formulae...

vina · Post by **vina** » 01 Mar 2009 17:46

ramana wrote:Vina, have you heard of Ravi Dattatreya ex-GS and a hedge fund mgr?

Nope. What about him ?.

Bade · Post by **Bade** » 01 Mar 2009 18:17

The geeks vina is refererring to is the IIT BTechs onleee

as the geeks on Wall St. Just that it hurts to say that.

vina · Post by **vina** » 01 Mar 2009 19:56

Bade wrote:The geeks vina is refererring to is the IIT BTechs onleee as the geeks on Wall St. Just that it hurts to say that.

On the contrary Bade Saar, the math model types in I Banks were typically Pee Yecch Dees in Math, Fyzzics (esp), Economics/Econometrics and Finance types, more than anyone else. In fact, it could have been you if you flipped the right way and followed your head to the money trail and not your heart for the "Grown Up Idikku equivalent" out of Fyzzics..

John Snow · Post by **John Snow** » 01 Mar 2009 20:05

The formula to screw millions of lives is here.

read on here

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant

Bade · Post by **Bade** » 01 Mar 2009 22:18

It is the wrong application of math formulas without proper understanding of the fundas which did the Yem-Bee-Aaas in. As usual the math wallahs get pointed to for all the problems....When the MBAs ran out of ideas to create wealth

they started using the math wizards to create wealth. I see the blame should reside with the MBAs who got conned by the unemployed Pee-Eh-dees who had the last laugh.

vina, every BTech in and around my time except one, who loitered in to physics ended up with the Wall Street type jobs. So in that case all the financial engg types also need to take the blame.

Singha · Post by **Singha** » 01 Mar 2009 23:39

well like true technicians the maths guys probably added a 3-page note after the formula listing various assumptions and corner cases where their eqns would not work.

but like true Yem Bee A's these extra "fluff stuff" were neatly detached and
thrown in the dustbin long before it reached the higher levels of decision making.

beating up the quants for all this is like beating up the scientists for global warming happen. few yrs back it was fashionable for bushies to trash talk global warming.

how much does a math guy make on wall street? I wuz thinking nowhere near the "white shoe?" GS MBA hampton/summit/westchester/greenwich types right?

vsudhir · Post by **vsudhir** » 01 Mar 2009 23:53

beating up the quants for all this is like beating up the scientists for global warming happen. few yrs back it was fashionable for bushies to trash talk global warming.

Aptly if poignantly articulated.

Directing ire towards the quants is a cop-out like the IBNs and NDTVs directed public anger towards the 'political class as a whole' and not the pathetic ones in power at the time. Give credit or blame where it is due.

how much does a math guy make on wall street? I wuz thinking nowhere near the "white shoe?" GS MBA hampton/summit/westchester/greenwich types right?

And that gents, is the bottomline talking. The buck stops inside MBA musharrafs.

Of course, the tenured academic fatcats who peddled these theories or who at least failed to whistle blow when things atrted to get out of hand should share liberally in the blame.

The Financial Crisis and the Systemic Failure of Academic Economics

SriKumar · Post by **SriKumar** » 02 Mar 2009 00:15

Singha wrote: but like true Yem Bee A's these extra "fluff stuff" were neatly detached and thrown in the dustbin long before it reached the higher levels of decision making.

how much does a math guy make on wall street? I wuz thinking nowhere near the "white shoe?" GS MBA hampton/summit/westchester/greenwich types right?

That's exactly right, they had to find a scapegoat, so they latch on to the formula and its authors. Very convenient. So, the middle management MBAs deserve the blame for ignoring the assumptions/qualifications and 'simplifying' the science. But I would say that ultimately, the buck does not stop there. I would place the blame even higher. In industry (especially financial), you are rewarded (or punished) by your compensation. The act of claiming a bonus is akin to claiming credit for the financial success that quarter (or year). It is quite brazen for those leadership folks to happily claim those bonuses for the last decade, and to now turn around and say 'it wasn't me, it was the formula'. To them I say: if you took the money/bonus, you considered yourself responsible for the success then (and by extension, the responsibility of the failure now).

Raja Bose · Post by **Raja Bose** » 02 Mar 2009 00:51

Yeah....in times of boom it is the jernail MBAs taking the plaque and medals home for their 'smart' investments whereas in times of depression it is the ordinary Math Pee Yech Dee sepoy in the trenches who gets the blame and the court martial for 'bad' models. Every model has an error term but then MBA jernails tend to fall in the category of people who think if the probability(lighting strike) = 0.001 that means lighting will never strike them!

Oversimplification and ignoring the limitations of models due to the greed for Benjamins has led to such idiocy. It is almost fashionable to blame the Mathematics when one does not even know how to use it properly as a tool. As the Bengali saying goes, "Nachne na jaanle uthon er dosh!" (translation: If you dont know how to dance, it is the courtyard's fault!).

Singha · Post by **Singha** » 02 Mar 2009 00:55

and the funny part is just like the two paki nuclear scientists vanished into myanmar and khan sahib into house arrest, the inventor of this alleged doomsday formula is also off limits in beijing now. its easy to beat up the shadow of the anointed culprit. right wing nuts will now say he was a plant to damage western capitalism!

I have read that any formula that gains wide circulation in maths circles is
subjected to a very thorough peer review..eg the international competition that resulted in some belgian mathematicians winning the contest for the AES encryption std.

how come none of the hawkish "fields medal/MIT@15" types ever managed
to critique this formula if it were indeed the doomsday machine? how come
the veritable army of nobel laureates of the "chicago school" didnt use their influence and stature to make sure it was roundly discredited?
its tough one super evil guy to hookwink the whole world when his formula is out in the open not like some south sea scam "an enterprise of great profit" or sir stanford CD.

KarthikSan · Post by **KarthikSan** » 02 Mar 2009 01:27

A quote from " The Intelligent Investor" by Benjamin Graham

In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it is as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment

I would rather believe him than any of the fancy max, pizzics or pynaance pee yech dees that cannot find their derrieres if it were handed out to them on a silver platter without some mumbo-jumbo statistical models.

Bade · Post by **Bade** » 02 Mar 2009 01:44

All the non-math types are jumping up and down without realizing how stupid they look with all these comments.

Even the venerable Buffett looks like an idiot to me, if he did not know what he did with his money.

Besides, the math models came to being in the first place, simply because the touchy feely intuitive magic box of economic theories could not explain why the market was behaving the way it does

, Nobel prizes withstanding.

vsudhir · Post by **vsudhir** » 02 Mar 2009 01:46

Well, the models being misapplied is one side of the story onlee.

The bigger story is that the west is in demographic trouble. The kinda growth required for industries' toplines to grow 4, 5, 6% yoy simply didn't happen after the 50s. The baby boom was the last great hurrah of the triumphant west. The boomer gen was so selfless that they reproduced just half their size (gen X is 50% the size of the boomers in abs terms) in order to reduce environmental footprint, perhaps.

Demography is indeed destiny. The power of wind and sand on rock takes centuries to be visible. That of demographics takes a few decades. But its slow so it doesn't seem urgent or even important, at times.

Of course, kindly don't point me to islamic demographics and its bright future. They are another sad story basketcase and they deserve it 400%. Yup, I've had it with the UKstanis and islamists. No pretend sympathy for these schucks from me anymore. Over and out.

Anujan · Post by **Anujan** » 02 Mar 2009 01:46

Singha wrote:and the funny part is just like the two paki nuclear scientists vanished into myanmar and khan sahib into house arrest, the inventor of this alleged doomsday formula is also off limits in beijing now. its easy to beat up the shadow of the anointed culprit. right wing nuts will now say he was a plant to damage western capitalism!

Singha-saar
Formulas are not the foundation of capitalism. People, process, regulation and transparency are. This is simply some sensationalist mumbo jumbo. I could also write an article "+: Did this symbol create the financial meltdown ???!!!

".

This huge subprime mortgage mess can be nicely summed up by the dilbert cartoon which goes something like this: Dogbert offers financial advice to a rich guy, and tells him "the most sound investment is to buy a herd of diseased livestock" the guy asks dogbert "but wont the cattle die ?" to which dogbert replies "well it is risky if you but one diseased cow, the risk gets mitigated if you buy an entire herd".

Raja Bose · Post by **Raja Bose** » 02 Mar 2009 01:48

Singha/vina/KarthikSan,
Why blame Li who consistently warned about using the model properly.

From the Wired article

Investment banks would regularly phone Stanford's Duffie and ask him to come in and talk to them about exactly what Li's copula was. Every time, he would warn them that it was not suitable for use in risk management or valuation.

In hindsight, ignoring those warnings looks foolhardy. But at the time, it was easy. Banks dismissed them, partly because the managers empowered to apply the brakes didn't understand the arguments between various arms of the quant universe. Besides, they were making too much money to stop.

They didn't know, or didn't ask. One reason was that the outputs came from "black box" computer models and were hard to subject to a commonsense smell test. Another was that the quants, who should have been more aware of the copula's weaknesses, weren't the ones making the big asset-allocation decisions. Their managers, who made the actual calls, lacked the math skills to understand what the models were doing or how they worked. They could, however, understand something as simple as a single correlation number. That was the problem.

No one knew all of this better than David X. Li: "Very few people understand the essence of the model," he told The Wall Street Journal way back in fall 2005.

As Li himself said of his own model: "The most dangerous part is when people believe everything coming out of it."

KarthikSan · Post by **KarthikSan** » 02 Mar 2009 02:08

Bade Saar/ Bose Saar, I'm not jumping up and down or laying the blame on someone. I understand Ben Graham's statement as "you cannot precisely forecast anything" and if one claims to do so then he/she is speculating. If all the gleat pizzicists on Wall St. remembered the Heisenberg uncertainty principle from Kontom Pizzics 101 they would have had a little bit more caution considering the markets and economy are not bound by the hard rules of pizzics but the mental state of a population which can be affected by their favorite singer not winning Amelican Idor!

I consider Buffet acted foolishly last year trying to get a fast one on the others. He simply did not have the disciprine to wait and watch. A little bit of arrogance maybe! And the markets taught him his little lesson too. I'm pretty sure Ben Graham is laughing his posterior off in his grave at all the Wall St. tamasha

Satya_anveshi · Post by **Satya_anveshi** » 02 Mar 2009 02:26

Buffet - Amazing the guy didn't mince any words all these years against the derivative contracts and mechanics but fallen victim to the same devil that he wanted to avoid. Few of my friends working in the utilities industry were $hitting bricks when Buffett bought stake in a major utility company recently and my friends were fearing the whole trading/derivative based group will be sacked. They are still hanging in there by a small thread of hope.

Now, the last thing he wants at this time is a natural or artificial calamity and the guy will fall victim to it irrespective of his location.

BTW: Folks, so far Obama is holding on the popularity ratings but you know as the ratings fall, Obama will face the same issue as Bush during the Q2-Q3 of 2001. You know the kind of events that might be useful for Presidents in consolidating the grip, drumbeating the bravado and creating intertial forces to hang in there. Scary thoughts!!!

Bade · Post by **Bade** » 02 Mar 2009 02:28

What everyone is admitting to (especially the hard core econ guys) is that nothing is predictable or reliable forecasts can not be made. If you are willing to look at it from a different angle, it is basis of all profit taking or making. If you can make 400% reliable forecasts and everyone has the same tools, then it is a tie.

Then no one makes any money.

Since economic theories have no predictive power, only post-facto statements or analysis is possible using those tools. So it has 'zerrow' value onlee

Now, the math guys had other ideas. OK, it failed for now or worked in narrow confines. What is to say that someone cannot come up with a better scheme in future. Science is done that way in small steps. The price for failure of course in science in not in trillion dollars, but in personal careers flopping or projects size of a few billion dollars getting canceled, till the next bright guy comes up with a better way.

But anyways what is a few trillions, if it is all 'Wampun' as vina says.

We all need to work and use our brains till we drop dead in the long run. A few lost their early retirement plans. But, then who cares.