The Keynesian Nightmare Continues...

[utgibbs]

utgibbs. Bottom line: Gov't spending and over-regulation which are the hammers of Keynesian economics in practice are what got us into the mess we are in. It was not free market ideals. It wasn't even captialism except to the extent our capitalism is "blended".

Have you just put your hands in your ears and started screaming "Mary had a little lamb, little lamb, little lamb"?????

Over-regulation is the reason we had to pump a trillion into the system to keep its heart beating? Over-regulation? Yeah, we've been doing that since Reagan. :crazy:

Would you like to step away from the crack-pipe and have a rethink?

 

[droski]

Sigh.

Securitization. This is an adequate primer. We can go into more detail AFTER you learn something about it:

Interestingly, some of the Wall Street rocket scientists behind securitisation were actually real rocket scientists, from the very lab in Pasadena which had managed the Mars Climate Orbiter project.

BBC NEWS | Business | The rocket scientists of finance

so you are using 2 lines in a bbc article as proof that rocket scientists had anything to do with securitization? you realize these instruments were there well before december of 1998 when these people were still at nasa?

 

[droski]

WHAT!?! oh my god! I'm not reading this, am I?

I have A LOT of work to do on this forum. I haven't read anything except in this thread lest I go into vapor lock at the mountainous task of teaching folks something real.

Okay, two questions:

1. What happened to the Shah in 1951?

2. When did oil production in the United States peak?

Learn history. What is past is prologue.

who gives a **** what happened to the shah in 1951? carter pulled his support which lead to rise of the ayatollah which directly led to the oil price trippling and massive inflation.

 

[BigPapaVol]

so you are using 2 lines in a bbc article as proof that rocket scientists had anything to do with securitization? you realize these instruments were there well before december of 1998 when these people were still at nasa?

the high end math jocks have never been on the sell side. Those guys are strong in math, but they aren't the stats junkies and Black Scholes author types always seeking the perfect hedge or mint producing pure arbitrage.

 

[droski]

It also said that those rocket scientists were employed by the hedge funds, which on the buy side of the transaction.

i'm failing to see how a bunch of scientists at a hedge fund thinking that their models for securitized bonds were accurate somehow convinced everyone that these bonds were safe and torpedoed the economy. this is some horrible logic here. they weren't selling or creating these bonds or rating them.

 

[droski]

Have you just put your hands in your ears and started screaming "Mary had a little lamb, little lamb, little lamb"?????

Over-regulation is the reason we had to pump a trillion into the system to keep its heart beating? Over-regulation? Yeah, we've been doing that since Reagan. :crazy:

Would you like to step away from the crack-pipe and have a rethink?

you might want to start being more respectful and stop treating people like they are idiots because frankly you are the one who has shown himself to be a little clueless. i suggest you work for a living a little before you decide you are the expert on everything in life.

 

[BigPapaVol]

i'm failing to see how a bunch of scientists at a hedge fund thinking that their models for securitized bonds were accurate somehow convinced everyone that these bonds were safe and torpedoed the economy. this is some horrible logic here. they weren't selling or creating these bonds or rating them.

this just isn't this hard to me. People took the credit default swaps as gospel for insuring crappy paper up to AA type ratings. Unfortunately, those writing that paper simply walked away when it became clear that the tidal wave was coming and there was no insurance commission to drop the hammer on them. Insurance companies have capital requirements for a reason. Hedge funds putting CDS paper out have no requirements and that should have been taken into account.

Off balance sheet financing crap has to be gotten under control. Only way to get to any clarity. FASB can handle this issue much better than the idiots in Congress or the White House.

 

[utgibbs]

so you are using 2 lines in a bbc article as proof that rocket scientists had anything to do with securitization? you realize these instruments were there well before december of 1998 when these people were still at nasa?

They clearly had something to do with securitization. I believe their is a full documentary on the link as well which offers a good summary for those who need it. It might be too long, and I wouldn't expect you to do it today. The JPL guys aren't very important; the system would have HAD to make these products regardless of whether they could be made "mathematically" fool-proof. The JPL guys just legitimized the whole process.

I know financialization has been around since the 1970s (as I've stated several times in this very thread), but Reich's request to pull Glass-Steagal was crucially important. Here is where trading in these securities really took off to astronomical levels.

 

[BigPapaVol]

They clearly had something to do with securitization. I believe their is a full documentary on the link as well which offers a good summary for those who need it. It might be too long, and I wouldn't expect you to do it today. The JPL guys aren't very important; the system would have HAD to make these products regardless of whether they could be made "mathematically" fool-proof. The JPL guys just legitimized the whole process.

I know financialization has been around since the 1970s (as I've stated several times in this very thread), but Reich's request to pull Glass-Steagal was crucially important. Here is where trading in these securities really took off to astronomical levels.

There is no such thing as foolproof investing, period. The returns are a reflection of the perceived risk involved in providing the money. Anyone who ever buys that this relationship can be avoided is destined to lose their ass.

Your rocket scientist commentary is worthless. Securitization isn't quantum physics. The problem was with the collusion between the ratings outfits and the sellers, which was exacerbated by institutional investors with enough capital to believe they could blow off due diligence via phony insurance or historical expected value type calcs.

Glass Steagal introduced banks to both sides of the deal, but would not have precluded a single large bank from investing in mortgage backs for their securities portfolio. Hell, they were considered a flight to quality type of investment and the investment grade status was never questioned until close to the end.

 

[droski]

They clearly had something to do with securitization. I believe their is a full documentary on the link as well which offers a good summary for those who need it. It might be too long, and I wouldn't expect you to do it today. The JPL guys aren't very important; the system would have HAD to make these products regardless of whether they could be made "mathematically" fool-proof. The JPL guys just legitimized the whole process.

I know financialization has been around since the 1970s (as I've stated several times in this very thread), but Reich's request to pull Glass-Steagal was crucially important. Here is where trading in these securities really took off to astronomical levels.

legitimized what process? it isn't fuzzy math at all. if the underwriting standards had been kept at former levels these securities wouldn't have defaulted. arguing the models were the problem is just stupid.

right. that's why glass steagal prevented long term capital. oh wait. the banks would have bought this garbage no matter what. do you really think our govt is smart enough to figure out what is proprietary trading and what isn't? and what about the hedge funds? how would glass steagal have stopped the hedge fund market from increasing 1,000 fold over the past decade?

 

[utgibbs]

you might want to start being more respectful and stop treating people like they are idiots

Excuse me?

I've been called every name in the book on this website. I think you have called me clueless as well. It's a little pot calling out the kettle. And you said Carter was responsible for the Ayotallah, and you have no idea what happened in Iran in 1951.........

However, I can refrain from the screaming "Mary had a little lamb" images, if asked nicely.

 

[droski]

the nationalization of the oil industry had nothing to do with the shaw of iran falling. if anything it kept him in power. it was teh only job creator in the country at the time.

 

[utgibbs]

There is no such thing as foolproof investing, period. Exactly. The returns are a reflection of the perceived risk involved in providing the money. Anyone who ever buys that this relationship can be avoided is destined to lose their ass.

Your rocket scientist commentary is worthless. Securitization isn't quantum physics. I'm not saying it is, but it has been taken to fairly complex modelling. I just find it funny JPL guys were involved. The problem was with the collusion between the ratings outfits and the sellers, absolutely which was exacerbated by institutional investors with enough capital to believe they could blow off due diligence via phony insurance or historical expected value type calcs.

Glass Steagal introduced banks to both sides of the deal, but would not have precluded a single large bank from investing in mortgage backs for their securities portfolio. Hell, they were considered a flight to quality type of investment and the investment grade status was never questioned until close to the end.

I think we broadly agree (scarily) again, BPV. The JPL boys legitimized these instruments. They took fictious capital, gave it a mathematical justification, and made it "real." Many thought it was fool-proof investing thanks to their work. That's all I'm saying.

Hell, it is old hat, who had the Nobel Laureates on their staff who figured out "exactly" what an option should cost? Their firm needed $3BN alone to bail out, and they paid it too. When was it - 1989?

 

[utgibbs]

the nationalization of the oil industry had nothing to do with the shaw of iran falling. if anything it kept him in power. it was teh only job creator in the country at the time.

Keep digging. You are getting there. You're absolutely right about not keeping the shah from falling. Ironically, but absolutely right!

 

[droski]

The JPL boys legitimized these instruments. They took fictious capital, gave it a mathematical justification, and made it "real." Many thought it was fool-proof investing thanks to their work.

30 years of falling interest rates and rising house prices, and therefore very low defaults rates for pools of mortgages, legitimized the instruments. do you really think everyone on wall street is so stupid that if some math nerd says it's good then the rest will follow?

 

[droski]

Keep digging. You are getting there. You're absolutely right about not keeping the shah from falling. Ironically, but absolutely right!

dude stop the condescension. either state your case or stfu and admit you don't know what you are talking about.

 

[BigPapaVol]

I think we broadly agree (scarily) again, BPV. The JPL boys legitimized these instruments. They took fictious capital, gave it a mathematical justification, and made it "real." Many thought it was fool-proof investing thanks to their work. That's all I'm saying.

Hell, it is old hat, who had the Nobel Laureates on their staff who figured out "exactly" what an option should cost? Their firm needed $3BN alone to bail out, and they paid it too. When was it - 1989?

Who took fictitious capital and did anything? The fictitious capital was in the overvaluation of real estate. The guys doing the securitizing did nothing to generate the capital. They simply used the underlying real property values to "secure" the debt. The fact that their product allowed for an inflated level of demand over time wasn't because they hoodwinked anyone or created capital. Bloated pricing is where all of the faux capital came from.

People who believed in foolproof investing are idiots. Even the risk free rate, that almost all finance and valuation eventually falls back upon, is fools gold. There is no such thing as a risk free return.

Why is it magic to value options? It's a two piece deal broken into time value, which is tied directly to the volatility of the pricing and delta between purchase price and strike price, and the intrinsic value. The aha moment for everyone was solving for the right purchase price based upon volatility and time available. Actually very smart, but very solid. Many outfits that trade on their own capital have come up with some better algorithms to price options and that's what the quant jocks are for.

 

[BigPapaVol]

30 years of falling interest rates and rising house prices, and therefore very low defaults rates for pools of mortgages, legitimized the instruments. do you really think everyone on wall street is so stupid that if some math nerd says it's good then the rest will follow?

in my business, there were some serious math horses who would never have taken the quant geeks at face value.

 

[droski]

in my business, there were some serious math horses who would never have taken the quant geeks at face value.

there certainly were quite a few people who didn't do their due diligance but that had far more to do with laziness and belief that the ratings agencies were doing the work for them. the top outfits always have done their own stuff. hell i'm currently at a very small firm and we do it all ourself.

 

[utgibbs]

30 years of falling interest rates and rising house prices, and therefore very low defaults rates for pools of mortgages, legitimized the instruments. do you really think everyone on wall street is so stupid that if some math nerd says it's good then the rest will follow?

It's exactly what happened.

 

[droski]

you have no idea what you are talking about. wake me up when you've actually been involved in the decisionmaking process of investing other people's money or until you actually work for a living and get some real experience.

 

[T-TownVol]

It's exactly what happened.

you are as ignorant as they say you are.....congrats

 

[utgibbs]

Who took fictitious capital and did anything? The fictitious capital was in the overvaluation of real estate.

People who believed in foolproof investing are idiots.

Why is it magic to value options?

1. And yet these instruments were bought and sold as real wealth. Real estate comprised a substantial part, yes. And hence, these derivatives are valued at 500 trillion (actually more) with tangible world-wide assets at 50 trillion.

2. Agree. And yet the icon, Friedman, believes it is an "objective science." Moreover, as I've said, bundling the debt instruments under the rubric of JPL mathematical models were supposed to make them fool-proof. And yes, Lehman Bros et al is proof they did take it seriously.

3. I only know the dudes at Long Term Capital Management won the Nobel for coming up with a pricing formula for options (addendum: Long Term Capital Management collapsed and cost the taxpayers $4.6bn)

 

[utgibbs]

you are as ignorant as they say you are.....congrats

I'll be your huckleberry. Do tell.

 

[utgibbs]

you have no idea what you are talking about. wake me up when you've actually been involved in the decisionmaking process of investing other people's money or until you actually work for a living and get some real experience.

Alarms are ringing. Time to wake up.