hmmm. i guess it pays if the secretary of the treasury is a former investment banker. well besides this, i think if tax payers are bailing out these large organizations then we (as tax payers and the people in power should be just our extended arm) should be able to ask for a bit more oversight in the future. especially since these guys are quite greedy. the last couple of years that led to this big fuck up in the market made a ton of money for a lot of people in the finance industry. how much you wonder?
New York City securities industry firms paid out a total of $137 billion in employee bonuses from 2002 to 2007, according to figures compiled by the New York State Office of the Comptroller. Let’s break that down: Wall Street honchos earned a bonus of $9.8 billion in 2002, $15.8 billion in 2003, $18.6 billion in 2004, $25.7 billion in 2005, $33.9 billion in 2006, and $33.2 billion in 2007.
this is from a business week article that actually asks for more oversight from washington. but bush and his cronies don’t really care if people fuck up (remember brownie and katrina? well or bush and 9/11?) actually most times those that fuck up the biggest get the biggest prices. and so it isn’t really surprising to see that now the republicans are not really interested in putting in place some safeguards that would prevent something like this current crisis in the future:
But both President Bush and Mr. Paulson, a former chief executive of Goldman Sachs, remain philosophically opposed to restrictions and requirements that might hamper economic activity.
but to me, any industry that has such an impact and has as part of its risk management a classification like this one
Level 3 values are based on “unobservable” inputs reflecting companies’ “own assumptions” about the way assets would be priced. That would be market talk for best guess, or in some cases SWAG (as in Simple Wild-***ed Guess.)
… need more regulations.
Filed under: economy, mid to long term risk | Leave a Comment
Tags: bush, compliance, economy, fed, regulations, republicans
the wall street journal has an interesting interview with edward thorp and bill gross in its weekend edition. they talk about how to beat the casino in black jack and how investors can use those learnings to make sound investment decisions — i guess it seems some people didn’t get that message. the advice thorp gives investors is:
You have to make sure that you don’t over-bet. Suppose you have a 5% edge over your opponent when tossing a coin. The optimal thing to do, if you want to get rich, is to bet 5% of your wealth on each toss — but never more. If you bet much more you can be ruined, even if you have a favorable situation.
ok, not necessarily rocket science but in today’s market something to remembers. towards the end of the conversation, thorp makes another interesting statement:
In the last 15 years or so, there has been a large flow of capital into the hedge-fund world, from $100 billion in the early 1990s to $2 trillion now. But the amount of available investing opportunities hasn’t increased that much. That has led to the over-betting phenomenon Bill and I were talking about, or gambler’s ruin.
i guess something bankers and investors forget is that there is only a finite amount of money in this world.
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Tags: economy, hedge funds, stock market, wall street journal
on the one side i wish the fed would not have bailed out bear stearns and shown the same kind of toughness they show towards all of the low to medium income people who find themselves in trouble with paying down their mortgages. but at the same time a real crash (and that might actually still come) would probably have been even worse for those. but what really pisses me off is that those at the heart of this whole mess will not have to worry, they sit in their million dollar apartments in ny and the only way they will feel a pinch this year is that they can’t buy another house on the hamptons or a new car.
going forward countries will have to realize that the market just doesn’t work — at least not in a civilized world. people are just too stupid and money is just too blinding for them to make rational decision.
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Tags: bear stearns, dollar, economy, euro, fed, stock market
as global warming is becoming reality it will be more important to understand all of its consequences. yes, there is the growing water levels that will impact coastal regions/cities. there will be the changing weather patterns. also, these changing weather patterns will impact the spread of diseases (as people living in the US are probably well aware of since the spread of the west nile virus).
one impact by these changing weather patterns that I haven’t thought about so far was the impact on a country’s infrastructure and the transportation network. A report by the national research council outlines the impact of global warming on an already ailing US infrastructure:
- More heat waves, requiring load limits at hot-weather or high-altitude airports and causing thermal expansion of bridge joints and rail track deformities.- Rising sea levels and storm surges flooding coastal roadways, forcing evacuations, inundating airports and rail lines, flooding tunnels and eroding bridge bases.- More rainstorms, delaying air and ground traffic, flooding tunnels and railways, and eroding road, bridge and pipeline supports.- More frequent strong hurricanes, disrupting air and shipping service, blowing debris onto roads and damaging buildings.- Rising arctic temperatures thawing permafrost, resulting in road, railway and airport runway subsidence and potential pipeline failures.
with an infrastructure that is in dire need for an upgrade this couldn’t come at a worse time … although it might be a wake up call to spend some money in order to avoid other collapsing bridges.
the site of the national research council has a link to the full study.
Filed under: environment, mid to long term risk | Leave a Comment
Tags: global warming, infrastructure, national research council, transportation
i stumbled across this market watch story on the threat that financial instruments like derivatives could pose for the global economy, especially the financial markets. the article starts with a quote from a berkshire capital letter to shareholders:
“We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
that letter was from 2002. how big is the risk posed by derivatives?
Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007.
to put this into perspective, the US GDP is $15 trillion and the value of all global stock markets together is about $100 trillion. obviously this does not mean that we are doomed. all this money is not lost. but looking back to the long term capital disaster from the mid ’90s where several banks nearly went under shows the impact of derivatives … in that case the amount the trading loss was just a measly $5 billion causing a global financial crisis triggered by an event that was thought would not be able to occur (or was at least not accounted for in the model the fund used). the problem is that the current sub-prime crisis could be the trigger for some of the derivates to go sour, and with so much money in these quite hard to understand financial instruments that could result in a domino effect. what would be needed is a global regulatory framework that ensures that these instruments are just as much backed by hard cash as the more traditional instruments are.another story about this issue: The $300 Trillion Time Bomb
Filed under: economy, mid to long term risk | Leave a Comment
Tags: derivatives, economy, financial markets, sub prime, warren buffett
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