[Iaato]

$this->bbcode_second_pass_quote('Ferretlover', 'M')r. Bill, more Econ 101 help, please, when you have the time: You said: "Of all the banks I deal with they seem to have posted very good results. Of the ones that I know have been hit it was mostly funds owned or controlled by those banks, and not the bank's balance sheets themselves that are threatened."

How can a bank own something and it not be on their balance sheets? Are they keeping "two sets of books?"

[firestarter]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('firestarter', 'T')o paraphrase Hayek, when it comes to the billions of economic matters that are seen, not to mention the billions not seen, no one person comes close to knowing their economic ass from a hole in the ground (Kunstler's blog today says the same thing, only in a more verbose way)

[darren]

$this->bbcode_second_pass_quote('MrBill', '
')Never mind that financial models for valuing options based on Black-Scholes have revolutionized risk management and have proven to be mathematically sound. They are after all based on the same formulas as found in engineering models for heat and particle density.

[gampy]

$this->bbcode_second_pass_quote('Gideon', 'I')f anybody wants to know why there is no science of economics and why it really is just a bunch of guys running around who have learned a 400 word vocabulary that is not shared by the general population, just read the following tripe:
$this->bbcode_second_pass_quote('', '"')Multiple regression analysis is the same whether applied to economics or any other field.
LTCC failed due to some pre-iminent economists putting too much faith in their models, which were in turn based on historical data or correlations. The math behind the models were solid enough. But the assumptions were that the future would look like the past. And even if not the models would be quick enough to pick-up on divergence in time. They failed to consider auto-correlation and market liquidity. A failure being repeated in this crisis by all the funds run by quants as well."

[sjn]

Magic formulas work until they don't.

[MOCKBA]

$this->bbcode_second_pass_quote('MrBill', '
')Keeping in mind that banks have other sources of income and with large balance sheets have no trouble to fund themselves. Whereas if a pension fund has a gap between its current assets and its future liabilities it can only fill that hole by earning a high return on investment (ROI). And any losses lower that ROI, while many defined benefit plans were already hit hard by stock market losses in 2000, and low bond yields since then, so this just sets them even farther behind.

[Eli]

Unless they find away to pump trillions of dollars into the US economy without causing inflation there is no way to avoid a depression.

That was the beauty of this boom, the money went into homes. They are the most expensive thing 99% of people ever buy. It is a brilliant way to pump cash into an economy but without the headaches of just printing money.


We are a nation of debtors, our economy and our way of life is built upon borrowing money and spending like there is no tomorrow. We have borrowed trillions from nations around the globe. We are well past broke and there is no one else that is going to give us a loan.

[Roccland]

Yen is roaching - 117.29

Europe is in this credit crunch deep. Maybe even worse than the US, not by much though.

Could continue to get ugly...really ugly.

[Eli]

Roccland your wrong!

117.08

This is contained all is well all is well.

[Roccland]

$this->bbcode_second_pass_quote('Eli', 'R')occland your wrong!

117.08

This is contained all is well all is well.

[Roccland]

116.94

[Eli]

nope 116.97

not kidding

[Roccland]

Nikkei down 329, Hang Seng down 603.

[Eli]

Now I am no economics type experty person but I do Know a hawk from a handsaw, the reason the yen dollar is important is because there are literally trillions of dollars invested by borrowing yen.

The banks in Japan were loaning money at 0 interest and it seemed like easy money. The Japanese economy has been stuck and going sideways for a long time there was no room for growth.

To make money it had to be invested abroad in dollars. That is great just as long as the relationship between the dollar and the Yen stays the same. The problem comes in when what do you do when the dollar doesn't buy as many Yen?

People get crushed trying to get their money back into yen.

[MrBill]

Nice rant Gideon. I see you are reduced to correcting my spelling mistakes now. Well, at least you're making some kind of a contribution around here.

Keeping in mind that it was your faulty analysis of 'this crisis' that started the thread in the first place. Your laughable attempts to analyze what was going on.

It was your first decent post that I ever read, so I did not want to criticize it, but obviously that is not a favor you're willing to return.

You cannot get past the fact that I may know what I am talking about. As darren said to another poster in another thread. "How anti-intellectual of you." It's too bad. Personal insults just get really old after a while.

So as I cannot say anything right, here is Bloomberg's assessment.

$this->bbcode_second_pass_quote('', ' ')
The amount of cash the Federal Reserve injected into the U.S. banking system on Aug. 9 and 10, and its importance, have been widely misunderstood.

Each day banks are open, the people working at the New York
Federal Reserve Bank's ninth floor Open Market Desk do the same
thing: supply enough money to the U.S. banking system to keep
the overnight lending rate close to the Fed's 5.25 percent
target.

Aug. 9 and 10 were different only in degree, and in the attention the Fed called to the action in a statement issued on the latter day.

There was no hint of an interest rate cut -- nor is there likely to be unless conditions in world financial markets worsen considerably and threaten continued economic growth in the U.S.

``In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets,'' the Fed statement said. In other words, the demand for funds to lend might drive the rate above the desired 5.25 percent level, and the Fed promised to supply enough cash to hold it down.

The desk added $24 billion on Thursday and $38 billion on Friday. However, just stating those figures tends to exaggerate their importance. For instance, as recently as Aug. 2, $17 billion had been added and everyone yawned.

Furthermore, by the end of the yesterday essentially all the additional liquidity injected to calm markets had been withdrawn.

Repurchase Agreements

The New York Fed, acting on behalf of the entire Federal
Reserve System, adds cash by entering into repurchase agreements with a group of so-called primary dealers. From the dealers the bank buys Treasury securities, federal agency debt and mortgage- backed securities partially or entirely guaranteed by the government, such as those issued by Fannie Mae and Freddie Mac, for a set period -- often as short as overnight.

The cash paid to the dealers then finds its way into the banking system.

Routinely, a substantial amount of cash is added each Thursday for a 14-day period. Half of last Thursday's injection was of that type. The other $12 billion was left in the banking system just overnight, that is, the New York Fed returned the securities on Friday and took back the cash.

Even in the calmest of times it's no easy task to figure out exactly how much needs to be added, and Friday was particularly difficult. The lending rate jumped around, ranging from zero to just over 6 percent, as the desk found it necessary to step in three times, adding $19 billion at 8:25 a.m., another $16 billion at 10:55 a.m. and finally $3 billion at 1:50 p.m., according to the New York Fed.

All that $38 billion was returned to the Fed yesterday.

Calming Markets

With markets under far less pressure, that money was replaced by new agreements of just $2 billion, much less than the usual daily total.

So the Fed actions were truly temporary and just intended to calm markets. In contrast, a cut in the 5.25 percent lending rate target, a step which many analysts have urged the Fed to take, would have a much greater, longer lasting impact.

It was only a week ago today that the Federal Open Market
Committee reaffirmed that target and said it was more concerned
that inflation won't moderate as expected than that economic growth would become excessively weak. Moderate growth still was
seen as the most likely course for the economy over coming quarters, the committee said.

On Aug. 10, after the markets closed, Macroeconomic Advisers released its latest economic forecast, one very similar to the collective forecast of Fed officials.

The new predictions include gross domestic product expanding at about a 2.5 percent annual rate in the second half of this year, rising to about a 2.75 percent rate early next year.

Core Inflation

``Core inflation is projected to remain stable at the upper end of the Fed's `comfort zone' of about 2 percent for core personal consumption expenditure inflation and 2.25 percent for the core consumer price index inflation, as well-anchored inflation expectations and a gradually rising unemployment rate offset upward pressure on growth of labor costs,'' the company's explanation of the forecast said.

The core measures of inflation exclude food and energy items. The core PCE price index is the Fed's preferred inflation measure.

In language similar to that in the Aug. 7 FOMC statement, Macroeconomic Advisers also said, ``Recent credit-market turmoil
has skewed risks to the downside around this forecast.''

Obviously the rush to shed risky investments triggered by losses in subprime mortgage-backed securities isn't over. Fed officials will be watching what happens next and will respond to disorderly market conditions, with those folks on the Open Market Desk their front-line troops.

Bailing out ailing hedge funds or propping up the stock market isn't on their agenda, however.

[mkwin]

I have to agree.

The so-called 'insider' words MrBill talks about are common in any basic course in Econometrics.

Economics might seem like chaos to someone who has never studied it, but it is no more invalid as a science than physics that uses abstract mathematical equations to explain physical nature.

Economics is based on first theory but then observation of evidence of both a qualitative and quantitative nature, exactly the same as other sciences.

Hedge Funds are risky and people get the higher return to compensate them for that risk. A key concept is investment is risk and reward, yes you might get a 25% p.a. return, but the risk of losing your money in a hedge fund is far higher than in a large cap multinational.

[MrBill]

darren wrote:
$this->bbcode_second_pass_quote('', 'U')nfortunately, I find myself disagreeing with Mr. Bill here. This is a common failing of reasoning in economics and finance: "my math is sound, I must be right".

Here is Emanuel Derman, a PhD in physics, long time Wall Street quant, and director of the financial engineering program at Stanford (?).

[Doly]

$this->bbcode_second_pass_quote('MrBill', '
')Hey, we have the same problem in Moscow. Not one of our stock traders is old enough to remember the market meltdown in 1998. They have been conditioned to always buy on dips because markets always go up over time. Oops! Fortunately my boss and I are a little older and I hope wiser.

[firestarter]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', '
')Hey, we have the same problem in Moscow. Not one of our stock traders is old enough to remember the market meltdown in 1998. They have been conditioned to always buy on dips because markets always go up over time. Oops! Fortunately my boss and I are a little older and I hope wiser.

[MrBill]

$this->bbcode_second_pass_quote('firestarter', '')$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', '
')Hey, we have the same problem in Moscow. Not one of our stock traders is old enough to remember the market meltdown in 1998. They have been conditioned to always buy on dips because markets always go up over time. Oops! Fortunately my boss and I are a little older and I hope wiser.