[threadbear]

This thread is a follow up to the thread about the the Housing Collapse. After reading Bob Wallace's posts that expresse the view that many of us are overly anxious, about the housing collapse, I figured he could use this read. I haven't read this yet, but plan to.

A Demon of Our Own Design, by Richard Bookstaber:

"While it is not strictly true that I caused the two great financial crises of the late twentieth century—the 1987 stock market crash and the Long-Term Capital Management (LTCM) hedge fund debacle 11 years later—let’s just say I was in the vicinity. If Wall Street is the economy’s powerhouse, I was definitely one of the guys fiddling with the controls. My actions seemed insignificant at the time, and certainly the consequences were unintended. You don’t deliberately obliterate hundreds of billions of dollars of investor money. And that is at the heart of this book—it is going to happen again. The financial markets that we have constructed are now so complex, and the speed of transactions so fast, that apparently isolated actions and even minor events can have catastrophic consequences."

Terrific stuff.

http://bigpicture.typepad.com/comments/ ... -our-.html

More here:

http://theylaughedatnoah.blogspot.com/2 ... chard.html

[Pfish]

T-Bear!

Thanks for the link and info. Hedge funds and derivatives are where the real problems lie. It is bad enough these wizards take good money and leverage it over and over, but when you take bad money and try the same trick (RE Bonds, loans) it could get ugly.....

[threadbear]

I just ordered it today. Apparently people reading it are commenting on how funny it is! I've avoided exploring this issue in depth, because it looks too complicated and dry enough to parch my brain completely. But that's the essence, that's the entire gist of it. People look away from the subject, because they can't get a handle on it. The underlying assumption is that, even if they can't get a handle on it, the expert class can. This is where humour comes in. The expert class can't get a handle on it EITHER!!

Warren Buffet pursued a company that had derivatives exposure, a few years back, and it took something like 2 years to sort through the mess of complications. That was one company. Imagine an entire economy growing increasingly dependant on processes, that take that long to understand. Talk about a potential deep freeze of credit, for starters! This is what should be scaring the hell out of people, because it's beginning to play out now. The sub prime is the tip of the structured finance mess. The OHMYGOD, noone is minding the store is going to surprise so many people, including many of the super wealthy. The success of structured finance has always rested on unwitting assumptions. It's beyond a ponzi scheme. It's a nest of completeley entangled intelocking and impenetrable ponzies. When I first started reading about them, I was really amazed it was legal.

[RonMN]

I must agree. When I started learning about CDO's, SIV's, shorting, 14X leverage, etc. etc. I couldn't believe this is all legal.

The funny thing is...when you have 14X leverage & you lose 10%...you've actually lost 140% and are now broke & owe 40%. This is what they're all afraid of...the entire economic structure is creeking at the seems, And they don't want to acknowledge it because acknowledging it will implode the system.

And if you think the super-rich wont get hurt...think again.

[threadbear]

$this->bbcode_second_pass_quote('RonMN', 'I') must agree. When I started learning about CDO's, SIV's, shorting, 14X leverage, etc. etc. I couldn't believe this is all legal.

The funny thing is...when you have 14X leverage & you lose 10%...you've actually lost 140% and are now broke & owe 40%. This is what they're all afraid of...the entire economic structure is creeking at the seems, And they don't want to acknowledge it because acknowledging it will implode the system.

And if you think the super-rich wont get hurt...think again.

[threadbear]

"The markets from some complex derivatives remain broken and may recover only gradually, said Randall Kroszner, a governor of Federal Reserve Board on Monday.

"I would suggest that....the recovery may be a relatively gradual process and these markets may not look the same when they re-emerge," Kroszner said in a speech to the Institute of International Bankers."

Can't link to article, just do a google search. It'll come up.

Bloomberg July 2007

The debacle may finally provoke regulators, who have long suspected that buying derivatives is akin to running through a fireworks factory with a lighted blowtorch in each hand.

http://www.bloomberg.com/apps/news?pid= ... refer=home

[MD]

It's time for unleveraged wealth to resume its place, then. This is a good thing, I think?

[threadbear]

$this->bbcode_second_pass_quote('MD', 'I')t's time for unleveraged wealth to resume its place, then. This is a good thing, I think?

[RonMN]

Not trying to hijack the thread or nothin'...but I kinda like the idea of becomming crazy wealthy

In that vein...say you had 10 or 20 grand worth of gold / silver (at todays prices)...at what point would you trade it? and what would you trade it for?

[MD]

I don't know . . . it all appears to me as so much unproductive activity. I suppose I yearn for simpler times, even though my happy delusions will never come anywhere close to reality.

They're well worn and comfortable though. Pardon me while I just mumble my way through here . . . scuse please.

[dooberheim]

$this->bbcode_second_pass_quote('RonMN', 'N')ot trying to hijack the thread or nothin'...but I kinda like the idea of becomming crazy wealthy

[threadbear]

$this->bbcode_second_pass_quote('MD', 'I') don't know . . . it all appears to me as so much unproductive activity. I suppose I yearn for simpler times, even though my happy delusions will never come anywhere close to reality.

They're well worn and comfortable though. Pardon me while I just mumble my way through here . . . scuse please.