NationStates Jolt Archive

Ground Control to Major Bernanke, your circuit's dead, there's something wrong. (http://www.chicagotribune.com/business/chi-wed_oilsep17,0,4833605.story)

Here is the salient point.

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."

Now, I am not saying that this hale guy is telling the truth. Maybe this is all made up and part of the fiction that drives the prices of the assets in our pension funds (if you have one).

But if it is true, this is pretty serious. Any sensible person could have told you that all the financial institutions would have done with the extra money you gave them at that time is gamble it. And since short dollar and long coms was the only trade that was working at that time, anyone could have seen the consequences. So to say he had lost control is wrong. He just didn't know how to go about his job in the first place. (I agree with his basic idea that interest rates should have been lowered to add to liquidity, but he did it wrong. He is a special Olympian in many respects; i.e. he knows where the finish line is and which direction to go, but he may have problems getting there).

But I digress. Why should you care? Well you should care because this man probably caused all the expensive gas this summer. And he did this because like all college professors he is easily deceived by people - "gee, I would have been ready for the test but my grandma died for the third time, can I have a make up test?".

And so now we actually do face a big crisis. And I ask you, people of nationstates, should we get ourselves a central banker that actually knows what he is doing?

(Plz note. I am not saying he did it out of any nefarious motives. He doesn't make much money and he only runs the fed because he is bald and he thinks it will help him get chicks or something).

Yeah, but who else is there?

I mean, Bernanke has had a lot of work to do cleaning up the mess left behind by Greenspan's years of excessive liquidity (1.0% Fed Funds rate...come on!) of which the housing bubble is only the tip of the iceberg, let alone that $500 trillion in derivatives just starting to deflate. When it comes to the kind of tasks he's had to face, there aren't many people who could do much better. At least he's had the guts to keep interest rates steady rather than cut them further. Personally, I think we need to raise them to completely wring the system dry of excess liquidity...it's tough medicine, but needs to be desperately done or else we face far worse problems down the line.

However, I think we're going to learn reestablishing central bank control over the economy is going to require a huge shift in financial markets. The derivatives market will be badly harmed, but I think that's just what it needs to deflate the mother of all bubbles just starting to burst within that badly broken system.

how does anyone control commodity prices?
Pretty much the only way the US could influence commodity prices is by weaning itself off it's oil dependency. That's not going to happen for a long time.

I agree that Greenspan was senile. But you have to evaluate the whole thing in the context of 2002. Back then the country was apparently on the verge of all out war, yet was suffering from mild deflation because of the unwinding of the .com bubble (which was actually a teleco bubble but that is a different issue).

He would have said back then, and I would agree, that nationwide house prices were 10-20% undervalued, and even though that low house prices are a good thing in the long run (when we are all dead) under the circumstances a mild overinflation would have been better than the results of a mild deflation.(Because we had to go fight terrorists and all that). So, with the help of the government, jamming mortgage and refi money into the economy was a good and useful thing because the all out war we were going to fight would have taken care of any future deflation we were going to experience while staving of the 9/11 economic consequences and giving the financial power to fight overseas expeditions.

But, by the time he took over, the all out war was off the table. So the problem comes, how do you unwind all the excess that was created 2002-2005. (Because since we didn't fight, house prices went up 100-200% not the 10-20% which was intended). His answer was to do nothing. He just followed the market until real stress began. Then he became non-secular on equities, which can be shown by his actions last august. All in all a very bad thing, because he was setting up even more moral hazard type stuff.

As I said, I don't disagree with his basic idea in respect of depressions. But you should add the liquidity after the markdowns start to ensure orderly liquidation. What he did was try to preserve the value of failed trades, which is why we are in the position we are in now.

He's just not up to the job.

Here's an idea. Since the Fed does two very different things (trying to do monetary policy and trying to keep Wall Street going in a roughly straight line), maybe there should be two chairmen? One economist and one banking-type.

Of course, there are already both types in the committee, but at least it would spread the blame a little more fairly. :wink:

What we need to do is abolish the FED and re-establish the gold standard.

What we need to do is abolish the FED and re-establish the gold standard.
And later, re-introduce stonings, the horse-and-cart and the 'first-born son' standard.

Here's an idea. Since the Fed does two very different things (trying to do monetary policy and trying to keep Wall Street going in a roughly straight line), maybe there should be two chairmen? One economist and one banking-type.

Of course, there are already both types in the committee, but at least it would spread the blame a little more fairly. :wink:

The fed has a dual mandate, but supporting equities is not in it. Though I agree that the whole dual mandate thing was a bad idea in the first place.

I don't think Ben grasps the human element. (Though he is better than Greenspan, who was really desperate for approval).

And later, re-introduce stonings, the horse-and-cart and the 'first-born son' standard.

Equating two things that have nothing in common with one another? Brilliant strategy! Why, that completely invalidates my position!

Co-ordinated action by all central banks?

'Emergency' rate cut in the am then lads?

And I am thinking, and follow this carefully because after this you are on you're own, as long as this constant increase in central bank help continues, that it is a clear signal to short overpriced financials on any drop on the VIX. No real bottom will be in until the central banks start to unwind the exceptional measures.

(Full disclosure, I covered the last of my financial shorts today, moved on to bones with more meat).

No, what we need is to shut the markets for a day to let everyone's heads cool. That would be good. Also remind people that there's a special place in hell for short-sellers.

No, what we need is to shut the markets for a day to let everyone's heads cool. That would be good. Also remind people that there's a special place in hell for short-sellers.

LOL.

You are a silly person. What are the risks of holding an equity? Solvency, credit, liquidity. (There are a few others, but it is technical and not worth worrying about).

U pay a premium for each. But by all means, close the market and ban short selling, drawing liquidity out. That will surely put the price up.

LOL.

You are a silly person. What are the risks of holding an equity? Solvency, credit, liquidity. (There are a few others, but it is technical and not worth worrying about).
Uhu... not really much risk for anyone. Closed means closed.
U pay a premium for each. But by all means, close the market and ban short selling, drawing liquidity out. That will surely put the price up.
Eh you can hardly ban short-selling, but it really isn't cricket and we're seeing it kill banks in the UK - HBOS yesterday, probably RBS today, because hedge funds are really into the whole thing.

Uhu... not really much risk for anyone. Closed means closed.

If you close the markets, then stocks become illiquid. In other words it is hard to sell them at short notice (or you have to sell them on the grey market where there are few, if any, participants so the spread is huge). As they become more difficult to convert to cash they get discounted and the price is reduced. The longer the markets are closed the less the stock is worth. And illiquid assets are virtually worthless in a credit crunch because no-one wants to tie up liquidity.

Eh you can hardly ban short-selling, but it really isn't cricket and we're seeing it kill banks in the UK - HBOS yesterday, probably RBS today, because hedge funds are really into the whole thing.

I was really into it too. It's not my problem that these institutions don't know shit from shinola and made themselves insolvent. It's called price discovery.

Plus, short sellers add liquidity to the market. So they do pay for their participation. And they do stabilize things. Look at shanghai.

But if you think you can fix this with central planning, go ahead.

Hey, anyone remember the Isle of Tega from Davd Eddings' Tamuli trilogy? We don't have to be THAT extreme, but...

(Basically, when someone is elected as leader there, all their possessions are sold and invested in the economy, and after their term they get repaid depending on how well they did. If they had an economical disaster like the one we currently have, even the richest person could come out as a pauper.)

If you close the markets, then stocks become illiquid. In other words it is hard to sell them at short notice (or you have to sell them on the grey market where there are few, if any, participants so the spread is huge). As they become more difficult to convert to cash they get discounted and the price is reduced. The longer the markets are closed the less the stock is worth. And illiquid assets are virtually worthless in a credit crunch because no-one wants to tie up liquidity.
Yeah, we're talking a day here. Not For Ages.
I was really into it too. It's not my problem that these institutions don't know shit from shinola and made themselves insolvent. It's called price discovery.
Aye, there's "being rubbish at being a bank" (which HBOS wasn't, their operating profits in the first half of the year were in the billions even after writedowns due to subprime losses) and "pisstake shortsellers killing your bank because it's easy money to do so".
Plus, short sellers add liquidity to the market.
What they're doing at the moment is simply centralising power on the financial markets. This is not a good thing in even the short term.
So they do pay for their participation. And they do stabilize things. Look at shanghai.
Uhu...
But if you think you can fix this with central planning, go ahead.
I don't think that central planning alone can fix this problem, but I think that letting the market sort itself out has been proven in history to be a pretty poor way to do things, because capitalism is effecient but knows no compassion.

Yeah, we're talking a day here. Not For Ages.

But that changes things entirely. People rely upon the fact that stocks are liquid at certain pre-defined times. Once you start imposing random "close for a day" rules it changes the risk in holding them.

Aye, there's "being rubbish at being a bank" (which HBOS wasn't, their operating profits in the first half of the year were in the billions even after writedowns due to subprime losses) and "pisstake shortsellers killing your bank because it's easy money to do so".

How do you know that HBOS profits were what they claimed? The problem with financials is that they have a proven record of lying about profitability and regulatory capital (Look at the overnight LIBOR if you don't believe me). If HBOS really was a well capitalized bank that had made tonnes of money it could have easily started a short squeeze and burned the "pisstake shortsellers". AIG rules don't apply in the UK.

What they're doing at the moment is simply centralising power on the financial markets. This is not a good thing in even the short term.

I agree that that would be a bad thing, and it should be stopped. But I say this in respect of banks, not short sellers. Short sellers are the anarchists of the financial markets.

I know, I have a plan. I would ban selling a stock for less than it was bot for. That would add the much needed stability which daily mail readers demand.

http://www.businessspectator.com.au/bs.nsf/Article/Macquaries-unseen-enemies-JKE2K?OpenDocument&src=sph
http://www.asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=on&asxCode=MQG&companyName=&principalActivity=&industryGroup=NO

Down 24% at times today, for basically no reason at all. Short selling as a strategy isn't necessarily the problem, but this is just really stupid.

http://www.businessspectator.com.au/bs.nsf/Article/Macquaries-unseen-enemies-JKE2K?OpenDocument&src=sph
http://www.asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=on&asxCode=MQG&companyName=&principalActivity=&industryGroup=NO

Down 24% at times today, for basically no reason at all. Short selling as a strategy isn't necessarily the problem, but this is just really stupid.

Price. Discovery. Period.

Price. Discovery. Period.
Well, I'd love to play a part. If I had some spare money laying around, those shares look like a bargain.

Well, I'd love to play a part. If I had some spare money laying around, those shares look like a bargain.

Really? Why? I'm not being sarcastic, all I know about Macquarie is that they are a financial (and therefore suspect).

But that changes things entirely. People rely upon the fact that stocks are liquid at certain pre-defined times. Once you start imposing random "close for a day" rules it changes the risk in holding them.
True, and a fair point.
How do you know that HBOS profits were what they claimed?
I don't, and nor probably does anyone, up to and including the chief exec.
The problem with financials is that they have a proven record of lying about profitability and regulatory capital (Look at the overnight LIBOR if you don't believe me). If HBOS really was a well capitalized bank that had made tonnes of money it could have easily started a short squeeze and burned the "pisstake shortsellers". AIG rules don't apply in the UK.
Well the massive drop in HBOS shares more caused the already-planned merger between them and Lloyds TSB go off without a hitch through the anti-monopoly laws that exist than anything else. Still a bit of a kick in the teeth, though.
I agree that that would be a bad thing, and it should be stopped. But I say this in respect of banks, not short sellers.
Aye well nice one short-sellers, they just made HBOS and Lloyds TSB into one bank. Genius. Half of all mortgages with one lender.
Short sellers are the anarchists of the financial markets.
Quite.
I know, I have a plan. I would ban selling a stock for less than it was bot for. That would add the much needed stability which daily mail readers demand.
Genius.

Aye well nice one short-sellers, they just made HBOS and Lloyds TSB into one bank. Genius. Half of all mortgages with one lender.


Well look, the UK financial system is basically insolvent. Anything that makes it a little more solvent is a good thing at this time. I would imagine that the government would have preferred an even lower take out price for HBOS, owing to deleveraging needs.

And I wouldn't worry about monopoly pricing in mortgages because soon virtually nobody will be able to get one anyway.

Really? Why? I'm not being sarcastic, all I know about Macquarie is that they are a financial (and therefore suspect).
Well, the first article outlines the financial situation, the most important points being shitloads of cash available and no issue with short-term debt. It also doesn't do any proprietary trading, hence why it took pretty much no subprime losses (the people it sold these instruments to did though :P). The debt that it has is secured with a variety of fixed assets as collateral - infrastructure primarily, toll roads, airports etc etc. They're also quite good at risk management in general, having disengaged themselves from Lehman et al ahead of schedule. From what I've seen that doesn't just seem to be a gimmick either - all the other banks sent investment bankers with lots of gel in their hair to campus to represent themselves, Macquarie sent someone from risk management. It's a big part of their culture, so I don't see them overextending themselves on any single issue. Business-wise, there are only two things that might hurt their future: the performance of their real investments which are related to the performance of the Australian economy as a whole, I suppose, and the fees they can collect from clients. Granted, the both of them may not do as well as they did the past few years, but there's no real existential threat there. And their biggest local competitor, Babcock & Brown, is removing itself from existence as we speak.

The Australian financial sector as a whole isn't looking too bad either. Australian loans and the securities made from them have behaved reasonably well, and with the small lenders that relied on wholesale funding knocked out for a while, the deposit-taking banks have massively increased their market share.

The background of these collapses in the share price are rumours that they're going to have trouble refinancing, which are just being borne out by the numbers as far as I can see. S&P changed their ratings prospects from 'stable' to 'negative', but that's all I've seen in terms of material stuff.

Oh yeah, I remember now. UBS or someone claimed that they had much less free capital than they claimed. What you wrote rings a bell. I have no idea as to the veracity of that though.

I guess the main thing is what price did they purchase the infrastructure for, and how they describe it.

Prbly a fun place to work tho'.

Equating two things that have nothing in common with one another? Brilliant strategy! Why, that completely invalidates my position!
no actually you invalidate your position with your own foolishness and complete lack of understanding of economic matters.

What I did was called SATIRE. It's when someone highlights the ridiculous nature of the others position using humour.
Sad you've never heard of it. Look it up in the dictionary, then go read some Oscar Wilde.

What we need to do is abolish the FED and re-establish the gold standard.

I didnt know Ron Paul had an NS account....

Ground Control to Major Bernanke, your circuit's dead, there's something wrong. (http://www.chicagotribune.com/business/chi-wed_oilsep17,0,4833605.story)

Here is the salient point.



Now, I am not saying that this hale guy is telling the truth. Maybe this is all made up and part of the fiction that drives the prices of the assets in our pension funds (if you have one).

But if it is true, this is pretty serious. Any sensible person could have told you that all the financial institutions would have done with the extra money you gave them at that time is gamble it. And since short dollar and long coms was the only trade that was working at that time, anyone could have seen the consequences. So to say he had lost control is wrong. He just didn't know how to go about his job in the first place. (I agree with his basic idea that interest rates should have been lowered to add to liquidity, but he did it wrong. He is a special Olympian in many respects; i.e. he knows where the finish line is and which direction to go, but he may have problems getting there).

But I digress. Why should you care? Well you should care because this man probably caused all the expensive gas this summer. And he did this because like all college professors he is easily deceived by people - "gee, I would have been ready for the test but my grandma died for the third time, can I have a make up test?".

And so now we actually do face a big crisis. And I ask you, people of nationstates, should we get ourselves a central banker that actually knows what he is doing?

(Plz note. I am not saying he did it out of any nefarious motives. He doesn't make much money and he only runs the fed because he is bald and he thinks it will help him get chicks or something).
Nonsense. We need to have Bernanke stay at the Fed until Goldman-Sachs is completely and incontrovertibly in control of the United States.

Oh yeah, I remember now. UBS or someone claimed that they had much less free capital than they claimed. What you wrote rings a bell. I have no idea as to the veracity of that though.
Weirdly, just as I was writing that post, there was a report on TV about the very same issue. I only caught the end of it though, but one can watch it on the web: http://www.abc.net.au/lateline/business/items/200809/s2368607.htm

EDIT: And here's a guy from Moody's explaining their thought process: http://www.businessspectator.com.au/bs.nsf/Article/Patrick-Winsbury-JLUB7?OpenDocument&src=sph

EDIT (at close of trading that day): http://www.businessspectator.com.au/bs.nsf/Article/Macquarie-shares-jump-over-50-JM4BU?OpenDocument
Macquarie shares rise nearly 38% in rebound from five-year low

Macquarie Group Ltd shares have mounted a strong recovery, jumping as high as 50 per cent, a day after hitting a five-year low, as investors abandoned the investment bank on debt concerns.
:p