Uk govt

[taks]

Instinct of course. Both sides always think they're right, so when one insults two, two wants to insult one back.

hehe, i think you missed the point.

 

taks

[Trenitay]

It's a possibility.

[Enoch]

As I said, different ideal economic policies.

 

I think that your thinking on these banks is missing two points. One, the degree to which the internal structure of the banks pressures decision-makers to disregard a lot of risks. Say, for example, that one of the I-Banks starts using David X. Li's simple methodology for modeling complicated risks to price their Credit Default Swaps more cheaply that your company can under its current methodology. Now, that first I-Bank may be ignorant of the flaws in the model, or it may be taking a calculated risk that it has hedged elsewhere, or it may just be reckless, but the fact remains that, if your company doesn't follow along with its pricing, the VP responsible for your CDS business is going to lose all of his revenue in very short order. The smart long-term move is to let the other company sell their underpriced insurance and take all the business. But that requires that VP to go to the upper brass and tell them that his division isn't going to be making any profits and should probably be cut altogether. Given the ultra-competitive machismo that is the norm in the big financial companies, it's hardly surprising that risky models with just enough objective 'truthiness' to pass a smell test quickly become the industry standard. The fallback position isn't that "if it turns out to be wrong, the government will fix it"; it's "if it turns out wrong, Merrill and Citi and Goldman and everybody else is just as screwed as we are." (Or, more troublingly, "all those other century-old, established firms can't possibly all be wrong at the same time!")

 

Second, I called nationalization courageous because it would involve standing up to the Wall Streeters, wiping out their equity holders, and tossing their management teams. Letting them fail would also be courageous, but (to bring us back to the Red Dawn reference) more the kind of courage associated with single-handedly charging a helicopter gunship with a rifle. You're underestimating the degree to which all these firms are tied both to each other and to most of the other big companies (and a lot of the little ones) in the world. Letting, say, Citi and BofA go down (Lehman was a relatively small player compared to these guys) would almost certainly bring Morgan, Goldman, and everybody else with them. It would be years (of complete economic stagnation) before the more conservative mid-sized and regional players scaled up their operations enough and acquired sufficient concentrations of expertise to even begin to fill the important investing and lending footprint that these firms would leave behind. You could be right that this would be a better result than a decade of gov't-supported zombie banks. But I'll take a quick FDIC-style nationalization followed by a return of the non-toxic portions to private hands before I would either of those results.

[Guard Dog]

As I said, different ideal economic policies.

 

I think that your thinking on these banks is missing two points. One, the degree to which the internal structure of the banks pressures decision-makers to disregard a lot of risks. Say, for example, that one of the I-Banks starts using David X. Li's simple methodology for modeling complicated risks to price their Credit Default Swaps more cheaply that your company can under its current methodology. Now, that first I-Bank may be ignorant of the flaws in the model, or it may be taking a calculated risk that it has hedged elsewhere, or it may just be reckless, but the fact remains that, if your company doesn't follow along with its pricing, the VP responsible for your CDS business is going to lose all of his revenue in very short order. The smart long-term move is to let the other company sell their underpriced insurance and take all the business. But that requires that VP to go to the upper brass and tell them that his division isn't going to be making any profits and should probably be cut altogether. Given the ultra-competitive machismo that is the norm in the big financial companies, it's hardly surprising that risky models with just enough objective 'truthiness' to pass a smell test quickly become the industry standard. The fallback position isn't that "if it turns out to be wrong, the government will fix it"; it's "if it turns out wrong, Merrill and Citi and Goldman and everybody else is just as screwed as we are." (Or, more troublingly, "all those other century-old, established firms can't possibly all be wrong at the same time!")

 

Second, I called nationalization courageous because it would involve standing up to the Wall Streeters, wiping out their equity holders, and tossing their management teams. Letting them fail would also be courageous, but (to bring us back to the Red Dawn reference) more the kind of courage associated with single-handedly charging a helicopter gunship with a rifle. You're underestimating the degree to which all these firms are tied both to each other and to most of the other big companies (and a lot of the little ones) in the world. Letting, say, Citi and BofA go down (Lehman was a relatively small player compared to these guys) would almost certainly bring Morgan, Goldman, and everybody else with them. It would be years (of complete economic stagnation) before the more conservative mid-sized and regional players scaled up their operations enough and acquired sufficient concentrations of expertise to even begin to fill the important investing and lending footprint that these firms would leave behind. You could be right that this would be a better result than a decade of gov't-supported zombie banks. But I'll take a quick FDIC-style nationalization followed by a return of the non-toxic portions to private hands before I would either of those results.

 

I pointed this out in a thread last year. After the 1929 crash Congress passed the Glass-Stengal Act to seperate investment banks from traditional banks so as to prevent that very thing from happening. Carter, Clinton, and GWB all signed bills that repealed Glass Stengal bit by bit, and all the protections were gone. It seems we as a people learn nothing from history. Back when I was involved in politics I worked for the Florida Republican Party for two years. The lack of understanding of history and economics among professional politicians was astounding. After my own run for office a became friends with a few Democrats and found most of them are even worse. They view everything through an ideological prisim and thnk only of now. The truth is, laws have long term consequnces that those who write them seldom understand and never appreciate. The government created the banking crisis, it cannot simply walk away from it. But taking ownership of everything is sight is far worse than doing nothing. As we will all soon see. The other shoe has yet to fall. Enoch and I both warned everyone it's coming and all this talk of eliminating the dollar at the international currency standard will be the first slip down into a deep hole.

[SteveThaiBinh]

As good as the Onion...

I think so. Not as good as Matt, though.

 

So, Brown, is it? Or to quote Daniel Hannan, the "Fifeshire feartie". Lame duck, to be sure - I think the Labour Party knows the end is drawing near when they start talking about Harriet Harman as a potential successor. This tired, sad government has run out of ideas as completely as the Tories had in 1997. The Tories' big idea was privatisation and they stuck with it to the point where they were privatising everything left right and centre without thought to how to make a free market viable in that sector - e.g. the railways, and look what a shambles that has been. Labour's big idea has been growing the state, and I've no objection to the state doing things it can do well, but Brown is just growing it and growing it because of blind faith, because he can't think of anything else to do.

 

I would vote Conservative in this election if it weren't for who my local MP is. I am not voting for that man, not ever.

[taks]

I think that your thinking on these banks is missing two points.

no, it is not. my point is that these credit default swaps wouldn't have existed in the first place, so your first point in regards to my comment is completely moot. most austrians and chicagoans agree (that is where i get my information, keynes did not understand demand so he immediately lost my attention). i don't disagree they misjudged the risk, btw. that is very true. the problem is that they could not have known the risk because the wonderful hand of government rigged the game. well, they could have known "our estimation of risk is based on government backing, if this becomes an issue, we could be doomed." more than likely, they did know, and simply figured we the people would give them a helping hand.

 

Second, I called nationalization courageous because it would involve standing up to the Wall Streeters, wiping out their equity holders, and tossing their management teams. Letting them fail would also be courageous, but (to bring us back to the Red Dawn reference) more the kind of courage associated with single-handedly charging a helicopter gunship with a rifle. You're underestimating the degree to which all these firms are tied both to each other and to most of the other big companies (and a lot of the little ones) in the world.

no, i'm not underestimating anything. nor is the slippery slope of the domino collapse really provable.

 

i realize that it would be painful Letting, say, Citi and BofA go down (Lehman was a relatively small player compared to these guys) would almost certainly bring Morgan, Goldman, and everybody else with them. It would be years (of complete economic stagnation) before the more conservative mid-sized and regional players scaled up their operations enough and acquired sufficient concentrations of expertise to even begin to fill the important investing and lending footprint that these firms would leave behind. You could be right that this would be a better result than a decade of gov't-supported zombie banks. But I'll take a quick FDIC-style nationalization followed by a return of the non-toxic portions to private hands before I would either of those results.

i'm certain it would be better in the long-term, which is ultimately what i am concerned with. it will be very painful in the short term, of that i am also certain. but ultimately, unless we the people stand up and say that we are not going to allow the government to continue to artificially prop up our economy, this crap will continue. it won't matter what happens if we end up in a hyper inflationary condition. the banks will get it all in that case (and there is a vast amount of historical precedent for current actions causing just that).

 

as i noted, there are more benefits to the UK version, which was applied to a swedish bank at one point, over what we are actually doing instead. yes, it is a good idea to borrow our way out of debt. what idiot thinks that... oh yeah, krugman, gleithner, reich, rangle... morons.

 

i hope the UK politicians aren't this stupid. they probably are because the average person doesn't even understand the basics, let alone much more complex topics such as these, and politicians are ultimately voted in by the average person. hence they pander.

 

taks

 

PS: based on what i understand, the economy is best described in terms of chaos theory, not random process theory, so any idiot that thinks he's found a way to model risks immediately loses my vote as someone of competence. it has been proven time and time again that stochastic modeling techniques simply don't work. why banks fall for this is beyond my comprehension. well, i think i know. see, chaos can have short term periods of stochastic behavior, even if it is very complex. it would seem, at least to me, without getting too deep into the details, that this david li fellow fell into the trap. apparently he no longer does anything related to finance.

[Walsingham]

I made an impassioned plea to a relatively senior person that the solution to the economic crisis was being mishandled due to public outrage. And that, logically, what we should do as a society is hang a bout twenty senior bankers from lamp-posts. Sucks to be them, but it would get the rage off our chests, and we could move on with clear heads.

 

I personally like Cameron. I don't trust his fething party. But then maybe he'll do to Thatcher's Tory party what Blair did to Kinnock's Labour?

[taks]

I made an impassioned plea to a relatively senior person that the solution to the economic crisis was being mishandled due to public outrage.

politicians feed off of it. its a win for them when there is public outrage that they can direct at some evil entity other than themselves.

 

And that, logically, what we should do as a society is hang a bout twenty senior bankers from lamp-posts.

how about the politicians, instead?

 

taks

[SteveThaiBinh]

I personally like Cameron. I don't trust his fething party. But then maybe he'll do to Thatcher's Tory party what Blair did to Kinnock's Labour?

When Blair was running in 1997, the Tories tried to scare people saying that okay, maybe Blair is nice, but his party is still the same old Labour party and it will force him to the left if they win. It didn't happen - whether you approve of it or not, Blair's government did pretty much what it said it would, at least in the first term or so. That shows the power of the Prime Minister and, regrettably perhaps, the weakness of parliament. The Conservative Party has some elements that I have big problems with, but I'm reasonably confident that the situation is the same and that, if Cameron wins, it will be a Cameron government that we get.

[Humodour]

Simon Johnson, a former chief economist with the IMF, has a fantastic article in The Atlantic on this point-- both sides have become far too beholden to the finance industry over the last 20 years, which is stifling any attempt at real reform. An excerpt:

But these various policies

[Enoch]

I'm hesitant to further sidetrack the conversation, as although I am unqualified to comment extensively on the British government, I think I learn things by reading what more knowledgeable folks think. So I'll keep my reply to taks brief:

 

The perfect is the enemy of the good. Even if taks' underlying theoretical positions are entirely true, the absence of government influence on the economy is unattainable (indeed, unless one posits a populace that is predominantly virtuous and educated in the "right" kind of economics (good luck with that!), it is inconsistent with non-authoritarian government), and in the presence of some of it, the 'next best' solution to a problem is not always less government intervention. Also, sunnier long-term outlook does not always compensate for a harsh short-term one when one considers the negative external factors like social instability, crime, loss of international prestige, and loss of respect for public institutions that truly terrible times bring.

[Wrath of Dagon]

But these various policies

[Humodour]

Seems like these crises happen every 20 years or so, when everyone forgets about the previous ones and the crooks have figured out new loopholes to exploit. But now this crisis is being used as an excuse to destroy the dollar, wipe out everyones savings, and the economy with them. I don't know if the guy if following Al Qaeda's plan for America or he's simply insane.

 

You don't need to talk in the present tense; Bush isn't president of America anymore.

[Walsingham]

The perfect is the enemy of the good. Even if taks' underlying theoretical positions are entirely true, the absence of government influence on the economy is unattainable (indeed, unless one posits a populace that is predominantly virtuous and educated in the "right" kind of economics (good luck with that!), it is inconsistent with non-authoritarian government), and in the presence of some of it, the 'next best' solution to a problem is not always less government intervention. Also, sunnier long-term outlook does not always compensate for a harsh short-term one when one considers the negative external factors like social instability, crime, loss of international prestige, and loss of respect for public institutions that truly terrible times bring.

 

Leaving aside my frothing animosity towards that aphorism*, I still can't agree. There's a tonne of government regulation of business. Indeed, one reason why so many businesses headquarter in the Uk is because investors and management are reassured by our regulations. I don't see it as at all inconsistent to say that what we need is more safeguards. As a systems theorist I 'know' (Skyttner, 2000) that any high energy system can only exist in two states:

 

1. artificially regulated

2. in a state of natural chaotic flux (think the world's oceans)

 

The former carries a significant burden, because controlling any high energy system requires (this is my opinion now) a higher degree of skill or energy than the system it is controlling. This creates an effective upper limit on what you can apply the technique to. By that logic the latter sounds great, yes? Unfortunately the latter, by its chaotic nature has a tendency to go into cycles, which in the weather system we would recognise as hurricanes etc. Boom and bust is in this thesis the equivalent in economics.

 

I've lost my train of thought, but I ought to be working, anyway

 

*My pet hate is 'the best is the enemy of the good'. So ****ing what? All that tell sme is that I'd better be the best because the good is going to have its arse kicked.

[Meshugger]

Here is an interesting article. Do not let the author and url scare you though, the whole system is rather carefully analyzed, and written with a nice wit to boot.

 

Basically there are a couple guys, including Goldman, the Fed and the gorvernment, that all are screwing everyone over. There are no visible barriers between these instances of power, since they have all worked with each other in the past, even in different administrations, and most likely will work with each other for times to come. What Guard Dog mentioned earlier about AIG is also included here, very disturbing indeed.

 

Also, the whole point that taks was pandering about; namely dubious business-models for banks and their own strong belief that the government would bail them out. Not only did their models suck, banks like Lehmann had government aid included in these very models. And why wouldn't they, most of their colleages and friends worked in the US treasury (Paulson and Geithner were from Goldman) and the Fed.

[Enoch]

Yeah, I've read that RS article. It covers some of the basics well, but is a bit too conspiratorial in its conclusions for my taste, making too much of the unattributed cynical theories of a few 'insiders.' For my money, the best reporting on the current issues are the WaPo's "What Went Wrong" series, Michael Lewis' piece in Portfolio, and the Atlantic article I linked above.

[Humodour]

I still can't agree. There's a tonne of government regulation of business. Indeed, one reason why so many businesses headquarter in the Uk is because investors and management are reassured by our regulations.

 

Eh. If you want to see an example of a good financial regulations system, look at Australia's banking system or, so I hear, Canada's. Most of the financial regulations agreed to by Britain and America and cohorts at the recent G20 summit were implemented by both my left and right governments years ago (started late 1980's by Hawke/Keating and then continued by Howard).

 

Enough tooting my own horn because I know that gets old, but certainly it's a bit of a stretch to say that one of the world's economies most down the drain right now had a sound banking system.

[Gorgon]

What does this mean

but certainly it's a bit of a stretch to say that one of the world's economies most down the drain right now had a sound banking system.

 

This

but certainly it's a bit of a stretch to say that one of the world's economies which is [/i ]most down the drain right now had a sound banking system[/b]

 

My keyboard setting is borked I can't write a question mark.

 

I think it's fair to say that the entire banking sector is feeling the pressure, and that a stimulus package may not be deserved, but is necessary.

 

When the economy is in low gear one may have no choice but to jump start it artificially, whether this is socialism or not is kinda beside the point. Without it recovery is going to take longer.

Edited April 3, 2009 by Gorgon

[Humodour]

What does this mean

but certainly it's a bit of a stretch to say that one of the world's economies most down the drain right now had a sound banking system.

 

This

but certainly it's a bit of a stretch to say that one of the world's economies which is most down the drain right now had a sound banking system

 

My keyboard setting is borked I can't write a question mark.

 

Are you trying to correct my grammar or ask me a question?

 

It means it makes no sense to say Britain had a smartly regulated financial and banking sector when it is proving right now that it clearly did not.

 

I'm not talking about more or less regulation, but appropriate regulation. Perhaps Britain certainly did have more regulation of its banking sector than most other countries, and I'm sure that gave the business folk and investors a false sense of security, but it doesn't mean it was effective regulation, and it certainly doesn't mean that you can't find a better regulatory framework!

Edited April 3, 2009 by Krezack

[Humodour]

I think it's fair to say that the entire banking sector is feeling the pressure, and that a stimulus package may not be deserved, but is necessary.

 

When the economy is in low gear one may have no choice but to jump start it artificially, whether this is socialism or not is kinda beside the point. Without it recovery is going to take longer.

 

From my local perspective, I think Kevin Rudd's cash stimulus measures are excessive. There's no need to hand out money to people. It gives you a short-lived boost in GDP growth numbers for the quarter and not much else. What a waste of debt.

 

Now I fully support the infrastructure stimulus portion of the rescue package because it both creates jobs and leaves us with something tangible to show for it when the crisis is over.

 

Far better to let Australia ride out the storm and let the social safety nets of Medicare and Centrelink do their job to absorb unemployment and such till it's over than to saddle us with debt we could have avoided. I guess this puts loosely me in agreement with France and Germany on the this matter.