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Posted: Sat Jan 10, 2009 5:59 pm
by Grim
Yes, derivitives are know, or at leat they were to seemingly pull money out of nowhere. The allusion to the lottery or casino is apt indeed.

:book:

Posted: Mon Jan 12, 2009 9:44 pm
by DWill
Thanks for the resource. I'm still not sure what those who buy these derivatives are getting, so some of this mystery remains for me. Is all this stuff a little bit immoral, or is that my puritanism speaking?

I was thinking about my last post, and one thing I'd add is that we common people are not necessarily the victims of the financial mess, the biggest part of which was caused by bad mortgage debt (right?). We might be part creators. I mean that in any situation when the final decision is ours, we can't say that some "predatory" lender was responsible. If a lender tells me I qualify on $80,000 annual income for a $300,000 house with little down, it's still my fault if I sign the contract and then can't make payments later on. I've taken on too much housing expense relative to my income, and I should know this. The gleam was in my own eyes.

Posted: Tue Jan 13, 2009 10:31 pm
by Grim
I am interested to what degree the American economic system with all its financial instruments reflects other characteristics of the "Americans" as people and as an empire - if you will excuse the blanket cultural stereotyping.

:book:

Posted: Wed Jan 14, 2009 1:44 am
by giselle
DWill wrote:Thanks for the resource. I'm still not sure what those who buy these derivatives are getting, so some of this mystery remains for me. Is all this stuff a little bit immoral, or is that my puritanism speaking?

As I understand it, investors do not "get" anything when they engage in the derivatives market or in the related futures market in a material sense. They enter into a contract, so they are acquiring a contractual right for a certain price. That's all they are getting, a right. The value of the right will vary over time according to changes in the market for rights of that type and so the contractual right will be bought and sold according to what the investors believe is in their best interest.

Posted: Wed Jan 14, 2009 8:44 am
by Thomas Hood
giselle wrote:As I understand it, investors do not "get" anything when they engage in the derivatives market or in the related futures market in a material sense.
I thought real estate derivatives were like bonds and paid interest. Others were more speculative, like options.

Tom

Posted: Wed Jan 14, 2009 10:29 am
by DWill
Grim wrote:I am interested to what degree the American economic system with all its financial instruments reflects other characteristics of the "Americans" as people and as an empire - if you will excuse the blanket cultural stereotyping.
I'm interested in that, too. Phillips does give Great Britian some "credit" for financial innovation, too, though, back in the 80s.

A guy was on public radio the other day talking about the continuities of the current crisis with other episodes of financial crashing in earlier American history (pre-Depression). Maybe there is a strong American character link in all of this.

Posted: Wed Jan 14, 2009 7:10 pm
by President Camacho
First off, this book seems like it was well researched, written hastily, and has an agenda.

I'm pleased with the book candidness about issues concerning the worst president ever, little georgy bush and his 'Imperial hubris'. Understatements and misstatements are the hallmarks of his administration. Mission Accomplished georgy!

Leadership can't be blamed for this is garbage. Republicans have a long history of running up debt and allowing big business supreme leniency and succor. Look at the national debt produced by Regan, Bush, and Bush. It's fact. One after another. R-e-a-d m-y l-i-p-s : THEY SUCK.

Electing any member of either party "wouldn't be prudent."

You know this man is a political writer. It shows in his work despite his confession and although I am with him 110% - it takes away from his work. Any emotional arguments or heavily opinionated views in non-fiction writing undermine the non-bias, factual, make your own assumptions style of non-fiction writing that I prefer. To read this book is to hear a man, complete with disheveled hair and clothes, beat a stack of papers while standing on a soap-box screaming we need to change or else.

Where is the calm, matter of fact style of the person who really knows what it's all about. I feel like I'm being pulled rather than led. This man is a heated outsider for sure. Well, at least he was able to pump out another book toting his particular views.... not that I don't share them - which i do very very very much.

Anyway, enough about his writing style. It is what it is.

The securitization schemes seem to be where everything went wrong. I probably have this completely wrong as I don't know anything about this.. but it seems like bad mortgages were grouped together and sold based on some value - the veracity of the value, I'm sure, was questionable.

Then, as some derivatives are based on loans - some people might have gambled that the groupings would be worth a certain amount at a future time - in essence they bet on the value of the loans or how likely people were to pay them back. The banks sold loans to people they otherwise wouldn't because they also sold the risk to the people who bought derivatives.

At least, this is what I'm getting so far. This guess is akin to Colonel Mustard did it in the library with the candle stick.

The debt that this country is accumulating without producing is a no brainer for anyone on a fixed budget. I've been thinking about this ever since we went to Iraq. I've looked at our spending - it was set to be trillions - and no one was a bit concerned.

This is the big house doling out the cash - the house that all our houses are inside of - that is racking up a huge debt. It made me extremely nervous to see our money being spent so stupidly. It was a huge transfer of wealth. To know that the oil companies were pissed and colluded to raise prices is questionable, though truly believable and justifiable.

I'd like to think we did it to ourselves. Oil is a scarce resource and there was money to be had. If the financial sector got this out of control, what was to stop them from making exorbitant sums on oil?

Also...what better way to not pay off a debt than to raise inflation? You could have a war for 1/2 what it cost if you just devalued that hell out of the currency. I'm not saying that this is what happened but why not? I wouldn't put it past little georgy.

The part of the book where it talks about pegging our currency to oil was poignant in Phillips argument that finance is what we're sure is the future of America, not manufacturing. I'm not at all convinced that finance isn't the future. Sure there was a hickup but that's nothing a little oversight can't fix.

Poor companies sell their natural resources, the next rich sell what's produced from natural resources, the next manufacture, the next high technology, and probably the last is finance. We're trying to ensure hegemony by controlling the world's money. That's not at all a bad thing.

By pegging our currency to oil we raised the value of our currency. I believe it's called the dutch disease. It was named because the dutch did something similar that destroyed its manufacturing sector. We probably did the same thing but on purpose - the disease was self inflicted.

Except, the deals coming undone because we aren't keeping the dollar strong enough. We're sliding backwards. Maybe this is what needs to happen, maybe not. I don't know.... and I'm not convinced that Phillips knows either.

"Twenty First century risk turned out to be spread and distributed in a negative rather than a positive way." Money was being created that really wasn't there. Incomes were falsely stated, loans were given out based on that information, bad loans like these were grouped together, sold, and maybe insurance was taken out on them. Risk was being spread by banks, privateers, and the insurance industry. Everyone had a piece of sh*t on their plate.

Meanwhile, houses are getting built and the economy is booming because of all this IMAGINARY money. The American dream was coming true for almost everyone. - except those duped into buying these derivatives.

The gamble was fine - the odds weren't as described... At least this is what I'm seeing.

I think the reason no one new was because of it being too late. The consequences were too severe. It would be like the Fed saying "America is broke" the day after 9/11 happened. I think the market was doomed and there was almost nothing that could be done to begin a reversal - there was only time to ride out the storm. The pessimists, COULD and probably are wrong - they're probably overstating a very minor problem - it can't be that bad. It's our economy's equivalent to global warming. The costs to change are just tooooooo high.

Posted: Wed Jan 14, 2009 9:36 pm
by Grim
"It's also 'bad' to promote an overbearing financialization of America's economy and culture, lesser versions of which in both U.S. and world history have led to extremes of income and wealth polarization, a culture of money worship, and overt philosophic embrace of speculation and wide-open markets."

Here the open market is identified for the philosophy not the precise science it is. The pseudo-scientific maxim that the markets are self-regulating natural systems, where participants engage collective intelligence to foresee downturns or poorly designed instruments motivated through self-interest and personal preservation. Depending on irrational humans to behave rationally seems to have its short comings.

http://en.wikipedia.org/wiki/Reflexivit ... al_theory)
DWill wrote:I'm interested in that, too. Phillips does give Great Britian some "credit" for financial innovation, too, though, back in the 80s.
"The British acted first, electing in 1979 a Conservative Party government that chose free-market lioness Margaret Thatcher as prime minister. She immediately embraced a program of minimally fettered capitalism, and over more than a decade in office largely implemented it."

I feel that financial innovation will increasingly become a dirty word, essentially meaning a new way to profit that has not yet been fully understood or controlled by the regulators. The only "credit" I see Phillips giving to others comes in the form of a warning to the present day Americans about the factors and causes of fading global economic/cultural/military power dominance. Perhaps you can provide a quote or example at your own leisure, or is the quotation of "credit" meant to indicate your sarcasm?

:book:

Posted: Thu Jan 15, 2009 9:05 am
by DWill
Yes, those are the quotation marks of sarcasm.

Posted: Thu Jan 15, 2009 9:24 am
by DWill
Comacho"You know this man is a political writer. It shows in his work despite his confession and although I am with him 110% - it takes away from his work. Any emotional arguments or heavily opinionated views in non-fiction writing undermine the non-bias, factual, make your own assumptions style of non-fiction writing that I prefer. To read this book is to hear a man, complete with disheveled hair and clothes, beat a stack of papers while standing on a soap-box screaming we need to change or else.
My reaction is different. I didn't hear the partisan tone that you did. I still see Phillips as hard to classify politically; in this--and reputedly in his other books--he bashes liberals and conservatives both, doesn't he? Political party doesn't seem to matter to him much. Notice how he deflates the lone Democratic administration of the past 30 years as he also skewers the Republicans. Like you, I've always focused on the government's yearly deficit and total debt, but Phillips tells us that the private debt that has metastisized is the origin of our current crisis (which of course he isn't reporting on, but he must be satisfied to see his predictions borne out.) It was Clinton, according to him, who really greased the wheels of the financial industry and got into bed with these guys (yeah, where are all the women?) in a major way, he says in Chapter 2, resulting in the enormous growth of private debt. The success Clinton had in balancing the budget in his last year was largely attributable to tax revenue from all the high finance.

I'm glad Phillips has a strong point of view in the book and doesn't try to be merely a reporter. This stuff is not in itself that interesting to me and badly needs some coloring.