I’ve already covered that elsewhere, but my opinion based on my observations of the market is that the total money lost in the last crash was primarily driven by the CDS house of cards collapsing in on itself. I know you disagree, but you have every incentive to do so given your career and training.
Which is why, incidentally, it’s hard to take your explanations completely at face value, despite your experience in the field. Conflict of interest and all.
My conscience is clear. I don’t see how you can sleep at night seeing all the people you’ve killed with salmonella, not to mention the fact that you are responsible for the bird flu crisis and all the deths fom that. Murderer!
[/quote]
Do you think you’re joking, or do you legitimately have me confused with the actual chicken farmer with a completely different name upthread?
I’ve no problem with short sales, but I’m adamantly against short sales on the margin whether it’s stock or CDS or whatever. There’s a profound difference between “I’m betting against this and I have the money to cover it if I’m wrong” and “I’m betting against this, and I can totally cover it when my IOUs come in, honest, you guys.”
Specifically “naked short selling” or “naked shorting”. You can sell short and have the ability to cover. Naked shorting is a much more questionable enterprise.
In fairness to the banks, I haven’t seen any figures higher than an estimated $67 trillion or so for the entire market with naked swaps being something on the estimated order of 80%. The most recent estimate I can find (being lazy) is around $26T outstanding as of mid-2010.
The problem with that, of course, is that the CDS market is unregulated to the extent that all of those figures are essentially estimates.
But as usual, you can’t be bothered to actually grapple with it.
I’ve come to the conclusion that there is nothing inside your sorry skull but a bucket of liquid shit and a superior attitude. Must be hard to manage the latter, given the former, but you seem to pull it off quite well.
The GNP is around 16 trillion. That is all the goods and services in the whole country in a year. One bank , BofA, sells 75 trillion in SWAPS. It is fantasy banking. They sold insurance they could not pay off. if your local insurance company did that the government would have ended it quickly. But the bankers got SWAPS outside the purview of insurance regulation by coming up with a nifty name for them. They had enough political power to get away with it.
How our big corporations evade U.S. corporate taxes: Google’s “Double Irish/Dutch Sandwich” with a side of Bermuda.
Check out pp. 14-16 at this link for the above text, and a very nice diagram of this flimflammery. Why in heaven’s name would any of us be upset at how our betters run our world?
Thanks to investment guru Barry Ritholtz for the link. (His blog is one of my regular reads, even though I have no interest in investing in anything besides an index fund.) I’m sure our Little Lord regards him as just another pig in the wallow, too.
The fact that I’ve never heard of either of those sites may mean that these are not good sources. Anyone else got a better source for this information?
http://www.thenewamerican.com/economy/markets-mainmenu-45/9536-big-banks-shift-their-derivatives-exposure-onto-us-taxpayers
Bank of America 75 trillion
Morgan Chase 79 trillion
Total amount of derivatives is 40 X the entire stock market
10 X the value of every stock on the planet
23 x GNP
Just imagine how much money the people who wrote the SWAPs made?
When Brooksley Born testified about the dangers of unregulated derivatives, Greenspan, and the other Libertarian /anti regulation groups mistreated her badly, claiming she did not understand the market is self regulating. They stripped her of any regulation powers and ridiculed her.
Apparently this is directed at me because it contradicts something I said. that is???
Oh… Only a total idiot invests in index funds. It’s pretty simple really. In 1999 the biggest component of the S&P was tech… Right before it crashed. At the end of '07 the S&P was something like 21% financials… Right before they crashed. Since most indexes are market weighted you will always be putting most of your money into the most overvalued, bubble type of assets, and the least amount of money into the most undervalued assets.
The strategy of an index investor can best be described as “buy high, sell low.” Best for the investor that wishes to ensure that they step in front of every bus.
Secondly, index funds play poker while showing their hand. If, on Friday, XYZ gets added to an index, this is, by definition, common knowledge. Intelligent investors will be the stock in advance, driving up the price, waiting for Friday when each and every index fund must buy it. This can create tracking error between the funds and the indexes they are trying to emulate, which means your fund does worse than the index.
To combat this, some index funds don’t even own the underlying securities of the index, or exchange a portion of them for derivatives. The funds need to keep cash on hand for redemptions, so they have to buy dome even odder derivatives to make up for this. These derivatives mostly just track on a day to day basis, but don’t handle gap up or down movements that can happen over night. To try to combat this they buy other derivatives… You get the idea. Tracking error is a real issue. At some point in the near future a couple of the more esoteric index funds are going to be likely to collapse as a result of their inability to compensate for their compensations.
But hey! I’m glad you’re investing in index funds. You deserve them.
Me, I personally pick my stocks for investment with a little bit more intelligence than the random predefined mediocrity and both barrels of the shotgun in the face of any market correction that you get with an index fund.
For example, i put a predefined percentage of my money into stocks from certain lists I’ve produced.
One such list is simply stocks that have raised their dividends for 25 years or more. Companies that do that tend to be stable, have good management, sustainable markets, and consistent earnings.
On a ten year basis that list has produced an average annual 10 year return of 7.35% versus the S&P of 1.41 (data as of dec. 31, 2010.). The list is just my starting point. I work a few more screens in, and I tend to do a little bit better than that.
But hey! You are really smart you buy indexes which means you base your stock choices on popularity as the sole criteria.