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Read with an open mind and don't be sheep. Paul Woolley is almost 100% on point, as far as I'm concerned.
Yeah. As far as I'm concerned if trading in certain derivatives does nothing provable to enhance market efficiency but adds quantifiable systemic risk then there is zero reason why those products should be allowed to trade.
The article amplifies something that Michael Lewis had also brought up in a piece I had posted a while back "The End of Wall Street" about the usefulness of CDS.
Michael Lewis was basically saying when you purchase bonds of a company you are actually helping to finance that particular company raise money for new capital equipment, raising salaries, making investments, but with the rise of CDS you're basically just making sidebets on the company that have the same financial exposure while providing no such financing to the company. Add to the fact that for every $1 in bonds there's about $20 in CDS exposure pre-2008 so rather than using derivatives to "hedge" as they were originally intended to, you just amplified the amount of financial risk in the marketplace.
Thanks for whoever gave me a SB.
Feels nice to be loved :P
Maybe not an outright crisis, but the people who depend on that soup kitchen for food would surely not be too happy about that.
But if prop trading at a bank seizes, minus the bank itself, no one outside of the bank is affected one least bit.
It's funny, but Patrick sent this to me yesterday and suggested I might like to argue against it.
After reading it, I couldn't.
Really Edmundo? While I thought it was a well written piece, you could easily see the authors leanings based on some of the statements and examples used. While I read it last night and don't feel like going back to find more.
His covering CDS didn't cover the whole story. He attacked people who may not be bond holders and were purely speculators, but he also failed to discuss the other reasons a person would want to take out CDS on a company--mostly they have credit exposure, even though they don't hold any of the companies bonds.
Criticism about banks shorting something that a client wants to buy?---I am 100% with the banks on this, what are we supposed to say, "we are short this security, oh but DB and Barcap are long" At the end of the day 50% are long and 50% are short.
When they were criticizing the pension funds for doing something that saves money but "has not benefit for society"....saving money for the teachers, and autoworkers, ect no benefit to society?
I also think I had a problem with his writing about liquidity, but I forget exactly what..I think he just had some really bad examples.
As a liberal-leaning moderate, here's what I don't get...
1) Financial innovations usually create private returns 2) Many financial innovations do not make a positive contribution to society, and in fact may decrease total welfare by hurting parties not involved in the transacation
Therefore, these financial innovations create negative externalities.
3) Activities that create negative externalities and reduce overall welfare are socially unproductive 4) Pigovian taxes are an effective instrument at discouraging socially unproductive behavior
Therefore, a pigovian tax would be an effective way to discourage the use of some financial innovations
5) Most people on this site bitch about the govt. increasing taxes on the rich, from the perspective of people in finance
How would people feel about increased taxes not on the wealthy, but on profits from financial innovations that are socially unproductive? Would this be more or less odious to the libertarian-leaning folks on here than banning them outright?
Did I miss something? Feel free to poke holes in this.
if we didn't have wall street we wouldn't have gordon gekko ...can you picture a world with out gordon gekko? NO YOU CAN'T
Agree with Gekko. I'm all for being open minded, but respectfully disagree with various points.
Some good points are raised but I think some arguments are on the extreme side. Financial innovation is what made the steam engine go from being a nifty little invention to the the fuel by which our world runs. If it weren't for large allocators of capital like the Rothschild or Barings banks, the industrial revolution might have taken a whole lot longer (you can argue that's a bad thing if you want, but I take a benign of most technological change). These guys were making money hand over fist, a lot of people were complaining, but they weren't exactly posing systemic risks to 19th century society.
Fast forward a century and things have changed somewhat. The author of the article is right to suggest something has gone wrong in the past 30 years. The loosening of regulations and the Greenspan put have been major contributors to the past few boom/bust cycles and have lead to excessive financialization, creating systemic risks where previously there were none. I don't have any specific solutions, but repealing some of the "advances" of the past few years and a shakeup at the Fed might be in order.
As far as compensation goes, a golden opportunity for a real shakeup was missed. Had banks been allowed to fail, you can be sure that compensation practices would have changed. While parts of Wall Street are worthless, they are allowed to exist because some parts of Washington D.C. are worthless.
While there are some good points, I disagree with many others. It's hard to respect his arguments when he has no financial background besides financial journalism. Some of his statements reflect just that, his ignorance to basic concepts or just outright bias- probably both.
what he is attacking in this article is not the traditional investment banking business, he sings the praises of raising capital for growing firms and providing financial advisory... his problem with bank's sales and trading practices , and I cant say I disagree with the vast majority of his points. very well written article as far as critiques of wall street go.
Article has some valid points, full of false statements and logical flaws tough. Will tear apart tmrw.
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