Not sure if you guys saw this piece in New York Magazine, but check it out if you haven't. It's no secret that our business has taken a beating over the past couple years, but has the face of Wall Street changed permanently? It's an interesting thesis, and the author lays out what he found in the following video. Has Wall Street been emasculated, or will it come roaring back with some new innovative toxic product like it always has?
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Some parts aren't coming back. Trading has generally taken a beating, and probably will never return to the employment levels of 2007. Between the Volcker rule, decreasing spreads, and the growth of automation, it is a slowly dieing industry. If not for these macro trends, I would be trying to get a job on a trading floor- it's much more interesting than IB.
General advisory work will rebound, as always. The incentives that cause mergers still exist, and companies will always need to issue debt/equity.
We'll see a new toxic asset or bubble when main street decides to make one. I thought commodities would be the next bubble, but that deflated rather quickly. Maybe China/EMs? I could see Chinese companies easily becoming the tech stocks of the next decade.
I wouldn't underestimate Wall Street. And I certainly wouldn't discount the propensity of Americans to borrow and borrow and borrow.
I wouldn't lay my slightest concerns for an article written by a guy who wears a $300 suit. Time to read LSO's DAMN IT FEELS GOOD TO BE A BANKER again.
lol. So true.
I'm sure you wouldn't loan consideration to what this lady says b/c of her clothes? She's worth about 1.5 billion and could care less about pathetic ad hominem attacks...learn from this
http://images.forbes.com/media/2005/10/worst_1.jpg
I'm sure you wouldn't loan consideration to what this lady says b/c of her clothes? She's worth about 1.5 billion and could care less about pathetic ad hominem attacks...learn from this
http://images.forbes.com/media/2005/10/worst_1.jpg[/quote]
Who is that?
My thoughts on the interview: Why does HE look like he just pulled 3 straight all-nighters?
http://www.rollingstone.com/politics/blogs/taibblog/why-wall-street-sho…
Taibbi wrote up a pretty harsh response to the article, that has a fair bit of merit in my view. Yes, Dodd-Frank is having some effects, but so is the implosion of Europe.
I thought her attitude was somewhat overly counter to the OP's article. She was right on the money as far as Europe being a risk but she assumed that nullifies the other author's concern about Dodd-Frank. Her quotes need to be taken with a grain of salt because those executives, due to the business they're in, are obviously upset about Dodd-Frank whether or not they tell her that. That doesn't mean that Dodd-Frank is ruthless to Wall St necessarily, but rather that its ending some very, very good years for these firms and they have every right to be upset about that.
With that said, I'm tired of the argument that wall street is overpaid. Who gives a fuck? So is Paris Hilton and she sits around making sex tapes. If you want to make more money, get off your ass and do it. Don't complain that other people aren't working hard enough for theirs.
I don't know if I would trust anything non music related coming out of The Rolling Stone. If it ain't in The Economist of Business Week I don't want to read it.
And a large chunk of NYC's tax base comes from the financial sector so before the proletariat begins to squeal with schadenfreude delight over bankers making less money, they need to realize the implications it will have on the city and overall economy.
You're right, let's deregulate some more and let Wall Street run wild doing anything they want, regardless of the consequences, just to make sure that we have a nice tax base during the boom times.
So let me understand your point. Regulations can only be effective when the government starts trying to influence or dictate pay packages?
People don't care about proper regulation. They only care about making their straw man feel pain. Unfortunately, they do not realize that these "egregious" pay packages funded the city and national coffers.
These guys seem to be excited about the downturn as it affects Wall Street. Class envy and class warfare seems to be rampant in this country. Very sad.
First off, I find it emasculating to look at, much less read, New York Magazine. Second, who the fuck watches Yahoo! News? And third, while everything in this is true, I wouldn't say WS as a whole got boned in compensation. I think compensation shifted. Lots of Hedge Funds, VC firms, PE firms, and prop trading firms have popped up the past 4 years that recruited talent from WS and their salaries are as big as they've been the last 8-10 years, sans some firms losing money (and in some cases, even firms losing money has partners and EDs bringing home big paychecks).
Increase in regulation on public institutions will always affect employment numbers and salary/bonus figures at those institutions. Nothing new here.
Very true. Regulation only pushed the money and trading ops elsewhere. If you ask a couple of my friends who are in trading they would say "All the true capitalists went to hedge funds where the government doesn't interfere." Those guys are still renting our chateaus on their vacations. We as finance professionals just need to stay flexible in our services lines. Go where the money is.
I think the Volcker rule is going to be the biggest choke point on the industry. I started my career in late 2007, when the when the financial orgy was still rocking. Being in the trading, I remember being absolutely blown away by the revenues generated by many prop desks. The majority of the record profits were being produced by a very small number of guys. Fuck, I knew a top MBS sales guy that was clearing $6MM a year. Pretty young too. Now banks can only engage in a market making capacity or ring-fence their trading ops. Profitabilty is definitely going to be constrained.
The dude looks like crap.... must have been a rough night.
I agree wholeheartedly with elephonkey and ANT. Finance is a meritocracy, or at least it was before someone came up with the bright idea to impose a restriction on prop trading. People like to criticize people in Finance for making a lot of money, but no one criticizes basketball players like Kevin Durant who contribute nothing to society except allow people to let the latest game wash over them while they down Budweiser or Paris Hilton and Kim Kardashian who make millions by making "reality shows." People like to blame Wall Street for the housing bubble, but I remember telling a friend long before 2008 that the idea that you can go into a bank and borrow ten times your income to buy a house and actually sleep at night and think that that's OK is ridiculous. I mean, I remember not too long ago when you stuck to a 3 to 1 ratio in buying a home, so that if you made 50K, you would buy a house for 150K or less. Then people got stupid and decided to buy a 500K home on a 50K income. I mean, how dumb can you be to even sign a contract like that? Those same people who signed that kind of contract that I knew was ridiculous long before 2008 should have known better, yet would just as soon delight at Wall Street making less money due to regulation after they shot the themselves in the foot.
Bah, finance is not a meritocracy, it never was and it never will be. Kevin Durant and the Kardashians don't get to blow up the world economy and then get tax payer funded bonuses for doing it.
Remember that banks were the ones pushing and accepting liar loans. Without Wall Street there would have been no such thing as mortgage backed securities.
How dumb can you be to not understand paragraphs and sentence structure?
Quit drinking the Kool-Aid, bitch.
Ummm...no.
Finance was a meritocracy until those least deserving of merit (Citi, Wells Fargo, State Street, Morgan Stanley, JP Morgan Chase, B of A, Goldman Sachs, and BNY Mellon for starters) were bailed out at taxpayer expense. Whine all you want about meritocracy, but if banking were a meritocracy Lloyd Blankfein would be selling pencils out of a tin can in Times Square.
I think it's unfair to be throwing Wells Fargo and J.P. Morgan into this group, IMO. The others, sure
No one is regulating pay, what are you talking about? Your accusing people of straw men arguments while making one yourself.
I don't give a fuck if a trader gets paid $50 million for making his firm a fuck ton of money, that's his job. I have a problem with products being created by banks that have catastrophic effects on the global economy when shit hits the fan.
Maybe you didn't get it, but I was being sarcastic in my initial reply to you.
I cannot watch this interview. I can only listen to it. The way that guy looks would scare little children.
@evilbyaccident and @Edmundo Braverman: You missed the entire point. I never said that the bailouts were right. I don't believe that taxpayers should bailout a financial institution. I do however, have a problem with people shirking responsibility. Yes, the banks created mortgage backed securities. Yes, they created credit derivatives. But if you think that the borrowers weren't being stupid too, you're the one that's nuts. My father had a number of coworkers who were strolling into work bragging about how they had bought a huge home on a relatively small income because "everybody was drinking the KoolAid." They are some of the same people who would delight at new "regulation" to get back at the bankers that they did business with but they were OK with at the time getting a "steal."
For someone who is likely in Finance himself, I would think you would be more defensive of your own industry rather than taking the side of the responsibility shirkers. You would defend them but yet you would have not turned down a bonus during the bailout year (2008) and said no thanks. You would have gladly taken the bonus and spent it on yourself, family etc.
Also, as ANT points out, much of the proceeds from banking/Finance in NY goes to the tax pool and supports the very infrastructure that NY city residents benefit from. 40 percent of our GDP comes from Finance. Of course, since we have no shortage of grown people who have an IQ that is too low to comprehend basic economic principles, it's hard for them to see that. They just want to see their "straw man" slaughtered similar to the old days when people were stupidly burned at the stake. No logic to it. It would however appease the masses. Haven't you ever heard? A person is smart. People are dumb, dangerous and ignorant and you know it. Some of the same people who would destroy your bonus pool are the same who are dumb enough to believe Bill O'Reilly on Fox when he tells them that they can reduce their chances of dying from a chemical attack by putting duct tape on their windows. Stupidity knows no bounds. And these are the people that you side with?
I'm on the side of logic and reason, not people who would just as soon burn Finance ppl at the stake without full knowledge of all of the facts. These are the same ppl who see no problem in having taxes paid to the IRS in the amount of half their earnings. When someone in Finance manages to pay less than 15 percent in taxes, they're up in arms. As one candidate said, you should be trying to figure out how to elect someone who is going to get EVERYONE's taxes down to 15 percent. Instead, the class warfarers would rather pay 30 percent and raise everyone else's taxes up to that level too. These are the same ppl who want to hit Finance with pay restraints and heavy regs, not because it's reasonable but because it amounts to a shot in the chest against those who are more successful.
For the record, I'm only peripherally "in the industry" to the extent that I'm the head writer for the greatest fucking investment banking website on planet Earth. I retired from trading in 1999, and I find very little worth defending about the industry any more.
I guess you could say that I'm something of an anomaly in that I never received a penny in salary or bonus during my career in finance. I was paid 100% off my P&L - what you might refer to as a true meritocracy - and that's why I have so little sympathy for Excel monkeys who make 6-figures for high-level data entry (that doesn't mean I don't love you guys). Just in case you think I'm full of shit, here's an old-school weekly pay sheet of mine:
This is very true, and it's estimated that every investment banking job in NYC pays for 3 jobs further "downstream".
The statement of nyc taxes builds infrastructure is very true, but quite possibly one of the most misleading statements ever.
wall street conducts its business in lower manhattan, and in the midtown area. Most bankers live nearby or in those areas as well. Hence the nice infrastructure. So yeah, they pay taxes and the infrastructure is nice. and they benefit from that. However, there is a gross lack of infrastructure in the bronx, and outer boroughs. Your statement implies that the ghetto benefits somehow from then financial sector(and that ultimately it is in the ghetto's interest that the fianncial sector be in healthy shape), when in reality it would not make a difference to the other four boroughs if wall street totally collapsed. The ghetto, and suburban areas would be just as fine, or just a shitty. Midtown would be a shit hole however. but that would not make a difference, to the people who live in harlem
So 40% of nyc's gdp comes from the financial sector, and 40% of it gets spent on nyc's financial sector's infrastructure. The only resident's that benefit from those tax dollars are bankers that live in the fianancial district. The financial district was the first to have its snow plowed within a few hours meanwhile, the outer boroughs had to shovel the street's themselves after three days of no snowplows. after all The banker's had to get their precious little asses to work in order to fuck the greek economy.
Also you have factored out the amount of jobs the financial sector destroyed. These were jobs that were there even before the boom. people that got jobs from 20 years ago are getting paid the same amount or are getting laid off, while expenses rise. This is all so that goldman sachs collects a fee every time bernanke buys a bond to inflate the currency so that the market rallies.
i still think its too early to say---
with the volcker rule still very much up for discussion, i think it's critical to see what shapes out from this--- even if Obama gets reelected (if they push back the deadline for Volcker and republicans get control of the senate) then it really could drastically change --- the comments have been quite interesting to watch
see this article ---
http://dealbook.nytimes.com/2012/02/15/the-volcker-rules-unusual-critic…
Personally, I find it depressing to even think about. The last thing I want to even fathom is possible greater difficulty in getting hired in S&T. Or even harder to make money assuming you're in it. Nevertheless, as someone mentioned, hedge funds are untouched by regs and will likely play a greater role in attracting S&T talent.
TraderDaily:
First of all: no one is talking about government mandated pay restrictions.
Second: Something tells me that you don't truly understand the causes of the financial crisis.
--The insane lending by mortgage houses like WaMu and New Century was made possible because they could pass on the loans to the big banks who then securitized them
--The securities created by the big banks supposedly "removed risk" from the equation by chopping everything up into smaller and smaller pieces. In reality, it just took risk and spread it throughout the system, setting us up for disaster
--Rating Agencies, in a bid to grow their revenue and profitability, threw rating standards out the window and put investment grade ratings on just about any MBS or CDO or CDO^2 that came through their door
--Additionally, AIG wrote CDS protection for virtually every security created, knowing that it could never in a billion years cover them in the event of a catastrophic failure (i.e. what happened)
--Therefore, these securities were rated as highly safe, sometimes AAA, instruments which were gobbled up by major institutional investors who are required to hold securities of a certain investment grade. And, why buy treasuries when you can buy higher yielding CDO products of the same investment grade?
--Therefore, an immense demand was created for more and more of these mortgage-based products. Mortgage originators at the bottom of the market saw how much money and margin could be made on them and felt relatively safe because they could pass them on to the banks (and then onto investors.) Therefore they did anythign and everything to give everyone they could a low grade mortgage. They lent to anyone under the sun, even when fraud was apparent. Blowing up the housing bubble to heights unheard of.
--All of this led to our inevitable collapse. In mid-2007, the Ratings Agencies did something unprecedented, over the course of two separate days they issued mass downgrades of (at least) dozens of mortgage-backed securities, shutting down the market for these products overnight. Now, mortgage lenders, banks, AND institutional investors were stuck holding paper that had become completely worthless virtually overnight (in reality, it had been worthless for years, but the financial casino that Wall Street had become failed to do its job.)
--Suddenly, banks began to fail and AIG was called to cover positions it could not possibly have ever covered in a million years. yadda yadda yadda, we got TARP and literally trillions of secret loans from the Fed to banks and other international corporations in the US and internationally.
--In the end, mortgage houses, banks, and AIG made catastrophically bad decisions, and we paid for it. We might see a fair bit of TARP itself paid back, but not the backdoor bailout to AIG, and lord knows the effect of the trillions of secret loans the Fed gave away at near-zero % interest.
You can blame "irresponsible borrowers" all you want. But, at the end of the day, it's a fuck-ton more complicated than that. If it were just a bunch of shitty borrowers, we wouldn't have had 1/1,000,000th the level of systemic risk we had. If the banks did their fiduciary duties, we wouldn't have had shitty borrowers on any kind of scale in the first place. If the ratings agencies did their jobs, pension funds and others wouldn't have demanded the MBS and CDO products. If AIG had any control whatsoever, we wouldn't have had to bail them out to the tune of billions and billions of dollars.
I highly recommend you read the front section (at least) of the Levin - Coburn Report on the Financial Crisis. You can find it here: http://www.levin.senate.gov/newsroom/press/release/us-senate-investigat…
And before you say "that's a bunch of liberal crap," note that Tom Coburn is one of the most conservative dudes in the Senate (and one of the best.)
In conclusion: stop spouting off at the mouth just because you want to work on Wall Street. Our inability to self-reflect as a society will be our downfall.
King, first let me say that I completely agree with and appreciate your layout of events in the above post. However, I have one big problem with the quoted passage above. The insane lending required a market of lenders AND buyers, and what others are saying is that had these borrowers had some common sense and borrowed within their means, WaMu and New Century wouldn't have had any market to sell to.
AIG's infamous CDSs, the scum of the earth that we call Credit Ratings Agencies (seriously, who the FUCK thought that private businesses, who were paid to rate financial instruments, couldn't become corrupt?!), and CDOs all made the problem infinitely more damaging to the economy. But those instruments in and of themselves were not the core problem, they were just compounding it. The initial problem was that homeowners were still taking out loans they couldn't afford.
No loans = no bundling, no rating, and no insuring. And we'd all be in a better place if people would man up to their actions when they tried to live the baller lifestyle on a towel boy's salary.
I'm not going to take a partisan side in this by making the ridiculous argument that bankers are not at fault for ruining the economy. They most definitely are. But homeowners and the quote/unquote 99% who act as though banks are the SOLE reason we're in this mess are nothing short of ignorant fools. Irresponsible entitled attitudes in this country are just as much at fault.
This is exactly what I was saying earlier. Banks are partly at fault, however, without people who were irresponsible enough to find nothing wrong with borrowing 10 times their salary to buy a house that they had no business moving into in the first place to impress their friends at the housewarming, the banks couldn't have gotten away with what they did in the first place. No borrowers would have meant no loans and no toxic derivatives.
Eh, you are a little offbase. We wouldn't have had the absurd oversupply of mortgage loans without the highly rated CDO products that were created from them. After the initial kick-start of lending that led to the creation of CDOs in the first place, investors demanded more of the high yielding "safe" CDO products. In order for more and more of these CDO products to be created, more and more mortgages was necessary. Thus, the WaMus of the world did anything and everything they could to lend to more and more people. Standards reduced even further so as to fuel the machine. A machine, which was made possible because of the perceived safety of these high yielding CDO products.
Without the CDO products and their absurd ratings, they housing bubble wouldn't have been nearly as large because the lenders would not have had anyone to pass on their risky loans to. Therefore, they wouldn't have made so many of them.
In summary, I conclude with this, a point I have made for years now:
--Financial products such as CDOs, CDO^2s, and CDS covering these products acted as AIDS, crippling the health of the global financial system through extreme systemic risk. The housing bubble and subsequent mass downgrading of the relevant CDO products was the global financial system catching the equivalent of pneumonia.
Remember, AIDS doesn't kill you, it only weakens you to a point that a common illness can. That's what happened here. People need to put aside their ideologies see things for what they were.
Eddie,
A bit random but all this CDO talk got me thinking. How's the LendersClub WSO CDO doing? Any updates?
Since my last update, one of the remaining nine loans got paid in full, and two others are in the grace period after missing their scheduled payment.
To the people in this thread blaming poor people for accepting loans they couldn't afford, get real. They were sold the idea that home ownership is the path to prosperity, a sure shot at upward mobility. People in a position of power, those with significant amounts of money, education, and influence (read: the financial services industry), essentially used the under class to jack up their own bank accounts.
This is akin to selling crack to kids.
Blaming sub-100 IQ people about buying homes they couldn't afford is the stupidest thing I've ever seen. "Lets market long term home loans to people with low-future time orientation, low income, & low net worth." We're blaming stupid people for being stupid?
Also, are people actually attempting to say that trading is some sort of major economic activity? Secondary market trading has very little value to a GDP standpoint (and arguably reduces GDP growth to proliferation of systemic risk). One can also make the point that massive salaries in trading reduce actual GDP growth by siphoning the best/brightest into that profession over high tech/heavy industry (ie: real wealth generators for our economy).
I 100% agree with you. See, you cannot blame people with low IQ's for making bad decisions. You also cannot allow them to make decisions. Freedom is only for intelligent people. If you are going to allow morons to be free, you have to allow them to suffer the consequences.
If you want to punish banks, you also need to punish people who cannot make intelligent decisions on their own. Make decisions for them.
Oh wait, that is the secret core of the liberal agenda.
Jesus Christ shut up with your liberal vs. conservative nonsense already, it's nauseating. You talk as if there is a strict dichotomy with no overlap between the two. I think most sensible people would describe themselves as fiscally conservative and socially liberal.
That is a terrible analogy. This is nothing like selling crack to kids. Crack is an addictive drug and kids are unable to make a well thought out, mature decision. Last I checked, mortgages aren't addictive and do indeed require a well-informed, well thought out decision beforehand by an "adult". Perhaps selling mortgages to children is the analogy you were looking for? Because the result of that scenario, if you think about it, would be the same as what really happened.
We have a cut-off of 18 years of age for adulthood in this country. That doesn't mean people are mature enough to be called adults at that age, but the cutoff had to be somewhere. People taking out mortgages MUST BE 18 and thus are legal adults who are RESPONSIBLE for their decisions. Did people, i.e. wall street, take advantage of those adults' poor decision-making? Yes. And they really fucked up in that regard. But so did the homeowners who thought their inevitable foreclosures wouldn't be an issue.
Who cares if Bill Clinton started a mass movement with Fannie Mae to get everyone a mortgage? That doesn't give everyone a right to be stupid about taking out loans. Bill doesn't care whether you default or not. No one does. Where did self-responsibility in this country go? I don't even have the fucking right to vote yet and I am more responsible than half the nitwits that call themselves American adults. It's pathetic. [/ANT]
What's wrong with blaming stupid people for being stupid? Oh that's right, we must prevent them from realizing their own failure of intelligence! No one can fail! If little Jimmy (or his dad Billy Bob) thinks he's a failure, he'll slip into depression and kill himself! We can't have that!
Or maybe – just maybe – telling little Jimmy that he didn't do a very good job would make him try harder next time. Instead of telling Jimmy that he deserved an A but it's really the teacher's fault that he didn't get one, we could tell him that it's all up to him to get that A. Then he'd learn how to work hard and improve his intelligence instead of just sitting in his own sheltered world of stupidity.
The marketing of loans to poor people was incredibly stupid on the part of the government (and banks thereafter), but those people had no business walking into their local WaMu branch and signing on a loan. I don't watch OxyClean commercials and believe that my life will improve from its stain-cleaning power as much as Billy Mays (rest his soul) lets on. People need to be more responsible for their actions, whether its buying 10 bottles of OxyClean or signing a home loan.
As to your second point, I completely agree with you. Secondary market trading has little proven benefit to our GDP. But if everything had a benefit to overall GDP and we didn't have competition within, we'd be no better than a socialist state. To those intelligent enough to make tons of money without producing any tangible product, I say more power to ya. Until the tech sector catches up as far as compensation goes (and it seems they're approaching quickly), people will go where they get the greatest reward for their hard work and brains.
consulting never looked so good to be in....YES
All of these accusations are missing the key reason and facilitator behind all of the events leading up to the financial crisis:
The government
Subsidizing loans through artificially low interest rates, the Bush administration actively encouraging banks to lend to borrowers who weren't credit worthy, endowing ratings agency with a monopoly on ratings thereby indirectly allowing institutional investors to get lazy with (or forego altogether) their diligence, among a host of other things.
Yes banks played a role, but ultimately they were just a vehicle for government's policies. When you think about it, it's crazy that banks have been demonized while the U.S. government has been able to skirt criticism to a large degree.
If anyone needs regulating, it's the US government.
Completely and utterly agree.
Very true statement. But like others on this site-highly ,misleading. Proponents of your theory, point to the community reinvestment act and ACORN policies, and also point to the roles fannie and freddie played in securitization, as well as the fed policies. But you forget the part where most of the loans made were not by firms under that regulation. Furthermore those who accepted the loans where old they could refinance. and when they went to do so, the banks simply said no. Thats straight up deception.
As far as the interest rate issue, you forget here that the banks have complete control over the fed(not written on paper, but thats the truth). They own stock in the fed, and jamie dimon is on the board. back then it was sandy weill. To say they didn't advise bernanke/greenspan to purposely keep rates low so they can trick people into falling for the Refinancing deception would be foolish/ignorant.
You think ts 50/50 main street/wall street its more like 80/20 wall/main respectively.
there is no reason why these banks should continue to operate. They fucked the american economy, they fucked he geek economy, and then get bailed out 100 cents. while everyone else gets .1-1 cent. its quite disgusting actually.
you wanna fix the problem, end all regulation (fdic, etc) and knock out the fed. problem solved.
Once again, glad the bankers aren't making shit, and are getting laid off. hopefully it continues this way in IBD. And i think it will, because the people have simply had enough. The riots/protests all over show it. Add this to rising food prices, created by the fed, (so that goldman collects a fee everytime he buys a bond) and you've got a recipe for disaster.
We're on the same page. If you read into your statement, government is ultimately the source of the problem in that they are the one's with the power. Yes, the financial industry does wield tremendous influence over government via the Fed (a corrupt and immoral institution, IMO) and other means (such as lobbying). Yes, I agree that the American people got the shaft when it came to the bailouts - but again, it wasn't the financial industry that bailed itself out - it was the US Treasury. The banks that held the toxic assets should have been allowed to fail, I agree (this is America for God's sake!). But government made the decision to step in, and thus the party continues.
We can shit on the financial industry all we want through regulations and the like, but the only way to create real change is to start at the source.
Also, remember that back in the late 90s, then CFTC Chairwoman Brooksley Born wanted to regulate derivs. But, Wall Street, Robert Rubin (then Treasury Secretary), Larry Summers, Alan Greenspan and Arthur Levitt (then Chairman of the SEC) did not want them regulated and discouraged/blocked her and the CFTC from doing so. A large amount of the current regulation taking place today is more than 10 years behind with the damage already done.
I usually avoid the whole politics/ideology of the bailout discussion as I'm not American, but participate in your markets... I feel compelled to comment this time though.
Ant,
Financial markets don't work without proper regulation/rules (Yes. Greenspan & his Ayn Rand religion were/are wrong). You can't overcome asymmetries of information and the inherent conflicts of interest in securitisation without proper regulation/rules and you can't have market discipline unless you are willing to allow all of the losers (the big banks, GS, MS, JPM, ML, Citi, etc...) to fail/be restructured as there is no doubt that they would have. I can't see how you can rationalise a safety net for the guys running a ponzi scheme (that's what the CMBS markets had turned into this by 2006/2007) and complain that the guys the banks screwed were at fault, especially when we all know the asymmetries in information involved. It's disingenuous or you don't know what the issues are/how that market functions. Anyone who has actually been involved in these financial markets knows that that is a recipe for disaster.
The regulatory environment that allowed for transforming a wonderful and potentially socially useful financial technology (Securitisation) into a ponzi scheme didn't come about by accident or by some Trotskyite government interventionism, rather by explicit lobbying by the banks and their Ayn Rand following apologists (Greenspan, etc...) to ensure that the rules were inadequate... the CFTC episode that TraderDaily posted about above is an excellent example of this... the view that the banks were just a vehicle for government policy just doesn't jive with the history of how these markets came about and the banks proven ability to influence the rules of the game.
You seem so hostile and disturbed about people not blaming borrowers (they guys who are actually suffering for their mistakes & for abuses from others in many cases), but don't show any form of disdain for the guys who have actually screwed you over as a taxpayer/citizen. Its quite amazing to me. I don't understand the inconsistency. Is it because the banks are corporations, so you can't feel anger towards them? This is probably the point I'm most curious about.
I don't see anyone giving regular citizens a free pass... Last I heard the US government wasn't making people whole on their underwater mortgages... they reserve that kind of socialism for bank bondholders and equity holders.
[quote=Relinquis]
Financial markets don't work without proper regulation/rules [/qoute] financial markets work fine without regualtion.thank you very much.
Do you want to have an intelligent discussion about this? Why don't you start by defining "work fine"... What do you mean by it... Price discovery? Efficient allocation of resources?
You need rules / regulations to stop market manipulations, tendencies towards monopolies, etc.... All of these things are horrible for price discovery, efficiency in allocating resources and other measures of markets "working fine".
We can argue about the role of government, the independence of regulators and how these may lead to distortions and such, but to say that markets work fine without regulation is to not understand the nature of markets. They are social constructs and are based on rules whether it is social norms in a Turkish bazar or those of an electronic exchange.
A Relinquis vs. canyonman battle is an exciting proposition. Not sure about either of your educations on the matter, but hopefully they're halfway quality so this debate is somewhat informational.
i'm just a silly misinformed stem major at a nontarget :(
Thanks for clarifying your what you mean by works fine. I have two key points really.. this might disappoint those looking for a Relinquis Vs. Canyonman pissing contest as I think we may end up agreeing on a lot considering your other posts and I'm not looking to get into such a match anyway.
There is no such thing as unregulated markets. There is no such thing as unregulated markets. There are markets where the participants set the rules through their balance of power/interaction and others where society (or rather powerful actors within society, e.g. citizens, governments, legislators, regulators, social norms/culture, etc...) have set the rules for others to abide by. This is why societies have rules against monopolies and collusion and why exchanges impose margin requirements and such... Markets are social constructs. We know what efficient markets look like and the conditions for them. We also know when markets can take care of externalities and when they can't. People can argue about what rules/regulations are better, but not that there aren't any.
The case of securitisation: Were the markets efficient? In the case of securitsation (leading up to the 2006/2007 peak), the creators of the securities had oligopoly power due to their size, asymmetry of information and implied Greenspan Put (now government & fed backstop) and the system was riddled with conflicts of interests due to how the market had evolved*. In such a scenario it is not surprising that the banks set the rules such that you will always have bad outcomes i.e. less efficient allocation of capital and risk (in particular systemic risk, which is an externality not born by the market participants...).
As an example, when I buy a put option on a stock I know that I am paying someone to take the risk of a particular movement in the price. I don't have to worry about the counterparty risk (due to the market having proper rules) and neither does society. There is no negative externality and there is no asymmetry of information (I'm not screwing the guy who I bought the option from because we all have the same info about the stock, volatility, interest rates, terms of the option, etc...). It is a transparent and properly regulated market. This was not the case with the securitisation market. When you have asymmetric information, "risk" doesn't get transferred to who can bear it/who wants it. Instead, it gets transferred to whomever is less knowledgeable/has less info.
I think proper regulation could have helped manage the conflicts of interests and asymmetry of information better as well as in managing systemic risk (i.e. a risk that doesn't get managed when well you have asymmetric information and opaque securities). The systemic risk was clearly not managed well by the system.
Whether it is possible to get to such regulation through the US political/legal system is not something I can comment on with any certainty. Your guess is as good as mine... It is clear that the conditions for efficient markets (no oligopoly power, perfect information, etc...) were not present and wouldn't have/didn't come about naturally as the market formed.
happy too debate with a mature person. I'm squeezed on time right now and will expand on my arguments tomorrow or later on. i read through the material below and is well put together and quite solid.
I disagree. There may be no such thing as unregulated markets, but there can be. The way market regulation occurs is when a given party (that gathers enough power through POLITICAL means) convinces other market participants that they ought to pass laws governing the market so that it becomes free from manipulation. this usually comes about and is presented to other participants in a deceptive way. The way one can gain power through POLITICAL means for example is by creating a problem that was not previously there and then promise a solution to said problem. That is deception. The very premise of that persons rise to power was flawed to begin with.
Again free markets can exist but you don't allow them to.
Societies have rules which are built upon a flawed a premise to begin with.
No, the markets were not efficient in pricing securitization. But you can't hold that against me. You said yourself the free market does not exist. I'd argue if we had a free market interest rates would have never been manipulated and would've been allowed to float. If the market dictated the interst rates, the market fundamentals would not have been distorted, and the banks that should have been allowed to suffer a run on the banks, collapse would have never given out those loans. The reason they were mispriced again was because the fact that the govt. created a significant distortion tot he fundamentals. Thats the govt's fault not the market..
The oligopoly, you speak of, had come into power because of the lack of free market again. The FDIC was an example of a terrible regulation. It allowed these banks which should have went out of business due to a run on the banks to continue to stay in power
YES, because the POLITICAL power given to them, by distrorting the fundamentals. thats a problem with law, not the markets.
Market participants agree to trade on the CBOE and agree to the rules. That works fine. I'll have to research if its a govt. imposed regualtion. The distortions and asymmetry of information are created by a lack of free market, Not the presence of it.The market will demand the information transperancy and will price the asset according to the lack or surplus of certainty or uncertainty. The govt. regs create a moral hazard by pretending that they in fact will block out the asymmetry and create an artificially high price. The reason it trades high is because the participants EXPECT the govt. to breakdown the assymetry But in reality they can never do that. thats on the govt. not the market. If the govt. take away all laws that governed info. inbalances the market would want ot have nothing to do with those securities, and sell em' off. The incentive to be transparent, would be to raise the price of the asset in the market.
Let's say there was no sec laws about quarterly filings and a company decided not to disclose info. to investors. Then in that case they would never be able to raise money in the markets. the comapny would be forced to disclose info if they want to raise money. And if they decided not to, then the stock would be sold off.
However you have a system in which investors rely on the regs put in place. The regs suck and so the security trades artificailly high, after all the SEC has got laws in place don't they?
The systemic risk was created by regulation. They put up barriers to entry which blocked out competition. The free market would have the sorry asses of these bankers on the street years ago. Instead the government regualtiory framework nurtures them and keeps them in power.
Again, we'll debate more later i'm pretty squeezed right now lol. This will be interesting. glad to see a solid debate being put forth.
Quoted in GSElevator: #1 The top 1% pay 40% of the nations taxes, so technically, we bailed us out.
thats strange last i checked the bankers weren't making anymore then your average doctor or engineer, in some cases the local plumber was pulling in more these clowns.
i guess ignoring the other 60% is perfectly acceptable, yeah makes sense.
Ona lesser note, i saw the list your referring to. Its quite comical that the clowns at GS, still think their the shit. Even after their firm reported losses, even after they got 0 bonuses, even after there asses are getting laid off. But yeah somehow there still big shots to be working at GS for slightly more than a plumber. I guess the difference is made up in the fact that the plumber, didn't need a bailout.
Stop worrying - work, get paid, wait for the next bubble and milk it.
Boohoo, I only got USD 125k in cash. It's election year! The spotlight is on the banks, FINALLY they are doing something about it not to attract all that shit attention. All the banks have lined up and are loading employees with shares. Guess what, some smart bank is going to decide to re-start paying in cash in a couple of years. People will start going to that bank, and all the other banks will have to align themselves. And soon that share non-sense bull shit will be over with, and represent only a meager part of your compensation.
Oh, and while I forget - everybody's base salary got doubled and tripled. What the fuck do you expect is going to happen? Bonuses will get larger after that? When even non-producing wankers are getting paid big bucks?
Now that Dodd frank bull shit etc... Some banks will suffer, some other will emerge stronger and squash the American ones. The big banks are struggling, leaving the spot for smaller brokers still paying cash... And finally, New York is not the only place in the world, so unless you are a mindless twat who cannot move anywhere else, you will be joining the hords of expat bankers who have left their countries to work in Dubai / Hong Kong / Moscow (even London as it's less fucked up than New York at the moment).
That's my 0 cent, I don't give out money, unless you got a double D.
No and you are absolutely right, London also is smaller to NY in comparison. And the US IB arms are still much bigger in comparison to other countries. But all said and done, you still have plenty of other countries that are unscathed, and one only needs to take his head out his ... to realise the potential elsewhere.
Also, I really don't see how anyone argues that systemic risk was created by regulation. I just don't even know how that's a serious position.
elephonky,
It's not a Chicken & Egg problem. Mortgages in and of themselves are not systemically dangerous instruments. Mortgages are loans/bonds... You should be able to default on them, go bankrupt, restructure or whatever and not bring down civilisation. Securitisation without proper safeguards does have the potential to take mortgages and create securities that do cause systemic risks (CDOs, CDO^2, CDS, etc...). The kind of things that when combined with the oligopolistic structure of big banking can bring down the financial system.
I think you need to read up a bit on how these securities and their related markets function.
As to solutions to the issue... that's a bit more complicated... we could have a separate thread on that. I can raise the main issues there if you want.
Well said. I have trouble being that succinct at times. Exactly right.
Here's the solution: Bring back Glass Steagall, make it so banks can fail, and ensure that anyone selling CDS has the capacity to cover them in the case of a catastrophe.
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