$3.6 Trillion Loan and Securities Losses in the U.S.
So estimates Nouriel Roubini's RGE recent newsletter:
As for the first point, just what are these "unsecuritized" loans?
No support for toxic assets!!
Nouriel Roubini and Elisa Parisi-Capone of RGE Monitor release new estimates for expected loan losses and writedowns on U.S. originated securitizations:It goes on with more, but I want to point out the second bullet point. It is my strong view that these "losses" should be treated as gambling. They should not be covered in any way shape or form by government bailouts or investments. Every dollar "lost" was "gained" by someone else. Broker dealers or banks which speculated or over-leveraged must pay the piper.
- Loan losses on a total of $12.37 trillion unsecuritized loans are expected to reach $1.6 trillion. Of these, U.S. banks and brokers are expected to incur $1.1 trillion.
- Mark-to-market writedowns based on derivatives prices and cash bond indices on a further $10.84 trillion in securities reached about $2 trillion ($1.92 trillion.) About 40% of these securities (and losses) are held abroad according to flow-of-funds data. U.S. banks and broker dealers are assumed to incur a share of 30-35%, or $600-700 billion in securities writedowns.
As for the first point, just what are these "unsecuritized" loans?
- Back in September, Nouriel Roubini proposed a solution for the banking crisis that also addresses the root causes of the financial turmoil in the housing and the household sectors. The HOME (Home Owners' Mortgage Enterprise) program combines a RTC to deal with toxic assets, a HOLC to reduce homeowers' debt, and a RFC to recapitalize viable banks.
No support for toxic assets!!
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You are starting to scare the hell out of me Eds.
I do not have any answer to this mess.
"Even if the Treasury TARP plan is implemented fairly and efficiently the US will not avoid a severe U-shaped18-month recession and a severe financial and banking crisis: the recession train has already left the station in Q1 and the financial/banking crisis will be....
First the recession started in January of 2008 so this statement is predicting a total of 30 months of recession.
Second, the extent of these losses noted by you, might change our entire definition of not only recession but the definition of recovery.
Anything would look better than this. I think the golden age of the Clinton era may never be seen again.
January 22, 2009 6:37 PM | Reply | Permalink
If the hell gets scared out of you, does that leave you in heaven or simply with the free will to act effectively without excess fears? :-)
I think the 18 months started in Dec 2007, not Jan 2009. Can you show otherwise?
If it's only a recession, at least it won't have been a depression! When things look very dark is often the point at which those who have left their fears of hell behind seize the moment.
The main point, possibly lost in the large font, is that I am strongly against shoveling government money into banking systems and banks etc., esp. to cover gambling losses. "promote the general welfare" does not mean "provide welfare". This not so fine point in the Constitution distinguishes welfare from "the common defense".
I can only hope that Obama's team will be bolder than they have shown so far. But I feel despair. Can you scare the hell of out me in return?
January 22, 2009 8:17 PM | Reply | Permalink
No I said 2008 jan--but, no,I cannot scare you.
You appear to be the economist. I keep thinking of the deflation of the real estate markets. But real monies were lent. Are you saying that the money has to be somewhere?
The mortgage liens represent an asset. But if the asset has deflated in value the liens might be more than the asset is worth. The asset plus costs of sale, fix-up, filing costs, legal fees, other superior liens like RE taxes.
When I think about billions--to switch subjects--paid out in bonuses at the time of the crash, with full knowledge of the crash. When that number has been set at 125 billion of the 350 billion in the bailout so far--there has been monumental theft never seen in our life times or any lifetime. You pointed out 3 billion just in regard to Merrill Lynch.
Lets say I have a home worth 150 gs and my first mortgage is 100gs and I have a second mortgage of 45 gs. Now my home is worth 110,000. I already spent the money. The value of the second mortgage has been overplayed by the bundling people. the first bundlers took the profit.
The last are left holding the bag.
There are five or ten steps from first mort holder to the last bundle.
Every person/entity that took a percentage has/had the money.
What a mess.
January 22, 2009 10:14 PM | Reply | Permalink
It's just "cash flow". When you bought your $150K house, the bank gave money to the seller via you. It got the money from depositors. Then it got some money from MBS investors to replace the depositor's money. It took fees or commissions along the way, so it's doing okay. The seller made out like a bandit in 2005-2007, you got screwed on paper but at least have a house, and the MBS investor has paper which if marked to market is trash but as long as you keep paying off the loan gives the investor cash flow and the hope of it being paid off down the road.
Now if you default, the investor suddenly has no cash flow and effectively owns a property which is worth about $40K less than what the investor in effect paid for it, and you are out your down payment and any payments you'd made along the way. The investor has no idea what to do with the property, and doesn't really own it since the MBS was like a bond issued by the bank (which does own the property once foreclosure is complete). The bank doesn't want the property either, but it doesn't want to sell out cheap either.
Where it gets really complicated is if the investor took out "default insurance" for some fee to some insurer (sometimes a bank, or just some "counterparty"). Then either the investor is covered and the counterparty is screwed, or the counterparty cannot pay (under capitalized or fly-by-night) and the investor is screwed as the counterparty goes bankrupt or moves to some country without extradition and living happily ever after on the collected premiums paid for the insurance policies. I understand that some of these "policies" are over 100 pages long, and they aren't all that standardized so they probably have idiosyncratic terms throughout.
Where it gets crazy is if other people took out default insurance on the same MBS. Then you could have 10 or 100 people all going to their insurance companies to get paid off, just because you defaulted. (Of course an MBS is usually not just one mortgage, so "you" is a group of bad loans).
These "collateralized debt obligations" or CDOs, and CDSes too, are part of the "derivatives" scene, part of the "casino" aspect of Wall Street which I call "gambling". This gambling should NOT be bailed out at all, because any bailout money simply flows to gamblers who represent a cancer on the economy.
I don't know how to get money back from BAC, Citi, et al. In some cases we have "preferred stock" but not all that much. And the warrants we "purchased" are basically worthless if the bank fails (tho' they might convert to stock in a reorganized version of the bank).
January 23, 2009 12:45 AM | Reply | Permalink
They're privatizing the gains and socializing the losses.
January 22, 2009 7:54 PM | Reply | Permalink
It sure seems like that, but each loss was someone's gain, so we're also underwriting those past gains by socializing these current losses.
Some people believe that "mark to market" is creating artificial losses. If that's so, then there must be a huge amount of "hidden assets" somewhere on the books of those institutions showing massive losses. If that's not so, if it is rather just self-serving spin combined with ignorance, then the assets aren't there.
I don't know enough to figure this out, yet.
Conservation of money means gain + loss = 0 (except for the Federal Reserve).
What are the real losses these "banks" are claiming?? Who has all the money which represents the respective gains and what are they doing with it?
January 22, 2009 8:34 PM | Reply | Permalink
It's been suggested by both the left and right that systemic changes in the banking system and trade are the main components that need to be addressed in order for the economy to have any real chance of recovery, with long-term stability.
January 22, 2009 8:00 PM | Reply | Permalink
Can you say more? Trade deficits spread US wealth abroad and some think this is key somehow.
I don't see how anything except regulatory abuses by Cox and Donaldson needs to be fixed. Maybe repeal parts of Gramm.
January 22, 2009 8:26 PM | Reply | Permalink
What changes in the banking system and trade? Did the "left and right", or you, offer ideas? I've never read anything but acceptance of the fractional reserve banking system and the Federal Reserve from the Establishment of both the right and left.
January 22, 2009 8:28 PM | Reply | Permalink
I just wanted to review this again this morning.
I wish pseudo would have shown up. I think you hit on something eds which is clearer to you and a partisan like me. There is much here that has little to do with left/right.
Gambling. Why would left or right want to support gambling on this scale.
Management (banks, mort cos, corporations, hedge fs)
has become so powerful visa vis the shareholders and regulators that they have made out like bandits.
Assets cannot be defined anymore. It cannot be because they are too complicated because the computers we have can store and spit out info so fast and on such a level I cannot see how an expert could get lost. So there has to be a way to fix the books feloniously and a way to discover the conduct.
I do not think, that the economic team in place in the Executive Branch, that partisan thinking is going to trump reality.
Everytime someone brings up 1982, I remember that I saw this in 1979 when real estate peaked and the bubble burst. (maybe cliches are the problem here) and I really did not see--even in the midst of run away inflation--and increase in home or land values. Which means that the 'real value' of land went down until it began to increase again in the 90's. That is just a man on the street perspective because I did a lot of real estate transactions.
I hope I have not bored you. You must feel like a college professor trying to explain something to a third grader.
January 23, 2009 8:21 AM | Reply | Permalink
No, DD, I feel like I recently graduated from kindergarten when it comes to economics and I'm struggling with college level ideas for the first time in decades. If I oversimplify, don't take it personally, set me straight! I very much appreciate your attention to my blogs and comments!
I started paying attention in Sept. last year when I feared that hyper-inflation was looming (and I didn't trust Paulson's manifest fascism to be good for me). Well, despite the Fed flooding us with dollars over the past year or so, prices have stabilized or are coming down at least in the short term. (Oil and other commodities, for whatever reasons, went way up until mid-2008, then most fell very fast (gold is still up near its highs). What all that money will do once a fundamental bottom has been found, I don't know. It could compete with my limited savings ... for scarce future resources.
I think 1979 was largely due to oil price manipulation since 1973 leading to a flight to real estate driving up those costs. Volcker tried to rein in price inflation by raising interest rates further, and that pretty much explains the main parts of 1980 and 1982 to me. I'm not sure how much of that was under Carter vs. Reagan. But Reagan's "cure" surely gets credit for a large part of our situation (ongoing large deficit spending).
I disagree about assets, at least "financial assets". If a CDS is an asset (like an insurance policy might be an asset), and it takes 100-150 pages to describe it, you have to admit that it is a complicated asset. But there is a valid question as to whether insurance policies are assets at all. Clearly they should not be called "real assets" unless they are like Whole Life Insurance which is a combo of insurance and investment. Does insurance contribute to GDP?
See also my recent blog for a note about Happiness.
Is the bold thing to spend like there was no tomorrow (timescale: decades) or it the bold thing to NOT use deficit spending to cushion the economy, rather to use it to speed a recovery after the hot air quotient has been further reduced?
January 23, 2009 3:54 PM | Reply | Permalink
Twenty million jobs created under Clinton-serendipity or not. A net 1 mill under Bush? Job creation has to have something to do with this as well as stagnant wages. What has the worker lost; one or two thousand since 2001?
Democrats are always for job creation. I think philosophically the reps want more competition for jobs--a higher unemployment situation. That has always been the crux of the idealistic struggle.
Without more jobs, how could an economy grow? You cant buy anything if you are unemployed or underemployed.
So now the New Prez is talking about 3-4 million new jobs in 2 years. It sounds like a Dem and that sounds good for me.
Start out spending a lot on job creation and see where it leads in conjunction with normal swings in the market.
January 23, 2009 4:15 PM | Reply | Permalink
I think you replied re "what is more bold.
There are supply side and demand side job creation tactics. My view is the you don't just create jobs in a vacuum because if there is no demand then you're just paying people unemployment to shovel dirt from one hole to the next. So a proper stimulus doesn't create jobs, it creates demand for labor which then leads naturally to job creation.
In addition to jobs which produces income, there is also investment (savings) which can generate current or future income. Don't forget that Baby Boomers and other retirees will not have jobs but will consume.
I'd like to see less future taxpayer money be used more effectively to stimulate domestic demand for both jobs and investment. I don't see tax cuts doing either, tho' they might soften the decrease and thus reduce the number of jobs lost. However, I don't see a guarantee (or even good argument) that a tax cut like what it being discussed will work in the short or long term!
January 23, 2009 6:53 PM | Reply | Permalink
eds - An unsecuritized loan is a loan that has not been securitized. (sorry to be sarcastic but I was confused by your question)
I don't think Nouriel's referring to CDS exclusively. I think it's more about the corporate debt out there.
And every dollar lost is not gained by someone else.
For example, JPM, Goldman and a bunch of other banks loaned Cerberus/Chrysler billions of dollars for Cerberus to buy Chrysler from Daimler. That money has gone poof and no one is on the other side of that trade "gaining" anything.
Same thing for Ford, Lyondell, Nortel, Realogy, General Growth, Circuit City, Linens N Things, lots of homebuilders, lots of building products companies, etc etc etc. If a lot of these companies dissolve, then you are not going to see a lot of "winners" from the people that own this debt
I don't agree with the "gambling" comment. It was certainly loose lending but I think gambling is a bit harsh. I know people have said "gambling" as it relates to CDS, but I don't think Roubini's article was focused on CDS. (But I couldn't find the entire original article so sorry I couldn't read it)
January 24, 2009 3:13 PM | Reply | Permalink
It's not just CDS, but CDS is a key part, Bill.
O had posed: "just what are these "unsecuritized" loans?"
The question is: What are these specific loans or loan types?
Your ignorance about money is astounding. Chrysler money didn't go "poof", it flowed to Daimler in your example. Similarly, the people who sold overinflated houses at the peak of the bubble made out like bandits. They gained from what became the current mortgage losses (whether by fraud or simply due to shifting market forces). Money is conserved, except at the Fed (or if you burn currency to light cigars or if you are a counterfeiter).
Gambling refers primarily to side bets. It is said that one could bet that someone else's loan would default. Since the bettor had no material interest in the real assets involved, I see "gambling" as exactly correct, and it fits the "casino" notion applied by others.
The Roubini "article" was an email, but I did link to his site for background.
BTW, my blog post here did not mention CDS either. Please reply correctly if you want to argue detailed points from other comments.
January 24, 2009 4:35 PM | Reply | Permalink
Ignorance? No, I'm afraid not.
It's not a simple zero sum game as you put it. You can loan a company money and they use it for general working capital and the money can get eaten up in losses. Daimler didn't make out like a bandit if they spent that money and it didn't generate returns or they used it to fund losses.
You keep asking who as the money and what are they doing with it? It's not that simple.
And as far as CDS - I brought it up because that's usually what people refer to when they use the word "gambling". Tt's no more of a bet than buying a stock or an equity option. You can sell calls and puts on a stock without owning the underlying stock. Should we outlaw stock options too?
You can also sell or buy protection without owning the underlying loan or bond. But what's wrong with that? Shouldn't someone be able to sell protection on IBM's bonds without having to own the bonds? As long as they're posting sufficient collateral (and that's the key question) I don't see why someone can't sell protection without owning the reference security.
And does someone need to own IBM's bonds to buy protection? What if you own bonds on some other IT company in which there is no CDS market for that bond. Buying CDS for IBM is better than no CDS protection at all.
January 25, 2009 6:52 PM | Reply | Permalink
Here is a link which might help you appreciate "gambling" as I use it:
http://tpmcafe.talkingpointsmemo.com/2009/01/24/how_america_embraced_lemon_socialism/index.php#comment-3350236
Read Ellen's link in that thread too.
January 26, 2009 1:31 AM | Reply | Permalink
I'm not sure who wrote that quote you posted about "dirty float" but if CDS' are done under a normal ISDA contract, then collateral gets posted and both sides of the trade know exactly how much collateral has been posted.
I agree you didn't use the term "zero sum game" but you think all the winners are sitting on money somewhere. And I'm saying that's not true.
Whether it's a company or a house-owner that sold at the top of the market - yes they had a lot of cash at one point but Daimler could have blown it in their business and the person who sold their house could have used the proceeds to build a new house that's no longer worth the cost to build it. And the "suppliers" that sell things to Daimler or the house builder are also hurting right now. They're not sitting on any hidden piles of gold.
January 26, 2009 6:27 AM | Reply | Permalink
No, I have not said anything to justify your remark that I think "the winners are sitting on money somewhere".
I do believe they are, but that is irrelevant to the point that people who bought securities which are now showing as real losses bought them from people who sold the securities at high prices and got money for them. Conservation of money. The seller transferred the future loss to the current holder of the security.
What Daimler did with the money they got is not relevant to the point either, unless they used it to directly short Chrysler somehow (a second order effect).
January 26, 2009 3:27 PM | Reply | Permalink
If it's not ignorance you're just trolling, Bill.
I didn't say "zero sum game" and I don't see where I said Daimler made out like a bandit (but in hindsight they may have sold Cerberus a pig in a poke).
I don't keep asking that.
I didn't suggest outlawing CDS (or options etc). Please learn to read what I write.
Making a bet on someone else's financial bet is gambling, period.
As a matter of fact Goldman Sachs took AIG to the cleaners last year. And Paulson, former head of GS, covered those bad bets, obviously made with insufficient collateral.
January 26, 2009 1:22 AM | Reply | Permalink
You realize that you are quoting a guy who's job is to sell research and risk analytic services. He likes to get people scared that the world is coming to and end and often likes to exaggerate on the CDS market
January 26, 2009 1:42 PM | Reply | Permalink
I did not quote him as if it were gospel, Bill. I quoted him to set a context for my remarks. But if you don't have anything to counter his "gloom and doom" view, then you're effectively admitting his projection as close enough to work with.
You're really rude, Bill.
January 26, 2009 3:21 PM | Reply | Permalink
I do have something to counter it and I'm not being rude. I think that the amount of collateral that needs to be posted is sufficient and gets marked to market each day. I don't see how it's gambling. But if you think that shorting a stock is also gambling then I can't argue with that.
You are astounded about my ignorance of money and I'm truly honored. But what Daimler did with the money is completely relevant. The same way that what someone did with their CDS gains is also relevant.
January 26, 2009 6:32 PM | Reply | Permalink
What Daimler does with the money it gets from a trade has nothing to do with the trade itself. What a store owner does with the money you pay for a retail item has no bearing on the purchase. Money is conserved.
The amount of collateral re AIG et al was manifestly NOT sufficient, or we wouldn't have been asked to bail AIG out. And betting on other people's bets is also gambling. Options and futures are a kind of regulated gambling. Naked short selling is market manipulation and should be highly restricted.
I've explained "gambling" a number of times. Please don't reply if you're not going to pay attention to my blog and comments.
January 27, 2009 2:40 AM | Reply | Permalink
I am paying attention but I just disagree.
I didn't say that companies can't go bankrupt buy selling CDS protection. Unless you fully cash collateralize the trades, that can always happen. If the buyer of the protection doesn't require sufficient collateral or if the credit worthiness of the seller declines for other reasons then the buyer is in trouble. People buying protection know full well that they are taking counterparty risk
But whether we should have bailed AIG out is a separate issue than how it got screwed up in the first place. And I would have let AIG fail (for what it's worth)
But that doesn't mean that the CDS market is broken or gambling any more than buying shares of common equity is broken or gambling. I bought shares of stock yesterday - I guess I'm a gambler too.
Under your definition you wouldn't give any government money to any "gamblers". And basically every financial institution gambled in your mind so there wouldn't be any TARP or any one off rescues. I'm all for letting one-off firms fail but letting the system fail (especially back in the Fall) would have been a disaster
January 27, 2009 6:31 AM | Reply | Permalink
No, you're not disagreeing, you're merely being disagreeable, and stupidly so when you equate investment with gambling.
January 27, 2009 7:12 PM | Reply | Permalink
How is buying a stock investing but buying protection is gambling? In my eyes they're both placing a bet. You buy a stock - that's betting the price will go up. You buy CDS - that's a bet a company will default. They're all bets at the end of the day.
January 27, 2009 8:44 PM | Reply | Permalink
They all involve risk. That doesn't make gambling=investing. Use a little middle class common sense, Bill.
January 27, 2009 10:26 PM | Reply | Permalink
I am using common sense. But please explain to me the difference between me tomorrow buying $100 shares of IBM and buying CDS for IBM's bonds. Today I own neither the stock or the bonds. How is one investing and the other gambling?
January 27, 2009 10:28 PM | Reply | Permalink
Please consider the difference between investing capital in a growing business with a sound business plan, and going to Las Vegas to play roulette, if you need an archetypal distinction.
January 28, 2009 3:43 PM | Reply | Permalink
"Please consider the difference between investing capital in a growing business with a sound business plan, and going to Las Vegas to play roulette, if you need an archetypal distinction"
Thanks for again ignoring my question.
Are you saying that buying stock in IBM is investing capital in a growing business? Last time I checked, if I buy IBM stock I am just giving money to the person who sold the stock. IBM doesn't benefit at all.
I'll stop asking the question since you are clearly ignoring it. But if you think buying CDS protection is gambling that you must also think buying IBM stock is also gambling. It's fine to think there both gambling. I just have a problem if you think there's a distinction between the two.
January 28, 2009 4:50 PM | Reply | Permalink
Where have I advocated bailing out IBM stockholders??
You're just offering trash talk when you aren't just denying my answers to the questions you've asked.
January 28, 2009 5:33 PM | Reply | Permalink
You didn't suggest bailing out IBM.
I was asking why you consider buying CDS to be gambling. I don't see it any different than buying equities. But if you consider buying stock "gambling" too that's your opinion.
January 28, 2009 6:00 PM | Reply | Permalink
Not all CDS is gambling. I never said it was. But that doesn't mean that no CDS is gambling either. And I remind you, again, that you brought up CDS as a distraction.
"buying" isn't quite what one does with CDS. There are two parties. If you think of it as insurance, you can think "buy insurance". And as I pointed out, aftermarkets are not primary markets.
You're really just not paying attention to what I've been saying, Bill. Over and over again. And when I give you simple clearcut distinctions, you brush them off.
What's with you??
January 28, 2009 6:24 PM | Reply | Permalink
I am paying attention but don't agree with your characterization of CDS as "gambling". I don't think buying protection without owning the underlying is "gambling" anymore than buying the company's equity would be gambling.
I did not bring up CDS as a distraction. Here's your quote from above (which preceded any of my comments on CDS):
These "collateralized debt obligations" or CDOs, and CDSes too, are part of the "derivatives" scene, part of the "casino" aspect of Wall Street which I call "gambling".
So you say you didn't bring up CDS and gambling but you did. It's part of this blog and I was commenting on your point.
I don't agree that any CDS is gambling. Unless (as I already said) you think that buying a stock is gambling.
January 28, 2009 6:54 PM | Reply | Permalink
Here's what you're asking - "Who has all the money which represents the respective gains and what are they doing with it"? And like I said, Daimler pissed it away. The guy who sold his house in 2006 before the crash used that money to pay down his big credit card balances. And Amex then used the proceeds to make loans that people couldn't pay back. The money is all over the system and isn't sitting with "one person" who's wondering what to "do with" their money.
January 26, 2009 8:38 PM | Reply | Permalink
Your tangential non-factual fantasies no longer interest me.
January 27, 2009 2:41 AM | Reply | Permalink
Wow - those are big words. I will need to use my dictionary on "tangential".
Is "non-factual fansasy" redundant?
Either way, if you don't want to support "toxic assets" that's fine. We'd been in a much bigger world of hurt without the TARP.
And if you want evidence that tax cuts work, just look at what happened after the corporate tax cuts in 2003 - tax receipts as a % of GDP grew to over 3%, the highest level in the last 20 years.
January 27, 2009 6:18 AM | Reply | Permalink
"We'd been in a much bigger world of hurt without the TARP."
That might be your religion, for all I know. Maybe you prefer slow almost endless torture to getting the pain over with quickly, so it's not religion but some kind of perverse hedonic principle you're got going. Why not just deal with facts and truth?
January 27, 2009 7:26 PM | Reply | Permalink
We are dealing with facts and truth. It's going to be slow and endless torture no matter which route we go. There's no magic bullet to getting "the pain over with quickly"
But I didn't mean to stray off the original topic, which was trying to explain to you that there are not a group of people/companies/funds that are hoarding all the profits that were made from the other side of these trades. Everybody's hurting right now from a global decline in asset prices
January 27, 2009 8:37 PM | Reply | Permalink
You don't have to explain your fantasies to me, whether they are factual or fictional. Your fantasies are not facts of interest to anyone but you. Yet you keep posting them here. Shrug...
I for one am not "hurting" from price deflation, and in selfish moments I'd hope for further decreases in price of things I consume. Anyone with cash from having sold their house or inflated stocks a while ago is also doing okay, at least until inflation hits. So you're just not making sense at all.
January 27, 2009 10:22 PM | Reply | Permalink
The "hurting" I was referring to is that what people own today is worth a lot less than what it was worth a year ago. Therefore they are hurting with much less net worth and don't want to spend anything they have left. They're not doing OK if they bought a new house or new stocks a year ago and their portfolio is down 50%.
January 27, 2009 10:35 PM | Reply | Permalink
Market capitalization is imaginary value, so it's imaginary pain if it's pain at all. If the companies are sound, it's a good time to invest more in the stock. Or better yet, invest in venture capital or IPOs. You get the idea?
Housing market values are irrelevant to homeowners in a home they bought to live in. And if you have to sell your house to move, the new house you buy will also be at a low price, so no big deal (in principle; it's more difficult in practice since most mortgages are not transferable). But in any event the person who sold to you at the top of the bubble made out like a bandit compared to you, which is what I have been telling you for days now. That's why I think you're not paying attention (if you're not just trolling).
Speculators, like those who bought tulip bulbs or contracts about 350 years ago, were gambling. Doesn't matter how much fact or myth, consider it a moral lesson either way. People who used money to plant and grow tulips were investing, wisely or not.
The point you seem determined to ignore is that risks can be categorized.
January 28, 2009 4:00 AM | Reply | Permalink
I am paying attention but I am trying to answer your question - "Who has all the money which represents the respective gains and what are they doing with it?". My answer is that it's not that simple.
That person who made out like a bandit selling their house at the top of the market is most likely hurting because they used the proceeds to buy a new car and buy a brand new house and doesn't have a lot of liquid cash sitting in their savings account right now. They probably didn't do a 30-yr fixed mortgage so potentially have mortgage payment issues as the rate rests.
I agree that risks can be categorized. But why is buying IBM stock not gambling but buy IBM CDS protection is gambling? Assume that i don't own either the stock or bonds today.
I guess you're just saying you don't like any derivatives, not just CDS, but also equity, interest rate, etc.
January 28, 2009 1:42 PM | Reply | Permalink
"I am trying to answer your question"
I never posed that question. If you mean you are trying to answer a question you came up with as you read my post or comments, please be clear. From my point of view you are attacking a strawman you created, but attributing it to me. And I've answered the question you posed here, already, so I still say you're not paying attention.
The rest of your post is trash.
January 28, 2009 3:22 PM | Reply | Permalink
How is buying IBM stock an investment but if I buy IBM CDS that's gambling?
January 28, 2009 1:29 PM | Reply | Permalink
The following is an exact quote of yours from what you posted way up above in one of your comments. Scroll up and take a look at it yourself if you don't believe me (Jan 22, 8:34pm)
"Who has all the money which represents the respective gains and what are they doing with it?"
January 28, 2009 4:46 PM | Reply | Permalink
That was a rhetorical question.
January 29, 2009 2:15 AM | Reply | Permalink