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Showing posts with label financial crisis. Show all posts
Showing posts with label financial crisis. Show all posts
Thursday, April 15, 2010
Monday, May 11, 2009
Zero Hedge on Cowboy Capitalism
This is a fascinating letter that the excellent financial blog Zero Hedge, has posted from a guy who works at Deutsche Bank. I found his comments on the firms interaction with AIG the most fascinating:
As these losses have grown, taxpayers are being forced to absorb these losses. As an example, my firm recently received nearly $12 billion from American International Group (which has effectively been nationalized with $180 billion in taxpayer funds). Essentially, every American household sent my firm a check for $105. The reason for this payment: my firm bought credit default swaps from A.I.G. In plain-speak, we bought unregulated “insurance” from A.I.G. to cover losses from bad trades. What did taxpayers get in return?
Nothing. Taxpayers simply paid an I.O.U. triggered by our gambling losses. (Note: This $12 billion payment was more than 50 percent of our market capitalization at the time of its disclosure).
Note what he is saying here. Deutsche Bank made poor bets on the financial markets, AIG guaranteed those bets. The bets went sour. Deutsche Bank had a lot of gambling losses, and the U.S. Taxpayers made all the losses good. It's that simple, and that unbelievable.
As these losses have grown, taxpayers are being forced to absorb these losses. As an example, my firm recently received nearly $12 billion from American International Group (which has effectively been nationalized with $180 billion in taxpayer funds). Essentially, every American household sent my firm a check for $105. The reason for this payment: my firm bought credit default swaps from A.I.G. In plain-speak, we bought unregulated “insurance” from A.I.G. to cover losses from bad trades. What did taxpayers get in return?
Nothing. Taxpayers simply paid an I.O.U. triggered by our gambling losses. (Note: This $12 billion payment was more than 50 percent of our market capitalization at the time of its disclosure).
Note what he is saying here. Deutsche Bank made poor bets on the financial markets, AIG guaranteed those bets. The bets went sour. Deutsche Bank had a lot of gambling losses, and the U.S. Taxpayers made all the losses good. It's that simple, and that unbelievable.
Monday, October 27, 2008
The End of Prosperity
Arthur Laffer has an excellent commentary in the Wall Street Journal this morning explaining why, in 25 years, the current Congress will be remembered like we remember Herbert Hoover, in other words, not kindly.
But the government isn't finished. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid -- and yes, even Fed Chairman Ben Bernanke -- are preparing for a new $300 billion stimulus package in the next Congress. Each of these actions separately increases the tax burden on the economy and does nothing to encourage economic growth. Giving more money to people when they fail and taking more money away from people when they work doesn't increase work. And the stock market knows it.
For another view, check out Donald Lambro's editorial. Of course his view does not take into account that we're coming out of the biggest financial mania in history. It also demonstrates incredible faith in the ability of government to solve our problems when history demonstrates that the government almost always exacerbates problems in the aftermath of a financial mania. We shall see.
But the government isn't finished. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid -- and yes, even Fed Chairman Ben Bernanke -- are preparing for a new $300 billion stimulus package in the next Congress. Each of these actions separately increases the tax burden on the economy and does nothing to encourage economic growth. Giving more money to people when they fail and taking more money away from people when they work doesn't increase work. And the stock market knows it.
For another view, check out Donald Lambro's editorial. Of course his view does not take into account that we're coming out of the biggest financial mania in history. It also demonstrates incredible faith in the ability of government to solve our problems when history demonstrates that the government almost always exacerbates problems in the aftermath of a financial mania. We shall see.
Monday, October 20, 2008
A Sobering Comparison (Between Japan and the US)
When Japan lost a decade in the 1990's due to economic malaise, they were the world's biggest creditor. Now that our second bubble has burst, we face the same crisis except we are the world's biggest debtor. As this guy says, "we might be lucky to have just a lost decade."
It amazes me that there is so much confidence among economists and politician that massive and unprecedented extra spending and budget deficits (estimated at 750 billion for next year, but I'd be higher) will solve our problems. Isn't credit what got us into this mess in the first place?
If I were President, I would make every Congressman and member of the Federal Reserve read "Fiat Money Inflation in France." Obviously Hank Paulson knows nothing about history. Ben Bernanke knows a lot about history, but one wonders if he learned the wrong lessons from it.
It amazes me that there is so much confidence among economists and politician that massive and unprecedented extra spending and budget deficits (estimated at 750 billion for next year, but I'd be higher) will solve our problems. Isn't credit what got us into this mess in the first place?
If I were President, I would make every Congressman and member of the Federal Reserve read "Fiat Money Inflation in France." Obviously Hank Paulson knows nothing about history. Ben Bernanke knows a lot about history, but one wonders if he learned the wrong lessons from it.
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