When Genius Failed

Jack, you're the master of saying nothing while saying too much. Nothing personal as I don't partake in the bashing/blowing of you that so many others do, but in the two posts of yours I've read in this thread neither of them said anything of any value/content/body and sounded like a rapid-fire rundown of non-sequitirs that GWB has available to him for speeches.
:D
 
SSP, after I read the Creature from Jekyll Island I realized that not only was the system a sham but so was "money"!

I played out all these financial doomsday scenarios in my paranoia, started buying gold bullion, coins etc but then realized a more salient point...

IF we ever get to a point where money is useless, the system is in shambles, and there is nothing left to trade, we'll CREATE something to trade.

After the powers that be confiscate/take YOUR gold, integrity, Betsy the Cow and anything else they can get their grubby little hands on.

Dont worry about the end of the(financial) world.

Because if it happens whatever you think you've done to prepare will be pretty much meaningless anyways when the Commissars put into place their new rules.

Become a better crook. Thats all.

And forget gold.

Buy bullets.
 
Quote from SiSePuede!:

So I finally just read this book. Give me a break, I'm young and was busy reading Hugo and Mishima.

Anyway, how does everyone else feel about the derivatives market? Since reading the book, it scares the shit out of me. I've often thought that everything could go down if there's a breakdown in the derivatives market.

A global crash, even an Asian crisis that resonates in S. America where Asian demand for metals is heavy, to Russia where oil is, etc. could send the derivatives market into a tumble could it not? The leverage that cheap cheap debt has brought must have also caused many piggish funds/banks to become leverage pigs like LTCM was. Liquidity looks for good returns and all the MBS and CDO buyers are going to get stuffed with that...but much of that was well spread about and mixed in with traditional mortgages.

Get a grip when incidents like Barings and LTCM happen it usually provides some good opportunity. Also it is NEVER as bad as reporters try and picture it. LTCM could most likely have otten out of their positions the same with Amarath. The big banks could see the value within the funds thats why they came to the "rescue" so quickly. You dont think they did it for any other reason do you?



I'm just curious what fears, curiosities, worries, etc. other people have about another crisis like the LTCM crisis happening. There is a lot more money floating around now and I can't imagine it wouldn't be a larger crisis due to the growth in the derviatives market in the last 10 years.
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My take on the book went beyond derivatives, and straight into ego. The fund would have survived the hit taken on the credit side. The problem was, the ego's had them put their "model" into the equity markets. As an option trader, I have learned that there is no "normal" level of volatility. It can be stretched or pounded to any level. When LTCM decided that 15 vol or whatever level was "normal", they kept increasing their bet at higher and higher levels. When you are short $1B vol, it causes a little pain when a couple of currencies get devalued. :eek:
 
aok, Great Depression is a great example. Wasn't the money that was useless but the lack of liquidity. Those who had protected their money and had it did very well.

I understand your point and agree though. My worry is just on a different basis.

Cheers.
 
"No one is fixing or breaking. People are participating.

SSP, the way I translate. Five people play poker, the derivatives are the side bets. Bet on high spade with another player for this hand is the derivative. No takers for a side bet at the table, lean back in your chair, ask and place any bet with any other player at the next table and bet on who draws the first ace in their respective game. So on and so forth.
 
nutmeg, my attempt to interpret was more like: Everyone is in the game to make money knowing the risks and there's a balance...but regardless, why interpret something that made no point? I could make that up that reasoning myself, in fact I am, since I didn't understand what Jack said.

Hopefully he'll clarify and just say what he means rather than made banal statements that don't directly deal with the topic at hand.

Cheers bro. :D
 
Nice to see some intelligent conversation.

SSP, although LTCM got a lot of press because of the big name players running it, it wasn't the first major "test" of derivative bets and their effects on world markets.

We have had major disruptions to it all along - and the accompanying booms and busts that come along with it. Things aren't any different than they have been in the past. People make the same mistakes over and over again, bubbles get created and then pop, carnage ensues and everyone pays the piper. And then another bubble forms.

Just look at how past economic events really affected the global financial market players - the reality is, there is always a price to pay for excess. Japan went into a virtual depression for 10 years (you think real estate is a problem here - lol) - and everyone had some ties to them. Asia was supposed to take over the world and then caught "Asian Contagion". Barrings Bank went under when that wasn't supposed to be possible in a highly regulated banking industry. Hedge funds have imploded. I can go on and on, all had derivatives involved in one form or another, and the negative effects took place - and the positive too, depending on which side of the trade you were on.

As another poster said, risk comes in many forms, systemic or not. I'm of the opinion that too many major market players and G7 countries have too much at stake to let a systemic issue bring the house down - they'll intervene to stop it. I do hope they do a better job of regulating the derivatives markets - they need it.
 
Sponger, nice intelligent response, thank you.

My questioning which I presume no one has a real answer to is:

With all the automated trading systems, derivatives skyrocketing values, pools of liquidity, seemingly inflated values in emerging economies, interconnected markets, etc....when say Asia catches a cold, that will hugely challenge firms(many Dow components) that are relying on emerging economy growth, who knows what kind of impact it could have on bonds/derivative trades here, Russia will suffer in oil demand perhaps, S. America will suffer in commodity demand, etc.

And if you stir the pot with the fact that computers are probably balancing what humans may have a hard time doing and realize that computers would have a hard time balancing that load in a crisis type situation, you can't easily shut down the system, unwind trades, etc.

My whole point of this thread is that the new globalized system which is really a tangled web of derivatives/computers/countries/financial markets, etc. are much much more dangerous than in anytime past because of the interconnectedness. So while we may have been through crises before, this would be on a whole different plane because of the web that has been put together. Sort of what LTCM did, but on a global scale involving not only separate funds and banks, but also countries and systems.

So while the media says that US markets buck the trend when Asia falls 5% and we go up, that's just the markets and not a true problem. Their markets aren't necessarily connected to US markets. But if Asia had a crisis, whatever it may be, that affected Asia, you should easily believe that US funds, markets, etc. will heavily feel the impact and if it's a natural disaster, economic breakdown, etc. etc. US companies will heavily feel the impact.

I just wonder how the markets will handle something on a larger scale because while the US markets can weather a lot...Asia is still young in the way of financial stability and more and more our markets are dependent on them for growth in the world and if Asia breaks we will too.

Kind of a ramble, I'm sorry, don't have time to really edit my thoughts but I think you'll understand from the post.

Cheers bro, thanks for your thoughts.
 
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