Vegas & The Aftermath - Diary

[mulhuzz]

pls write more essays about this stuff. v interesting.

[tikay]

Click to see full-size image.

[DMorgan]

pls write more essays about this stuff. v interesting.

+1

Got Inside Job on DVD, still haven't watched it but as my degree was in Economics and my 'career' path hasn't really panned out I do miss the odd bit of bean counting

Too Big To Fail will be next on the reading list but its a bit far down. Decided to get cultured so I'm reading Catch-22 followed by 1984 and Hitchhikers Guide. Absolutely grinding it.

[technolog]

you can buy a US version of the DVD here:

http://www.amazon.com/s/ref=nb_sb_ss_c_2_11?url=search-alias%3Dmovies-tv&field-keywords=too+big+to+fail&x=0&y=0&sprefix=too+big+to+%2Caps%2C129

assuming they ship to the UK ofc...

seems like it's not released in the UK yet, but that doesn't mean it won't be...

Would a US version be UK compatible? I mean, would it work on my lappie?

you'd have to change the region of your lappy's DVD drive first (it will do this automatically for you - put the disc in and run it and it'll give you the option) but then to watch normal DVDs you'd have to change it back - you're 'allowed' to do this 3 times before the last selected region is 'stuck'.

You can download a trial copy of AnyDVD which is free to use for 21 days. It does away with the region-coding on the DVD. It's a bit dear to buy - €49 for 2 years or €69 for lifetime updates.

[Geo the Sarge]

pls write more essays about this stuff. v interesting.

Agreed here, very interesting.

Geo

[tikay]

you can buy a US version of the DVD here:

http://www.amazon.com/s/ref=nb_sb_ss_c_2_11?url=search-alias%3Dmovies-tv&field-keywords=too+big+to+fail&x=0&y=0&sprefix=too+big+to+%2Caps%2C129

assuming they ship to the UK ofc...

seems like it's not released in the UK yet, but that doesn't mean it won't be...

Would a US version be UK compatible? I mean, would it work on my lappie?

you'd have to change the region of your lappy's DVD drive first (it will do this automatically for you - put the disc in and run it and it'll give you the option) but then to watch normal DVDs you'd have to change it back - you're 'allowed' to do this 3 times before the last selected region is 'stuck'.

You can download a trial copy of AnyDVD which is free to use for 21 days. It does away with the region-coding on the DVD. It's a bit dear to buy - €49 for 2 years or €69 for lifetime updates.

Thanks Jack.

[tikay]

pls write more essays about this stuff. v interesting.

+1

Got Inside Job on DVD, still haven't watched it but as my degree was in Economics and my 'career' path hasn't really panned out I do miss the odd bit of bean counting

Too Big To Fail will be next on the reading list but its a bit far down. Decided to get cultured so I'm reading Catch-22 followed by 1984 and Hitchhikers Guide. Absolutely grinding it.

Let me know what you think of "Inside Job", please.

Catch-22 is a great read, there's all sorts of metaphors for life in there, but Hitchhiker & 1984 are, I imagine, aimed more towards the pre-adolescent market.  However, both are fiction, & I'd hardly call fiction "culture", not by a long chalk.

[tikay]

Inside Job gets pretty good reviews as well. I've not seen it myself.

I worked in Credit Derivatives IT for 7 years (writing software for processing CD trades, mainly CDS) in the City. Left in July 2007. [X] Good timing. Like to say I saw it all coming, but that would be 100% lie. The CD market went from nothing to massive in about 10 years. The total amount of principal being covered was just jaw-dropping.

Really? Tell us more!

I've read 7 or 8 books on the subprime thing now, but it's quite hard work figuring out all the acronyms, & their function.

Are you saying "CD" = "Credit Derivatives"?

The stuff which fascinated me was "CDS" = "Credit Default Swaps"

See....

http://en.wikipedia.org/wiki/Credit_default_swap

....& "CDO's" = Collaterized Debt Obligations", which, iirc, were a sort of Bond, comprised of "packages of Mortgage Loans sort of sliced up into tranches. 

http://en.wikipedia.org/wiki/Collateralized_debt_obligation

My eyes bled at times, trying to figure how they worked.

Essentially, Wall Street created these instruments to squeeze better returns, but the thing eventually imploded, & from there, it was all downhill. I think it's kinda exciting that a blonde understood all that stuff. You, not me, that is.

I have a suspicion that I'd put 90% of your readers to sleep fairly quickly . CDSs are fairly straightforward - I usually try and explain these things in terms of insurance, as that's essentially what most of them are. You charge premiums expecting that a certain proportion of things will fail, based on expectation from past events (like any insurance market). It fails, you pay out, you take the asset and try and recover value from it (like selling a written off car for scrap). Most CDSs were originally priced with a fairly high recovery rate - 70% or so - they assumed if a company defaulted, you would still be able to recover about 70% of it's debt from it's assets. This first went horribly wrong when Parmalat went under in 2004 - IIRC the recovery rate actually achieved there was <10%, and there was a large amount of CDS issued against the company. A lot of CDS issuers did badly here.

The next foreboding of doom came with the "correlation crisis" in 2005. We were running around like headless chickens during that period, but I doubt anyone outside the CDS industry even knew/knows about it. Risk was assessed based on likelihood of things defaulting being related, or correlated. So if Ford went under, GM was also likely to go under, for instance, assuming it was a worldwide car industry downturn. Of course in some cases it could be the other way round - removal of competition makes those outcomes negatively correlated. So how much correlation there was between different credit products affected your risk calculations and your pricing. Except sometime around 2005, the market pricing and the models started wildly diverging. Basically the models that the entire industry was based on were realised to be pretty much crap in a can. Which was rather worrying. Of course everything was rewritten and it was all perfect from then on.....

Explaining how CDOs work takes at least a whiteboard, frankly. I suspect you've got a pretty good knowledge from reading the books. The interesting thing is why they existed in the first place - basically US retail banks are only allowed to invest customers' money in AAA rated assets in order to protect them (supposedly). Which generally pay pretty small returns - less risk, less reward. So if you can package up not so good assets in such a way that the rating agencies think they are AAA rated, and pay out a bigger return than other AAA stuff, then you're on to a winner. Which is pretty much was CDOs did.  The customer might get a better return, the retail bank takes a bigger cut, the CDO issuer makes his margin, win, win, win. You even get some lower rated CDOs being packaged up into CDOs themselves, what we called CDO squared. Of course it then turned out that these things maybe should not have been AAA rated at all, and the banks, and customers (or governments) are rather shafted. Greed all round, frankly. Personally I think there is a vast amount of blame you can spread around many many parties for this.Jeez, I've written an essay. Sorry to everyone else.

I reckon there is much worse to come, tbh. I thought this was an interesting way to put things:



How anyone can think this is possibly sustainable is beyond me.

Terrific Post, thanks Rex.

I very much agree that the blame lies in a multitude of places, & it behoves almost nobody to point fingers, there was culpability everywhere. Somehow, (mass market media manipulation I suppose), but the bankers seemed to get all the blame, which is faintly ridiculous.

It sort of annoys me that the 2 big credit rating agencies, Moodys, & S & P, seemed to somehow escape criticism or censure. These guys continued to rate these products @ AAA+ even though that was patently wrong, because, in truth, they never knew what was in them, & a downgrading would have sent tremors through the entire system. As a result, a false market developed. Og course, once the sham was exposed, the whole damn lot came tumbling down.

Your Post started with amazement at the amount of principal involved - even now, those numbers barely seem possible.

What a story!

[tikay]

Exciting times this weekend in Kings Lynn, of all places, when the famous (?) "Campbells Tower" will be demolished with explosive charges. (Our friends Tesco have purchased the site).

In a peculiar twist, they ran a competition in Kings Lynn, the winning entry being the person who will get to press the button to bring the thing crashing down.

The winner was a middle-aged lady, who has a particular reason to want the tower gone - her father was killed there in a dreadful factory accident there back in the early 90's.

She was interviewed on the wireless this week, & said the tower reminded her of her Dad every day, & she could see it from all over Kings Lynn.

All a bit sad, & odd.

Click to see full-size image.

[Geo the Sarge]

Thought you'd enjoy these of the construction of the Forth Road Bridge. Link is to a facebook page

https://www.facebook.com/media/set/?set=a.136761449692252.13501.117919221576475&type=3

Geo

[redarmi]

How anyone can think this is possibly sustainable is beyond me.

Having spent a fair bit of time in the States the thing I find really amazing about all of this is what exactly the States spend their money on that is to the overall good of their people.  Health Care, Social Security/welfare are largely down to the idividual to pay for and so much is in the hands of the private sector.

On Tikays earlier question/point " Bankers? Another grossly misunderstood group. Quite why there is such vitriol to bankers is completely beyond me, it's wholly illogical. Happy to debate that.":

From my perpective....I am a professional punter.  If I bet my bankroll on Man utd this week and lose I have to go and get a job or find another way to replnish my bankroll.  That is my responsibility and I accept that.  I don't expect to have anyone give me my money back.   As far as I can see the bankers basically took massive risk and lost.  I don't understand why the rest of society then have to foot the bill for them.  The problem is obviously that banks , in general, play an important role in society overall but, if they want that responsibility then they shouldn't be able to take such ridiculous risks. 

[Jon MW]

...
From my perpective....I am a professional punter.  If I bet my bankroll on Man utd this week and lose I have to go and get a job or find another way to replnish my bankroll.  That is my responsibility and I accept that.  I don't expect to have anyone give me my money back.   As far as I can see the bankers basically took massive risk and lost.  I don't understand why the rest of society then have to foot the bill for them.  The problem is obviously that banks , in general, play an important role in society overall but, if they want that responsibility then they shouldn't be able to take such ridiculous risks. 

Do you think that maybe the analogy that what bankers do is the same as sports betting is perhaps a little bit ridiculously over simplified? And that a fair degree of the vitriol is down to people not understanding the process, let alone the problem, exacerbated by gross oversimplification by the media?

[doubleup]

Do you think that maybe the analogy that what bankers do is the same as sports betting is perhaps a little bit ridiculously over simplified?

No its actually quite accurate.  The difference between redarmi and the banks tho is that when they lose, it's the money of people who didn't know they were gambling that goes down the pan, hence the govt has to step in. 

The thing that annoys me most about banks is that once they are up and running, there is no easier way to make money.  There is an inherent flaw in that the competition to lend in a boom can lead to lower rates of interest than is prudent, so they lose a bit in the recession, but they just shouldn't go busto (unless of course they start lending money to ppl with no income).

[redarmi]

Yes of course it is an oversimplified analogy but the degree to which bankers have been allowed to oversimplify, and understate, risks  in order to market products to people who had no idea of the level of risk that weas being taken with their money is stunning.  The rating of bundles of sub prime debt as triple A, for example, was done in order to allow the banks to sell those loans as something that they were not and to, effectively take advantage of pension funds and insurance companies that were looking for low risk investments.  When you look at the amount of their 'bankrolls' that firms like AIG had at risk through the sale of credit default insurance it is not that much of an exaggeration to say that they had taken a huge punt on an individual 'bet' ie that house prices wouldn't fall.

[Geo the Sarge]

...
From my perpective....I am a professional punter.  If I bet my bankroll on Man utd this week and lose I have to go and get a job or find another way to replnish my bankroll.  That is my responsibility and I accept that.  I don't expect to have anyone give me my money back.   As far as I can see the bankers basically took massive risk and lost.  I don't understand why the rest of society then have to foot the bill for them.  The problem is obviously that banks , in general, play an important role in society overall but, if they want that responsibility then they shouldn't be able to take such ridiculous risks.  

Do you think that maybe the analogy that what bankers do is the same as sports betting is perhaps a little bit ridiculously over simplified? And that a fair degree of the vitriol is down to people not understanding the process, let alone the problem, exacerbated by gross oversimplification by the media?

Think of them being gamblers being staked that now have a lot of make up that will (probably) never be paid back and you'll be close

Geo