Wow @ this article

Discussion in 'IntroSpectrum' started by TheReturn, Apr 4, 2009.

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  1. Mcg-

    Mcg- New Member

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    What about regulations that help the market function?
    so we shouldnt have any laws restricting monopolies?
    what about laws/regulations on what can be in the market (say, your children)?

    also please explain how restricting monopolies through regulation CAUSES market distortion.
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  2. Radium

    Radium f k

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    Volaticus youre just getting beat up now at this point
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  3. Volaticus

    Volaticus Anarcho-Capitalist

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    Government regulations do not restrict monopolies, they create them. In a free market, you don't see "natural" monopolies, because anyone with the necessary capital can compete and drive prices down. Copyright and patent law simply create monopolies on the production and sale of a particular good. The only monopolies that have ever existed have been government created and maintained.
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  4. Tequila Jong-il

    Tequila Jong-il SALAD TOSSER

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    That seems like a heads under the covers argument to me. These assets are worth what they're worth. Do we really think that by forestalling finding out what they're worth is going to magically transform them into sound assets?

    All we appear to be doing right now is fostering uncertainty which may be just as big a killer of credit as the straits that alot of the big financial companies find themselves in(not all). Lending requires more than capital, it requires that the lenders be confident in making forecasts going forward. If they aren't confident whether they'll make a return on a loan then they'll just sit on the money(as a lot of the institutions that have received cash injections from the US government are doing).

    Your fear of a complete immolation of the financial industry also seems overblown. Not only are there a decent number of institutions not particularly entangled in CDO's ect that are laying low certain businesses but contra to your analogy it is alot easier to replace a creditor than a widget manufacturer. To set yourself up as a widget manufacturer you need capital, materials, labour, premises, and capital goods. To set yourself up as a creditor you more or less just need the capital.

    The monetary unit is not of a fixed value, there is always enough money in the system. Sure enough there is not enough money in the system to make transactions at certain prices but that evidence that prices should fall, not that we should print more money.

    Don't know but you are, in my view, definitely too flippant about the potential consequences of the current strategy of the US government in their unprecidented manipulation of the money supply. The financial sector is of great importance to the US economy but it is nowhere near as important as the integrity of the currency. The collapse of the big financial players would entail a rough few years, the collapse of the dollar would return the US to a barter economy.
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  5. Mcg-

    Mcg- New Member

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    That's a pretty strong argument. I like how you pointed out that banks aren't lending because they can't forecast risk accurately anymore (which i totally agree with)

    Maybe here the medicine is worse than the disease. I don't know enough about the effects of changing the money supply & its interaction with securities to comment. One thing we can say is that the medicine is slowing the decay that is currently occurring (at least for the short term). Will this put things back on track? who knows. Will it buy the govt more time to institute different sorts of measures. definitely.

    I think we shouldn't understimate the sort of radical new innovations that are going to come of this current crisis. Think about hte sort of economic measures the great depression led to. We could see just as radical changes today when its all said and done.


    coupe of issues with your argument.
    one issue with what you said, one key problem basically, is that widgets are now made in china. So its not a question of replacing. We can't replace what we've already given up the competitive edge over.

    rock and hard place really.
    I think now the strategy may shift to retaining a competitive edge. i.e. the US is crashing, but as long as its industry does not crash as much as or is on even level crashes with other state's, then it will be okay. Maybe that's the best that can be expected at this point.

    second issue. about your commendt that there is always enough money i nthe system in response to my point about their not being a market to take over the existing securities crash. Your point really did not address what i was getting at. The fact that there is enough money in the system does not mean that that particualr market (for securities) is strong enough. Basically, normal market functions of balancing things out won't work here.
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  6. Volaticus

    Volaticus Anarcho-Capitalist

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    Ask yourself this question: Why can they not accurately forecast risk?
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  7. Mcg-

    Mcg- New Member

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    good question.
    For one, we don't know who holds what obligations exactly and their risk value.
    I'm not totally sure how securities rating agencies work.but it seems like in analyzng they have stripped or failed to analyze the important variables in assessing the current risk conditions prevalent today, so basically they aren't accurate anymore.

    What factors do rating agencies look at?
    see this would be interesting if someone could dig this up. (maybe i will take at look at this in 3 weeks when im less busy)

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

    I think this is probably the most important type of research ppl can engage in right now. (also if anyone wants to make a fortune, figuring out where credit agencies go wrong would certain lead to it, since implicitly it would tell you what to securities to Short)
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  8. Volaticus

    Volaticus Anarcho-Capitalist

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    No one can accurately forecast risk because of rampant inflationary measures taken by the Fed (bailouts, etc.,) artificially low interest rates (price ceilings on borrowed money,) false prosperity (the boom part of the business cycle,) historic malinvestiment as a direct result of the boom-bust cycle,) and the inevitable market correction (the recession that always follows on the coat-tails of a market boom.)

    We're constantly told by the "experts" (and thus most believe that it is true) that recessions and depressions are horrible, horrible things. A recession (or depression) is the symptom of a market healing itself. It sends the proper signals to producers, consumers, and investors alike that we've been spending and borrowing too much, and we need to reign it in and start saving instead.

    Imagine the market as an athlete. Weight lifter, runner, whatever. Now, in the process of doing what he does, the athlete injures himself. Broken bone, torn muscle or tendon, whatever. Now, the pain is a signal that something isn't right, he over-exerted himself and caused serious damage that will threaten his ability to continue doing what he does. He obviously needs to chill out for a while and heal. But, instead of taking enough time for his body to heal, he goes and gets painkillers so that he doesn't feel the injury until the painkillers wear off, which they will eventually do. And in the process of continuing to over-exert himself while he's on the painkillers, he's doing more and more damage to his body without knowing it. He can keep taking the painkillers, and postpone the inevitable collapse, and keep over-exerting, or he can let himself heal. Only when the painkillers wear off does the amount of damage done become apparent. If he pushes it with the painkillers too hard, and too long, he will kill himself.

    This is what we're headed for. We're likely going to have a dead athlete of an economy on our hands.
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  9. Mcg-

    Mcg- New Member

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    vol that is interesting.
    I wouldn't say every obligation's risk level cannot be assessed. Some securities are tied to property. The important think is to look at hte structureo f the legal obligaion to see what is backing it, and waht is the chance to recover the said item if a default occurs.

    Even if the money supply in increased, etc... if you have a security that is linked to land, you still ultimately will get that land if the person defaults.

    That's actually what the guy in the article is doing. He looks at each individual security to see if its worth buying. smart dude.
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  10. Volaticus

    Volaticus Anarcho-Capitalist

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    Yes, smart dude. Do you think the government looks carefully at each "toxic asset" that it decides to purchase? Do they have any incentive to evaluate each individual security, or to operate efficiently? Of course they don't, because they have absolutely no accountability to those who ultimately pay the tab.
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  11. Mcg-

    Mcg- New Member

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    its good for an investor to vulture pick bundled securities (for them). govt cant do that. i like that onion article you posted.

    what do you do though when the bubble is so huge that allowing it to burst will lead to horrible consensequces. obviously you think they should just let it burst and just clean up whatever mess happens afterwards. that is scary as hell for people close to retirement; for us, not so much.

    In teh long run (after the mess), i think they may need to look at what they allow securities on, and start controlling better rules for bundling securities.
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  12. Volaticus

    Volaticus Anarcho-Capitalist

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    When your house is on fire, the solution (if you're interested in putting out the fire) is not to throw gasoline on the flames. When market regulation has caused massive distortion, the solution is not more regulation (unless you stand to profit from that distortion, which the Federal Reserve Board, and other bankers do; But that's another discussion entirely.)

    There is no Aristotelian mean, where "just this much" interference in the market will bring about harmony and fairies and unicorns and prosperity. Any amount of interference with how individuals voluntarily interact on the market causes distortion of a magnitude proportionate to the severity of the interference.
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  13. Mcg-

    Mcg- New Member

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    Throwing money as a solution, i'm inclined to agree with you that it definately is not the solution (there is no arostetelian mean lol). Though I don't think i have the expertise to draw any set conclusion. So i rely on what they are actually doing, realizing that i have no control over it and won't have any control over it, and move on.

    In terms of more laws or regulations.

    here's the thing thought. a regulation is not a law.

    A regulation looks, after the fact of something entering the market, and says "when these types of goods enter the market" --> these things must occur (i.e. fill out this form, or that form to disclose this or that)

    Here i doubt your arguing that there shouldn't be any regulations, and that all regulations cause distorting. The capital markets operate on the assumption that we have equal information. That is, that players in the market can know what is going on with the company.

    No regulations means no information; so when yahoo gets bought out, all the insiders would about it, would move their stocks around, whereas all the outsiders would be left in the dark.

    remove all regulations, you can't even HAVE a market. no one would buy stocks if insiders could do whatever they want. what woudl be the point? Basically, we would be back to dark ages finance.


    Of course some regulations need to be removed. I don't think MORE regulation is the answer. Smarter regulation is though.

    For laws,
    Laws can determine what enters the market in the first place, and what property forms can be connected to a security to be traded in the capital markets. There are 2 ways this can occur:

    (1) restricting the object of property.
    For example, the idea that humans cannot be sold.

    (2) No securities on certain objects of property.
    For instance, the idea that you cannot get a mortgage on a piece of native land. Or the idea that you cannot get a mortage against the the future fruits in your right in a trade-mark. (for example, lamborgini cannot hypothecate future money it will get 10 years from now from its trademark). Why would certain types of securities be barred from entering the market? likely too much risk is involved. Though there are other reasons as well.

    Restricting what can enter the market through laws is not a distorting of the market either. If anything, allowing exotic security rights like, the right to shares in a corporation in dubai with a subsidiary in Afganistan that itself has the right of use of say a TM in emerging markets in south-east asia, RESTRICTS market distortin and risk caused by current levels of hype.

    In fact, allowing for SECURITIES in the housing market with lending to people who can't afford to pay back the loans is exactly one thing that got us into this mess in the first place. are you saying we should allow these types of securities w/o ay regulations or laws to restrict them from occuring?

    Unfortunately, our markets are no longer composed of selling widgets, fish, and other tangible goods - so you definitely need lines to be drawn, its not clear where though. It could depend on the object looked at. You can't just revert back to the old mantra of "lets have no regulations" that worked in a 16th century world.
    IS there a systematic and elegent solution? i don't know. that's what I;m trying to figure out.

    So in sum, more laws an regulations is not the answer; but trying to understanding better how laws and regulations relate to economic growth is, and making better laws and regulations IS the answer by trimming the fat off of current ones, reforming others, and creating new ones where necessary.
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