Site Presented By
Sunday, Nov 8, 2009
I remember watching a Frontline documentary on PBS about the credit card industry. The program detailed a bill - sponsored by New York Senator Hilary Clinton, among others - that de-regulated the business of borrowing in ways that, to my mind anyway, amounted to the legalization of loan-sharking; such as minimum payments so small that by paying them you sink deeper into debt; loans to high-risk borrowers at rates like 25 or 30 per cent; etc.
And now...
Jason Moss
Eugene, OR
I'm finally beginning to understand this. I hope the previous letter writer is correct in asserting this is just a summer issue. However, I wonder, too, where credit card debt will fall in here. And what role does our trade deficit play? How many of these investors (who own our mortgages, etc.) foreign? I know far less than I wish.
Thanks for the terrific piece, even if it doesn't necessarily bring peace of mind.
What I'm more interested in is how this ties in to our whole sick culture. Health care administrators whose job it is to make sure you DON'T get the treatment you need. Credit card companies whose primary goal is to make sure you DON'T pay off your balance each month.
What is the common denomenator here?
We're the Can't Do nation.
And it's not just bridges. Has there ever been a period in our history when so many American plans and projects have, literally or figuratively, collapsed? In both grand and humble endeavors, the United States can no longer be relied upon to succeed or even muddle through. We can't remake the Middle East. We can't protect one of our own cities from a natural disaster or, it seems, rebuild after one. We can't even give our wounded veterans decent medical care.
We're supposed to be an optimistic, problem-solving nation, the country that tamed a vast wilderness, won World War II and the Cold War, put men on the moon, built the Panama Canal and the Hoover Dam.
http://www.courant.com/news/opinion/commentary/hc-commentarybig0812.artaug12,0,6831046.story
Apparently we also have to borrow hundreds of billions every year because we can't live within our means and can't pay up our debts even in good times. So it's a foregone conclusion we won't be able to pay up our debts, and the state of things will be even worse, when things turn south.
Everywhere you look, you see social systems that aren't working, cost way too much, or are falling apart: health care, schools, transportion infrastructure, consumer safety. And if you look closely at every one of these, you'll see greedy corporate representatives helping insecure legislators make the decisions on these issues. Not to make them better, but to make them more profitable.
We can't prevent a major city from getting blown off the map, and can't rebuild it when it does.
Honestly, I think we should tax these guys, and maybe pass some regulations.
It gets worse, of course.
"Incompetence" usually means bumbling, but the Bush White House's hostility to the federal bureaucracy has been quite purposeful. The administration has undermined the normal workings of agencies from the CIA to the Environmental Protection Agency, in part because they generate facts and opinions that conflict with political goals.
The White House has also seeded the government with appointees chosen for loyalty and ideological affinity, not competence. All of this has taken a toll on agencies' ability to process information, devise sound policies and communicate with the public.
You are wearing blinders if you think investment has no relation to betting. The very reason there are different kinds of investments with different interest rates is because some are riskier than others. Risky -- an interesting word. Implies something might or might not go as planned. Implies you might be betting. Implies you might lose.
In both cases, the investor and bettor try to make the best choice they can. Whether it's betting on the spread of a game, a 100:1 longshot at the track, or a subprime mortgage, it all comes down to analyzing the situation and making an informed guess. Some guesses are better informed than others. Chance always plays its hand too.
Betting, it's called.
Excellent as always. Thanks.
We have seen this coming. I'm seeing private financial newletters advising their patrons to "take steps" on the matter of "short-term financial and personal security", meaning to start stocking up on currency and supplies.
I'm not feeling very good about having been right.
...is to ask Russ Allbery to define the word bet.
These financial instruments are accumulations of real sources of income. At the bottom are a bunch of mortgages getting (hopefully) regular interest payments. It makes perfect sense to aggregate them and sell them. It's entirely reasonable to have the higher-risk mortgages pay higher interest rates in exchange for the increased risk. This is how financial systems work. It's no more betting than buying stocks is betting. It's just more complicated.
In mathematics or statistics, taking a risk based on calculated odds, is known as a bet. The amount you gain by doing so is called a payoff. Investment, as it is used by Mr. Allbery, is betting. Buying stocks, which is done based on the expectation that the stock will increase in value, as opposed to the event that the stock decreases in value, is also a bet. Even the names of some of these "financial instruments" (a phrase invented when the quants and derivatives got a bad name) reflect jargon used originally in gambling: A Hedge fund gets its name from the expression to "hedge a bet".
The more people understand that investing is a form of betting, and therefore realize that means that there is a possibility of losing the bet, the better off they will be.
Simple summaries are good. False and misleading bashing disguised as responsible journalism is downright dangerous.
This Salon piece dupes readers into thinking they're being given a useful (and humorous) overview of what's happening on Wall Street. In fact, this article only further obscures what really goes on in today's global markets.
The list of problems with this piece is long: the blunt and inaccurate analogy to betting on a game (in fact, derivatives create real risk transfer), the false accusation that the credit rating agencies are somehow cheating or "rigging" the real economy (referees make calls that bind the players and can determine the outcome of the game; the credit rating agencies merely estimate probability of loss), the facile use of "alchemy" to describe tranching (tranching neither attempts nor purports to transform high risk to low risk; the junior slices are riskier, the senior slices are less risky, and the average is the same as the unerlying pool), etc.
The trouble with today's markets is that the damage from one corner of the economy rapidly spreads throughout the system, causing many participants to feel the pain caused by the actions of a relative few. The great thing about today's markets is that the pain caused by that damage is spread out, diluted, and shared by many -- this makes it possible for the system to absorb shocks quickly and keep on moving. Thanks to the diffused nature of the exposure to subprime mortgage risk, any problems that flow from the subprime mortgage debacle and related liquidity crunch will be worked out more quickly than the problems caused by any past crisis. Mr. Leonard (the Salon author) said it best: "derivatives and other 'financial instruments' ... have become the lifeblood of markets everywhere".
I am disappointed that you have let Mr. Leonard drag Salon into the tabloid-like frenzy with a piece of writing that does nothing to illuminate Salon's readers and adds force to the wave of ignorance, misinformation, and anxiety that just might sweep us all onto the rocks if we're not careful. Next time Salon should select a financial reporter with enough knowledge of the subject matter to be informative, not just dangerous.
Much of the initial coverage about Fort Hood turned out to be wrong. Is there anything wrong with that?
The accountability imposed by another country for the CIA's kidnapping and torture reveals much about our own.
Fox News' morning show plays to type, talking about whether Muslims in the Army should face "special debriefings"
The survivor and author is upset about comparisons some on the right are making to genocide
Once seen as a lunatic fringe, reactionary anti-women groups are courting respectability
Salon headlines in your mailbox
