Wall Street protesters: We're in for the long haul

[Malthus]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

[DGuller]

Hear at least you have to pay for shots when you take them out of the pound.  It's like 100 bucks.

WTF, $100?  Are they using .50 caliber depleted uranium bullets or something?

[Admiral Yi]

A problem with "wall street" post-crisis is basically the same problem as pre-crisis: the financial industry enjoins privatized gains and socialized losses and liabilities; its ability to free ride on explicit and implicit government guarantees combined with the various agency problems plaguing corporate governance and an economy that is reliant of speculative financing of investment to achieve growth all leads ineluctable to vast rewards being paid out to people for doing jobs of limited social utility and benefit.

The solution to that particular problem is either: (a) separate out the government underwritten parts of the financial system from those parts where the bankers bear the full brunt of risk, or (b) far more intrusive government regulation of the industry including direct regulation of pay scales.    I suspect that politically, (b) is never going to be a possible option in the US.  For (a) the problem is establishing the credibility of the government's pledge not to intervene, because if an officially unprotected entity is systemically important, the government will be hard pressed to sit on its hand and watch it go down.  To make the (a) option credible would IMO mean, significant measures such as blocking the use of the corporate form and other limited liability entities to the unsubsidized groups, and putting in place limits on the size of such groups.

I think you might be overstating the degree to which downside risk is socialized. 

In the (various) Latin American sovereign debt crises everyone got a haircut.  In the 08 crisis the only socialized loss that I'm aware of is AIG-underwritten CDS. 

[Neil]

Snobbery and sophistication aren't the same thing.

[garbon]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.  

Maybe I should step onto the scene and do so.

[Jacob]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

I was reading a discussion about the poverty protests on another board, and people were indeed speaking disparagingly about Champagne drinkers. I refrained from inquiring whether they were using the term to refer to all sparkling wines or only those from Champagne.

[Razgovory]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

Cheers!  Languish moves in mysterious ways.

[The Minsky Moment]

I think you might be overstating the degree to which downside risk is socialized. 

In the (various) Latin American sovereign debt crises everyone got a haircut.  In the 08 crisis the only socialized loss that I'm aware of is AIG-underwritten CDS.

The AIG CDS portfolio alone amounted to over $500 billion in potential net exposure.  In the event of an AIG insolvency (a certainty without government action), that exposure would have translated into enormous hits to all the banks that did business with AIG.  That's why the intervention took place.

In addition, there are a variety of other socialized losses or subsidies you aren't taking into consideration, including: trillions provided in the form of preferential funding and deposit rates from the Fed; the losses sustained by Freddie and Fannie (arising out of their transactions with the private sector); the government guarantee of bank bonds; the government guarantee and purchase of the Bear portfolio; the provision of TARP credit on preferential terms; the government's "free" conversion of Citi preference stock into common, etc.  The government may not have sustained gross nominal dollar losses on these commitments (opportunity cost is another story  . . .) but absent that massive intervention the private financial institutions would have, on a level not seen since the 1930s.

[crazy canuck]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

I was reading a discussion about the poverty protests on another board, and people were indeed speaking disparagingly about Champagne drinkers. I refrained from inquiring whether they were using the term to refer to all sparkling wines or only those from Champagne.

I for one would like to know whether they disdain people who drink sparkling wine or whether they reserve a special place in hell for people who drink champagne.

[Barrister]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

I was reading a discussion about the poverty protests on another board, and people were indeed speaking disparagingly about Champagne drinkers. I refrained from inquiring whether they were using the term to refer to all sparkling wines or only those from Champagne.

I for one would like to know whether they disdain people who drink sparkling wine or whether they reserve a special place in hell for people who drink champagne.

I don't know, people who drink cheap champagnes like Baby Duck are already in a certain kind of hell on earth.

[Admiral Yi]

The AIG CDS portfolio alone amounted to over $500 billion in potential net exposure.  In the event of an AIG insolvency (a certainty without government action), that exposure would have translated into enormous hits to all the banks that did business with AIG.  That's why the intervention took place.

In addition, there are a variety of other socialized losses or subsidies you aren't taking into consideration, including: trillions provided in the form of preferential funding and deposit rates from the Fed; the losses sustained by Freddie and Fannie (arising out of their transactions with the private sector); the government guarantee of bank bonds; the government guarantee and purchase of the Bear portfolio; the provision of TARP credit on preferential terms; the government's "free" conversion of Citi preference stock into common, etc.  The government may not have sustained gross nominal dollar losses on these commitments (opportunity cost is another story  . . .) but absent that massive intervention the private financial institutions would have, on a level not seen since the 1930s.

I don't understand your use of the word potential to describe AIG counterparty risk.  Presumably all the CDS they wrote has wound down by now?

I don't grant the Fed discount rate as a subsidy.  You have to run a monetary policy somehow, and low Fed rates (collaterized by otherwise useless Treasury paper) pass through eventually to borrowers.  Banks don't make any return by borrowing money (even at very low rates) then sitting on it.

Freddie and Fannie's function was to lower borrowing costs for home buyers, which they performed.  A subsidy that passes through banks to consumers should not be considered a subsidy to banks.

I'll grant you that TARP was a subsidy for the weaker recipients of funds if you'll agree that it was forced on other banks against their will (not the usual definition of a subsidy).

Was unaware that the US insured Bear Stearn's liabilities.

[citizen k]

Was unaware that the US insured Bear Stearn's liabilities.

Sweet deal for JP Morgan.

[derspiess]

As much as I hate to side with the wine snobs, I can't bring myself to call anything from outside of the Champagne region "champagne".  Same as I wouldn't call a Chilean cabernet sauvignon a Bordeaux, wouldn't call Jack Daniels a bourbon & wouldn't call Bushmills a Scotch.

[Admiral Yi]

Sweet deal for JP Morgan.

Depends how much they paid.

[Barrister]

As much as I hate to side with the wine snobs, I can't bring myself to call anything from outside of the Champagne region "champagne".  Same as I wouldn't call a Chilean cabernet sauvignon a Bordeaux, wouldn't call Jack Daniels a bourbon & wouldn't call Bushmills a Scotch.

But those are all terms that haven't become generic in their everyday useage.  Champagne has.