Europe threatens bankers' bonuses

[Valmy]

Well it's certainly true that it was more and more clear that it was going to happen the closer it came.

Yeah we were talking about it on Languish a few years before it happened.  I would link to the threads but...sadly all that is gone now

[Sheilbh]

A bubble that severe is pretty rare.

Nota bene: I never said the housing bubble was a black swan event.

I think the bubble was predictable and allowed to get too big. There was a failure I think of central banks that allowed that to happen.

But was it itself huge or was it that the risk and damage of that bubble was made systemic that made it so severe?

It was repackaged and resold all across the financial system so that it became like the grain of the wood. I know bankers and regulators now say that they didn't and couldn't foresee it. But that just makes me wonder what they're there for? What justifies that pay? And whether they should be allowed to innovate so freely?

[Sheilbh]

Yeah we were talking about it on Languish a few years before it happened.  I would link to the threads but...sadly all that is gone now

I remember them. As I say I think a lot of people saw the bubble and realised it was a bubble. Perilous few realised how much it riddled the system.

[Ideologue]

I'm perilous. :

[Valmy]

Yeah we were talking about it on Languish a few years before it happened.  I would link to the threads but...sadly all that is gone now

I remember them. As I say I think a lot of people saw the bubble and realised it was a bubble. Perilous few realised how much it riddled the system.

Yeah the bubble was not a surprise....the derivatives on the other hand...

[fhdz]

I'm perilous. :

Well, yes. Predict enough doom and eventually you'll be right.

[alfred russel]

Is this article's assessment (as of October 2011) of the situation incorrect? It's one of many I've seen with a similar bent.

http://seekingalpha.com/article/301260-bank-of-america-dumps-75-trillion-in-derivatives-on-u-s-taxpayers-with-federal-approval

Dude is certainly talking out of the side of his mouth a bit.  For example, deposits at retail banks are insured up to $200 K, that doesn't mean derivatives are insured too.  And I'm curious about his "notional value" calculations.  How do you calculate the notional value on, for example, an interest rate swap?

There was a thread about this way back.  While I agree that it looks a little hinky for BoA to shift Merrill's derivatives to BoA's books, we're still not talking about losses in derivative positions that threaten a bank's solvency.

The notional value of an interest rate swap is the theoretical principal amount used to calculate interest payments.

Take an interest rate swap for one period with a net settlement feature where I pay you 5% and you pay me LIBOR + 3%. The notional value is $1 billion.

In this case, lets say LIBOR comes in at 1%. So I owe you 5%, you owe me 4% (1+3), and when we net that together, I owe you 1%.

Our transaction is settled with me paying you $10 million ($1 billion * 1%).

[Ideologue]

I'm perilous. :

Well, yes. Predict enough doom and eventually you'll be right.

If my personal choices involved as much foresight as my appreciation of global economic forces I'd be a lot better off.

I will say that even I expected that the economy would have more robustly recovered by now (well, recovered temporarily, until it succumbs to the ultimate end of the fiction of the free market around 2025).

Now, far moreso than the crisis, the rise of hillbilly anarchism as a political movement was very much a black swan event; it could not have been reasonably predicted that the popular reaction in so many areas to an ongoing depression and a decades-in-the-making failure of unrestrained capitalism to generate prosperity would have been a blind hatred of any program still propping up what was left of our aggregate demand and radical enthusiasm for even less restrained capitalism.

[Habbaku]

I'm perilous. :

Well, yes. Predict enough doom and eventually you'll be right.

Ide has successfully predicted 12 of the last 3 recessions.

[DGuller]

Yeah we were talking about it on Languish a few years before it happened.  I would link to the threads but...sadly all that is gone now

I remember them. As I say I think a lot of people saw the bubble and realised it was a bubble. Perilous few realised how much it riddled the system.

Yeah the bubble was not a surprise....the derivatives on the other hand...

I predicted the leverage and derivative chain reaction as the biggest danger of the bubble.

[Ideologue]

I'm perilous. :

Well, yes. Predict enough doom and eventually you'll be right.

Ide has successfully predicted 12 of the last 3 recessions.

I predicted one and there was one.  Sour grapes.

[Richard Hakluyt]

We had a bubble c. 2004, at which point I was predicting recession 

Instead the governments carried on inflating the bubble and the banks worked with them, inventing all sorts of innovative financial products and fixes that helped keep the show on the road. So, instead of a mild standard recession c2004 we got the mother of all recessions a few years later.

The banks gave electorates and governments what they wanted, the likes of Gordon Brown and Greenspan were feted for getting rid of "boom and bust" 

[Zanza]

And as that's unlikely to happen, the democratic sovereigns of Europe will eventually shape society in a way they desire through laws like the Swiss one.

Eventually?  Haven't the sovereigns of Europe been shaping society for centuries?  I guess I missed the era of anarchy.

Badly phrased by me. What I wanted to say is that I feel that the pendulum is swinging back at the moment and liberalization and deregulation are no longer accepted by many people. The concept of markets to regulate just about everything (and not just economic activity - just look where that kind of vocabulary is used nowadays) that shaped a lot of aspects of our societies over the last three decades or so has lost its luster and promise. So I wouldn't be surprised if stronger regulation of markets and no longer using market mechanisms in some other aspects of life is what awaits us in the future. Politicians are slow to realize that though or they are so entwined with the elites that benefitted from the deregulation that they are just not interested in deregulation.
The current social democrat candidate for chancellorship in Germany is a millionaire, liberal economist who doesn't understand what his own constituents want for example.

[The Larch]

Never been there but it's in my top 3 places if I had to leave the US for some reason.

It's the worst place I've ever been. Expensive, priggish and joyless. Although skiing and raclette are wonderful.

The problem with Switzerland would be that it's one of the dullest and most boring places in the world to live. Maybe bankers are ok with that, though.

The Economist did a piece on bankers who fled London to Zurich after the 50p tax rate (which never actually came into effect). Apparently the overwhelming majority wanted to transfer back in under a year

It's a nation of petty judgemental smallminded busybodies outside of the big cities. A bit like the dark version of the place in the Simpsons when Flanders moves out of Springfield to somewhere more of his liking but ends up being to edgy for it.

Nature is gorgeous, though.

[alfred russel]

It is taken as received wisdom that there was a general bubble in US financial markets, but I think the evidence is coming in that there wasn't...

Four years ago today the world appeared to be coming apart at the seams. Today the US equity markets are at an all time high, and bonds have gone through the stratosphere.