On Price, Intrinsic Value, MBS, and Mark-to-Market

[CA renter]

davelj wrote:

Ok, let’s give every financial institution a year to sell all its assets (as opposed to a week). Who’s going to buy them? You think the majority will need bank financing? Do you really think there’s enough private long-term capital to buy all of these assets (you pick the time period)?
———————-

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

At what point do we decide to actually make good on all our debts and bets? Is this not **exactly** what a Ponzi scheme is? Has there ever been a Ponzi scheme that didn’t implode when its upper-most limits were reached? Do we believe in “infinite upper limits,” and how would that work?

I agree with Josh and The Breeze. It would be much better for our society to allow the banks to fail, and let the government fund infrastructure and other projects that would actually benefit society in the long-run — even if we have to run deficits to counter the destruction caused by the financial industry.

Perhaps the choice isn’t just agrarian society/economy vs. F.I.R.E. economy. Maybe there is a better way altogether. Our economy should be based more on production and innovation rather than financial Ponzi schemes.

[davelj]

[quote=CA renter]davelj wrote:

Ok, let’s give every financial institution a year to sell all its assets (as opposed to a week). Who’s going to buy them? You think the majority will need bank financing? Do you really think there’s enough private long-term capital to buy all of these assets (you pick the time period)?
———————-

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

At what point do we decide to actually make good on all our debts and bets? Is this not **exactly** what a Ponzi scheme is? Has there ever been a Ponzi scheme that didn’t implode when its upper-most limits were reached? Do we believe in “infinite upper limits,” and how would that work?

I agree with Josh and The Breeze. It would be much better for our society to allow the banks to fail, and let the government fund infrastructure and other projects that would actually benefit society in the long-run — even if we have to run deficits to counter the destruction caused by the financial industry.

Perhaps the choice isn’t just agrarian society/economy vs. F.I.R.E. economy. Maybe there is a better way altogether. Our economy should be based more on production and innovation rather than financial Ponzi schemes.[/quote]

Leverage, in and of itself, doesn’t “rely on ever-expanding leverage and debt.” That sentence doesn’t make any sense. But I think what you mean – and correct me if I’m wrong – is that growth in our economy over the last couple of decades has been overly reliant on increasing debt levels, which I agree with and which is obviously bad.

This is not, however, “exactly what a Ponzi scheme is” although there’s a ponzi-like element to it. In the classic Ponzi scheme – a la Madoff – by the time the scheme unwinds, there are precious few assets left for anyone – the assets have been lost, squandered or spent. In the US, we have real assets backing up the debt, but too many of these assets are of dubious quality. That’s a distinction with an important difference. Having said that, the ponzi-like element is, as I pointed out, that we’ve relied on ever-increasing levels of debt to keep the machine moving forward. So unlike in the case of a true Ponzi scheme, we won’t end up with zippo, but rather a serious case of indigestion and pain as we deleverage. But we live to fight another day.

So you ask if we believe in “infinite upper limits” for debt? Apparently not. I think the markets have spoken and we’ve determined that the upper limit is around 350% of GDP and we gotta work way down from there to get back to anything approximating normalcy. And hopefully we won’t revisit that number again anytime in our lifetimes.

As I’ve stated here a few times, I also want to see many banks fail. It’s necessary. But I don’t want to see them fail all at once in a series of cataclysmic events. What the “optimum” timing is, however, I don’t pretend to know.

[davelj]

[quote=CA renter]davelj wrote:

Ok, let’s give every financial institution a year to sell all its assets (as opposed to a week). Who’s going to buy them? You think the majority will need bank financing? Do you really think there’s enough private long-term capital to buy all of these assets (you pick the time period)?
———————-

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

At what point do we decide to actually make good on all our debts and bets? Is this not **exactly** what a Ponzi scheme is? Has there ever been a Ponzi scheme that didn’t implode when its upper-most limits were reached? Do we believe in “infinite upper limits,” and how would that work?

I agree with Josh and The Breeze. It would be much better for our society to allow the banks to fail, and let the government fund infrastructure and other projects that would actually benefit society in the long-run — even if we have to run deficits to counter the destruction caused by the financial industry.

Perhaps the choice isn’t just agrarian society/economy vs. F.I.R.E. economy. Maybe there is a better way altogether. Our economy should be based more on production and innovation rather than financial Ponzi schemes.[/quote]

Leverage, in and of itself, doesn’t “rely on ever-expanding leverage and debt.” That sentence doesn’t make any sense. But I think what you mean – and correct me if I’m wrong – is that growth in our economy over the last couple of decades has been overly reliant on increasing debt levels, which I agree with and which is obviously bad.

This is not, however, “exactly what a Ponzi scheme is” although there’s a ponzi-like element to it. In the classic Ponzi scheme – a la Madoff – by the time the scheme unwinds, there are precious few assets left for anyone – the assets have been lost, squandered or spent. In the US, we have real assets backing up the debt, but too many of these assets are of dubious quality. That’s a distinction with an important difference. Having said that, the ponzi-like element is, as I pointed out, that we’ve relied on ever-increasing levels of debt to keep the machine moving forward. So unlike in the case of a true Ponzi scheme, we won’t end up with zippo, but rather a serious case of indigestion and pain as we deleverage. But we live to fight another day.

So you ask if we believe in “infinite upper limits” for debt? Apparently not. I think the markets have spoken and we’ve determined that the upper limit is around 350% of GDP and we gotta work way down from there to get back to anything approximating normalcy. And hopefully we won’t revisit that number again anytime in our lifetimes.

As I’ve stated here a few times, I also want to see many banks fail. It’s necessary. But I don’t want to see them fail all at once in a series of cataclysmic events. What the “optimum” timing is, however, I don’t pretend to know.

[davelj]

[quote=CA renter]davelj wrote:

Ok, let’s give every financial institution a year to sell all its assets (as opposed to a week). Who’s going to buy them? You think the majority will need bank financing? Do you really think there’s enough private long-term capital to buy all of these assets (you pick the time period)?
———————-

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

At what point do we decide to actually make good on all our debts and bets? Is this not **exactly** what a Ponzi scheme is? Has there ever been a Ponzi scheme that didn’t implode when its upper-most limits were reached? Do we believe in “infinite upper limits,” and how would that work?

I agree with Josh and The Breeze. It would be much better for our society to allow the banks to fail, and let the government fund infrastructure and other projects that would actually benefit society in the long-run — even if we have to run deficits to counter the destruction caused by the financial industry.

Perhaps the choice isn’t just agrarian society/economy vs. F.I.R.E. economy. Maybe there is a better way altogether. Our economy should be based more on production and innovation rather than financial Ponzi schemes.[/quote]

Leverage, in and of itself, doesn’t “rely on ever-expanding leverage and debt.” That sentence doesn’t make any sense. But I think what you mean – and correct me if I’m wrong – is that growth in our economy over the last couple of decades has been overly reliant on increasing debt levels, which I agree with and which is obviously bad.

This is not, however, “exactly what a Ponzi scheme is” although there’s a ponzi-like element to it. In the classic Ponzi scheme – a la Madoff – by the time the scheme unwinds, there are precious few assets left for anyone – the assets have been lost, squandered or spent. In the US, we have real assets backing up the debt, but too many of these assets are of dubious quality. That’s a distinction with an important difference. Having said that, the ponzi-like element is, as I pointed out, that we’ve relied on ever-increasing levels of debt to keep the machine moving forward. So unlike in the case of a true Ponzi scheme, we won’t end up with zippo, but rather a serious case of indigestion and pain as we deleverage. But we live to fight another day.

So you ask if we believe in “infinite upper limits” for debt? Apparently not. I think the markets have spoken and we’ve determined that the upper limit is around 350% of GDP and we gotta work way down from there to get back to anything approximating normalcy. And hopefully we won’t revisit that number again anytime in our lifetimes.

As I’ve stated here a few times, I also want to see many banks fail. It’s necessary. But I don’t want to see them fail all at once in a series of cataclysmic events. What the “optimum” timing is, however, I don’t pretend to know.

[davelj]

[quote=CA renter]davelj wrote:

Ok, let’s give every financial institution a year to sell all its assets (as opposed to a week). Who’s going to buy them? You think the majority will need bank financing? Do you really think there’s enough private long-term capital to buy all of these assets (you pick the time period)?
———————-

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

At what point do we decide to actually make good on all our debts and bets? Is this not **exactly** what a Ponzi scheme is? Has there ever been a Ponzi scheme that didn’t implode when its upper-most limits were reached? Do we believe in “infinite upper limits,” and how would that work?

I agree with Josh and The Breeze. It would be much better for our society to allow the banks to fail, and let the government fund infrastructure and other projects that would actually benefit society in the long-run — even if we have to run deficits to counter the destruction caused by the financial industry.

Perhaps the choice isn’t just agrarian society/economy vs. F.I.R.E. economy. Maybe there is a better way altogether. Our economy should be based more on production and innovation rather than financial Ponzi schemes.[/quote]

Leverage, in and of itself, doesn’t “rely on ever-expanding leverage and debt.” That sentence doesn’t make any sense. But I think what you mean – and correct me if I’m wrong – is that growth in our economy over the last couple of decades has been overly reliant on increasing debt levels, which I agree with and which is obviously bad.

This is not, however, “exactly what a Ponzi scheme is” although there’s a ponzi-like element to it. In the classic Ponzi scheme – a la Madoff – by the time the scheme unwinds, there are precious few assets left for anyone – the assets have been lost, squandered or spent. In the US, we have real assets backing up the debt, but too many of these assets are of dubious quality. That’s a distinction with an important difference. Having said that, the ponzi-like element is, as I pointed out, that we’ve relied on ever-increasing levels of debt to keep the machine moving forward. So unlike in the case of a true Ponzi scheme, we won’t end up with zippo, but rather a serious case of indigestion and pain as we deleverage. But we live to fight another day.

So you ask if we believe in “infinite upper limits” for debt? Apparently not. I think the markets have spoken and we’ve determined that the upper limit is around 350% of GDP and we gotta work way down from there to get back to anything approximating normalcy. And hopefully we won’t revisit that number again anytime in our lifetimes.

As I’ve stated here a few times, I also want to see many banks fail. It’s necessary. But I don’t want to see them fail all at once in a series of cataclysmic events. What the “optimum” timing is, however, I don’t pretend to know.

[davelj]

[quote=CA renter]davelj wrote:

Ok, let’s give every financial institution a year to sell all its assets (as opposed to a week). Who’s going to buy them? You think the majority will need bank financing? Do you really think there’s enough private long-term capital to buy all of these assets (you pick the time period)?
———————-

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

At what point do we decide to actually make good on all our debts and bets? Is this not **exactly** what a Ponzi scheme is? Has there ever been a Ponzi scheme that didn’t implode when its upper-most limits were reached? Do we believe in “infinite upper limits,” and how would that work?

I agree with Josh and The Breeze. It would be much better for our society to allow the banks to fail, and let the government fund infrastructure and other projects that would actually benefit society in the long-run — even if we have to run deficits to counter the destruction caused by the financial industry.

Perhaps the choice isn’t just agrarian society/economy vs. F.I.R.E. economy. Maybe there is a better way altogether. Our economy should be based more on production and innovation rather than financial Ponzi schemes.[/quote]

Leverage, in and of itself, doesn’t “rely on ever-expanding leverage and debt.” That sentence doesn’t make any sense. But I think what you mean – and correct me if I’m wrong – is that growth in our economy over the last couple of decades has been overly reliant on increasing debt levels, which I agree with and which is obviously bad.

This is not, however, “exactly what a Ponzi scheme is” although there’s a ponzi-like element to it. In the classic Ponzi scheme – a la Madoff – by the time the scheme unwinds, there are precious few assets left for anyone – the assets have been lost, squandered or spent. In the US, we have real assets backing up the debt, but too many of these assets are of dubious quality. That’s a distinction with an important difference. Having said that, the ponzi-like element is, as I pointed out, that we’ve relied on ever-increasing levels of debt to keep the machine moving forward. So unlike in the case of a true Ponzi scheme, we won’t end up with zippo, but rather a serious case of indigestion and pain as we deleverage. But we live to fight another day.

So you ask if we believe in “infinite upper limits” for debt? Apparently not. I think the markets have spoken and we’ve determined that the upper limit is around 350% of GDP and we gotta work way down from there to get back to anything approximating normalcy. And hopefully we won’t revisit that number again anytime in our lifetimes.

As I’ve stated here a few times, I also want to see many banks fail. It’s necessary. But I don’t want to see them fail all at once in a series of cataclysmic events. What the “optimum” timing is, however, I don’t pretend to know.

[barnaby33]

Threadjack!
Josh

[barnaby33]

Threadjack!
Josh

[barnaby33]

Threadjack!
Josh

[barnaby33]

Threadjack!
Josh

[barnaby33]

Threadjack!
Josh

[Arraya]

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

The Chinese are starting to wake up that this might not work out.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ai3pbN.JY7tY&refer=home#

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

Dec. 22 (Bloomberg) — China’s foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn’t specify which period he was referring to or give a figure.

China’s foreign exchange reserves $1.9 trillion at the end of September, according to Bloomberg date.

To contact the reporter on this story: Jiang Jianguo in Shanghai at [email protected]

This is not so much financial bad weather as financial climate change

[Arraya]

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

The Chinese are starting to wake up that this might not work out.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ai3pbN.JY7tY&refer=home#

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

Dec. 22 (Bloomberg) — China’s foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn’t specify which period he was referring to or give a figure.

China’s foreign exchange reserves $1.9 trillion at the end of September, according to Bloomberg date.

To contact the reporter on this story: Jiang Jianguo in Shanghai at [email protected]

This is not so much financial bad weather as financial climate change

[Arraya]

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

The Chinese are starting to wake up that this might not work out.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ai3pbN.JY7tY&refer=home#

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

Dec. 22 (Bloomberg) — China’s foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn’t specify which period he was referring to or give a figure.

China’s foreign exchange reserves $1.9 trillion at the end of September, according to Bloomberg date.

To contact the reporter on this story: Jiang Jianguo in Shanghai at [email protected]

This is not so much financial bad weather as financial climate change

[Arraya]

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

The Chinese are starting to wake up that this might not work out.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ai3pbN.JY7tY&refer=home#

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

Dec. 22 (Bloomberg) — China’s foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn’t specify which period he was referring to or give a figure.

China’s foreign exchange reserves $1.9 trillion at the end of September, according to Bloomberg date.

To contact the reporter on this story: Jiang Jianguo in Shanghai at [email protected]

This is not so much financial bad weather as financial climate change

[Author]

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