Some math on how we’re going to get out of this mess

[davelj]

[quote=CA renter]

The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt.

It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.

[/quote]

I have no problem with zeroing out the common, preferred and parts of the debt structure of these huge banks that are on the brink. (That would be “almost” like allowing them to fail.) I’ve got no financial or emotional attachment to their survival, per se. But, as I’ve said before, I don’t want to do it all at once because of the enormous business disruption it would cause and the impact it would have on the real economy. But that’s just me. These banks are so huge, unfortunately, that I think it would take quite some time for the “stronger, better-capitalized banks to fill the lending void.” I actually think we need MORE lenders as opposed to fewer lenders. But we need all these lenders, in aggregate, to do less lending. More lenders, less concentration, less systemic risk. Part of the problem is that we’ve allowed a handful of banks to get too large. And these banks happen to have the most leverage and (among the) riskiest assets.

As to your last paragraph, I agree. But the devil’s in the details in terms of getting from A to B.

[davelj]

[quote=gandalf]Hey davelj, on a more balanced note, thanks for creating this thread.

I’m a cautious optimist by nature, but my numbers are bigger (much bigger) than yours, and my outlook more pessimistic. Speaking as a former analyst on an MBS trading desk, the marked positions never matched the underlying long-term revenue streams. Patterns in ABS markets are observable in other markets.

The number in my mind is $70T. That’s the amount of global wealth that’s in the process of going away. I might be low. The true extent, performance and risk associated with the underlying economic activity has been overstated by innovations in FIRE. What remains of the real economy is contracting harshly from the wicked de-leveraging brought on by the systemic failures in FIRE industries.

[/quote]

I just read that we’ve seen $50T in wealth destruction so far globally. So if we “only” go to $70T, I’ll consider that a victory.

I think we’ll find out in a few years that there were enormous opportunities in a number of different financial and RE-related assets, but that they weren’t in the “obvious” places – like big bank securities, or buying A-rated MBS at 10% of par – but rather in the seams and cracks of some of the illiquid markets that are way off the grid. But I suspect these “good” opportunities will be dwarfed by the landmines that are still out there in terms of total dollar value. But, we shall see.

[davelj]

[quote=gandalf]Hey davelj, on a more balanced note, thanks for creating this thread.

I’m a cautious optimist by nature, but my numbers are bigger (much bigger) than yours, and my outlook more pessimistic. Speaking as a former analyst on an MBS trading desk, the marked positions never matched the underlying long-term revenue streams. Patterns in ABS markets are observable in other markets.

The number in my mind is $70T. That’s the amount of global wealth that’s in the process of going away. I might be low. The true extent, performance and risk associated with the underlying economic activity has been overstated by innovations in FIRE. What remains of the real economy is contracting harshly from the wicked de-leveraging brought on by the systemic failures in FIRE industries.

[/quote]

I just read that we’ve seen $50T in wealth destruction so far globally. So if we “only” go to $70T, I’ll consider that a victory.

I think we’ll find out in a few years that there were enormous opportunities in a number of different financial and RE-related assets, but that they weren’t in the “obvious” places – like big bank securities, or buying A-rated MBS at 10% of par – but rather in the seams and cracks of some of the illiquid markets that are way off the grid. But I suspect these “good” opportunities will be dwarfed by the landmines that are still out there in terms of total dollar value. But, we shall see.

[davelj]

[quote=gandalf]Hey davelj, on a more balanced note, thanks for creating this thread.

I’m a cautious optimist by nature, but my numbers are bigger (much bigger) than yours, and my outlook more pessimistic. Speaking as a former analyst on an MBS trading desk, the marked positions never matched the underlying long-term revenue streams. Patterns in ABS markets are observable in other markets.

The number in my mind is $70T. That’s the amount of global wealth that’s in the process of going away. I might be low. The true extent, performance and risk associated with the underlying economic activity has been overstated by innovations in FIRE. What remains of the real economy is contracting harshly from the wicked de-leveraging brought on by the systemic failures in FIRE industries.

[/quote]

I just read that we’ve seen $50T in wealth destruction so far globally. So if we “only” go to $70T, I’ll consider that a victory.

I think we’ll find out in a few years that there were enormous opportunities in a number of different financial and RE-related assets, but that they weren’t in the “obvious” places – like big bank securities, or buying A-rated MBS at 10% of par – but rather in the seams and cracks of some of the illiquid markets that are way off the grid. But I suspect these “good” opportunities will be dwarfed by the landmines that are still out there in terms of total dollar value. But, we shall see.

[davelj]

[quote=gandalf]Hey davelj, on a more balanced note, thanks for creating this thread.

I’m a cautious optimist by nature, but my numbers are bigger (much bigger) than yours, and my outlook more pessimistic. Speaking as a former analyst on an MBS trading desk, the marked positions never matched the underlying long-term revenue streams. Patterns in ABS markets are observable in other markets.

The number in my mind is $70T. That’s the amount of global wealth that’s in the process of going away. I might be low. The true extent, performance and risk associated with the underlying economic activity has been overstated by innovations in FIRE. What remains of the real economy is contracting harshly from the wicked de-leveraging brought on by the systemic failures in FIRE industries.

[/quote]

I just read that we’ve seen $50T in wealth destruction so far globally. So if we “only” go to $70T, I’ll consider that a victory.

I think we’ll find out in a few years that there were enormous opportunities in a number of different financial and RE-related assets, but that they weren’t in the “obvious” places – like big bank securities, or buying A-rated MBS at 10% of par – but rather in the seams and cracks of some of the illiquid markets that are way off the grid. But I suspect these “good” opportunities will be dwarfed by the landmines that are still out there in terms of total dollar value. But, we shall see.

[davelj]

[quote=gandalf]Hey davelj, on a more balanced note, thanks for creating this thread.

I’m a cautious optimist by nature, but my numbers are bigger (much bigger) than yours, and my outlook more pessimistic. Speaking as a former analyst on an MBS trading desk, the marked positions never matched the underlying long-term revenue streams. Patterns in ABS markets are observable in other markets.

The number in my mind is $70T. That’s the amount of global wealth that’s in the process of going away. I might be low. The true extent, performance and risk associated with the underlying economic activity has been overstated by innovations in FIRE. What remains of the real economy is contracting harshly from the wicked de-leveraging brought on by the systemic failures in FIRE industries.

[/quote]

I just read that we’ve seen $50T in wealth destruction so far globally. So if we “only” go to $70T, I’ll consider that a victory.

I think we’ll find out in a few years that there were enormous opportunities in a number of different financial and RE-related assets, but that they weren’t in the “obvious” places – like big bank securities, or buying A-rated MBS at 10% of par – but rather in the seams and cracks of some of the illiquid markets that are way off the grid. But I suspect these “good” opportunities will be dwarfed by the landmines that are still out there in terms of total dollar value. But, we shall see.

[gandalf]

Wow. So $70T is low… That’s amazing. It’s been an interesting 2008, truly remarkable. Historic?

Best wishes for peace and prosperity in 2009. Throw in good health, family and friends, and just to go out on a limb here, Chargers in the Super Bowl?

Happy New Year!
G

[gandalf]

Wow. So $70T is low… That’s amazing. It’s been an interesting 2008, truly remarkable. Historic?

Best wishes for peace and prosperity in 2009. Throw in good health, family and friends, and just to go out on a limb here, Chargers in the Super Bowl?

Happy New Year!
G

[gandalf]

Wow. So $70T is low… That’s amazing. It’s been an interesting 2008, truly remarkable. Historic?

Best wishes for peace and prosperity in 2009. Throw in good health, family and friends, and just to go out on a limb here, Chargers in the Super Bowl?

Happy New Year!
G

[gandalf]

Wow. So $70T is low… That’s amazing. It’s been an interesting 2008, truly remarkable. Historic?

Best wishes for peace and prosperity in 2009. Throw in good health, family and friends, and just to go out on a limb here, Chargers in the Super Bowl?

Happy New Year!
G

[gandalf]

Wow. So $70T is low… That’s amazing. It’s been an interesting 2008, truly remarkable. Historic?

Best wishes for peace and prosperity in 2009. Throw in good health, family and friends, and just to go out on a limb here, Chargers in the Super Bowl?

Happy New Year!
G

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