Why Greece Should Reject the Euro

[KrazyHorse]

I don't understand the comment. You will need to make it explicit.

The idea is that the Fed failed to act on the market's very clear indications that without action on the short rate we were headed for an incredible shift in PQ

[TCO]

Spell out the earlier point, rather tahn making a new one.

[TCO]

The idea is that the Fed failed to act on the market's very clear indications that without action on the short rate we were headed for an incredible shift in PQ

Spell it out more. Both the point you were making and the connection to bailouts (or letting things get unwound).

[KrazyHorse]

I don't know the direct costs, but there WERE direct costs.

The direct costs were either tiny or negative. And they were not to the actors you believe (large AIG counterparties sometimes/always laid off that risk)

the inderict costs were a ratification of moral hazard

I agree completely

the auto bailout (which would not have happened otherwise)

lol

and a huge industrial recession which was the "rational" result of consumers realizing our government played along with moral hazard.

This is idiotic.

And if it didn't "cost that much", then why do it at all? Why not just let the chips fall?

It is reasonable to assert that having government cut the gordion knot provided a much quicker resolution than otherwise. At the same time, the only part of new regulation I agree with is the resolution authority and the requirement to write a living will.

[KrazyHorse]

Spell out the earlier point, rather tahn making a new one.

Which point? Please quote the posts you're referring to.

[KrazyHorse]

Spell it out more. Both the point you were making and the connection to bailouts (or letting things get unwound).

When the Fed fails in its mission to promote monetary stability (and EXPECTED monetary stability) it directly and quickly affects those who are always short liquidity (banks and other similar financial firms).

[TCO]

The direct costs were either tiny or negative. And they were not to the actors you believe (large AIG counterparties sometimes/always laid off that risk)

Fine...you take that "tiny" direct cost. Also, there was a lot of finkinesss with the discount window and the merchant bank status. Also, we still have a bunch of paper on the US books (Fannie Mae and all athat). Rather have counterparites deal with that stuff rather than the FEd or USG.

the inderict costs were a ratification of moral hazard

I agree completely

whuch is a big deal and has implications on future value expectations (hence why the undustrial recession is not a joke hypthesis...its part of rational expectations theory). Similarly, the price of oil dropped in 2008 when "drill baby drill" got traction and then went up when it lost traction (and spare me the comments on amounts...wee've had this debate and the issues have to do with cartel pricing and the ability of fringe producers to drive wedges into cartel unity...and the expectaion of such happening).

the auto bailout (which would not have happened otherwise)

lol

More rational expcations issues...

and a huge industrial recession which was the "rational" result of consumers realizing our government played along with moral hazard.

This is idiotic.

No...it;s not. I saw it. And it fits right into a school of thought (raional expectations of government actions).

It is reasonable to assert that having government cut the gordion knot provided a much quicker resolution than otherwise. At the same time, the only part of new regulation I agree with is the resolution authority and the requirement to write a living will.

I don't get the last one. You will have to be more explicit about your assertion. (cutting the Gordion knot, also the passive voice is confusing, not sure if y6ou are mamking the assertion or not).

[TCO]

Which point? Please quote the posts you're referring to.

Yeah...my bad. Getting used to theis board redesi9gn. Buttons acting different than I expected.

[TCO]

When the Fed fails in its mission to promote monetary stability (and EXPECTED monetary stability) it directly and quickly affects those who are always short liquidity (banks and other similar financial firms).

There are actually several steps in the thought train here. I need to understand the whole thing to assess it.

1. Have to underssand what the graph proves (in simple terms).

2. Have to understand if the Fed "failed" or if it it really has that "mission".

3. Also financial stability is an inexact term. Some issue with the discount rate is not the same as like...having dollars become wastepaper or the like.

4. And I'm not sure why "if the Fed fails" (hoever that is determined) that trading houses who have banked on it "not failing" should not be the logical ones to take the hit on that trade?

5. and the whole "bank" term is rather tricky and slippery. We are takling about trading entities. not merchant banks. And I recall a lot of stories in thebegining of the crisis about how the neighbordhood banks were doing well...it was the big NY entities or people who had made really hedgdgie type trades (deriviatves and the like) who were in the soup.

[KrazyHorse]

Fine...you take that "tiny" direct cost. Also, there was a lot of finkinesss with the discount window and the merchant bank status. Also, we still have a bunch of paper on the US books (Fannie Mae and all athat). Rather have counterparites deal with that stuff rather than the FEd or USG.

FNMA dwarfs all other financial bailouts, is larger than the auto bailout, and is only exceeded by deficit spending bills. Not sure who most of the holders of agency credit risk are.

whuch is a big deal and has implications on future value expectations (hence why the undustrial recession is not a joke hypthesis...its part of rational expectations theory)

It is a joke hypothesis. Especially when you look at that graph of inflation expectations. Which dropped off a cliff BEFORE the bailout. And quick drops in inflation expectations (or nominal GDP) ALWAYS MEAN RECESSIONS. Period.

I don't get the last one. You will have to be more explicit about your assertion. (cutting the Gordion knot, also the passive voice is confusing, not sure if y6ou are mamking the assertion or not).

I am not convinced it was a good idea. My convictions on that are not strong.

[KrazyHorse]

There are actually several steps in the thought train here. I need to understand the whole thing to assess it.

1. Have to underssand what the graph proves (in simple terms).

It proves that the actions and communications of intent the Fed was providing were drastically contractionary (note that there is no such thing as "inaction" on the fed's part except when viewed through artificial constructs like the short rate.

2. Have to understand if the Fed "failed" or if it it really has that "mission".

You have to understand if the fed has a mission of monetary stability? What else does it exist for?

3. Also financial stability is an inexact term. Some issue with the discount rate is not the same as like...having dollars become wastepaper or the like.

It is an inexact term, but when all related measures are also dropping through the floor, when retrospectively we see that we DID undergo a severe demand-side recession (inflation dropped, nominal and real gdp dropped) then the Fed failed. The Fed cannot save us from real factors. But it can save us from radical drops in nominal measures.

4. And I'm not sure why "if the Fed fails" (hoever that is determined) that trading houses who have banked on it "not failing" should not be the logical ones to take the hit on that trade?

I'm not claiming that banks had a moral right to a bailout because the Fed failed in its mission. What I am saying is that the Fed should have not failed, and that if it did fail we are already in the position of dealing with second-bests. Giving people confidence that when one branch of government fails, other ones will provide solace is a legitimate concern.

5. and the whole "bank" term is rather tricky and slippery. We are takling about trading entities. not merchant banks. And I recall a lot of stories in thebegining of the crisis about how the neighbordhood banks were doing well...it was the big NY entities or people who had made really hedgdgie type trades (deriviatves and the like) who were in the soup.

Do you know why those stories were from the beginning of the crisis? Because they were early and uninformed. The banks which have failed are regional banks (who also had bailout money available to them, btw) and which DON'T trade away their risks. The biggest moral hazard story continues to be the FDIC, which allows (mostly) small banks to issue ****ty loans, hold them on accrual accounting, borrow money at an undifferentiated rate from banks which do hedge their risks, and then pray nothing goes wrong.

[TCO]

Fine...you take that "tiny" direct cost. Also, there was a lot of finkinesss with the discount window and the merchant bank status. Also, we still have a bunch of paper on the US books (Fannie Mae and all athat). Rather have counterparites deal with that stuff rather than the FEd or USG.

FNMA dwarfs all other financial bailouts, is larger than the auto bailout, and is only exceeded by deficit spending bills. Not sure who most of the holders of agency credit risk are.

whuch is a big deal and has implications on future value expectations (hence why the undustrial recession is not a joke hypthesis...its part of rational expectations theory)

It is a joke hypothesis. Especially when you look at that graph of inflation expectations. Which dropped off a cliff BEFORE the bailout. And quick drops in inflation expectations (or nominal GDP) ALWAYS MEAN RECESSIONS. Period.



I am not convinced it was a good idea. My convictions on that are not strong.

1. There were a lot of differen risks around and that you don't know how people doing complicated derivateve trades were impacted by various parts of the bailiout, means that there still may have been under the table (in effect) stabilizations. After all this was sort of the rationale )everything being connected). Also, the different parts of the bailousts supported each oterh in justification. Would have been better olicitcally to cut the =knot with all together. So I don't those are two reasons why I don't like our whole "ouone part of the baiuut was small hyptoethse' Also, if it really was small...then fine...I bet letting that part go tits up would not have been bad either. Soi why do oit? why not just let trades unwind?

2. Maybe it is a "joke hypotheiss " but not for the reasons you've stated. The recssssion that I sawa was a huge contraction in ninventories in the manufacturing sector and it went down in poctonber, maybe starting in Sept. It was fine in July. The timing for an expectation is not "wjhen the bailout happneed" but when it becomae politically feasible. And those times jibed very well. So If y6iou are going to shoot the tehory down, it needs to be for other reasons, not as stated. Also, things where fine in June-July while the financial system was in panic. manufacturing was still humming. My thiessis is that the economy priced in the rational expectation of government behaviour. I ain't no econ smartie, but there was some dude who got a nobel Prixe for it. And it is commone sense. Ps. Sorry for the typos. This new board does not show my typuing as I type.

3.. WTF is "it"? TARP? The whole set of bailouts? Stimulus and Obama? Gestalt? I'm still trying to get the Gordion knot and the passive voice. I'm not trying to trick you. Am honest when I say, that I don't get your earlier points, when you use a technical terms.

[TCO]

Is it my puter or this board? Seems really slow and sucky? Don't have this iussue on other boards Or Apo in the past? CAn't even see my typuinbg in the box for a while.

Wait....


Wait....

[TCO]

It proves that the actions and communications of intent the Fed was providing were drastically contractionary (note that there is no such thing as "inaction" on the fed's part except when viewed through artificial constructs like the short rate.

2. Have to understand if the Fed "failed" or if it it really has that "mission".

You have to understand if the fed has a mission of monetary stability? What else does it exist for?

3. Also financial stability is an inexact term. Some issue with the discount rate is not the same as like...having dollars become wastepaper or the like.

It is an inexact term, but when all related measures are also dropping through the floor, when retrospectively we see that we DID undergo a severe demand-side recession (inflation dropped, nominal and real gdp dropped) then the Fed failed. The Fed cannot save us from real factors. But it can save us from radical drops in nominal measures.

4. And I'm not sure why "if the Fed fails" (hoever that is determined) that trading houses who have banked on it "not failing" should not be the logical ones to take the hit on that trade?

I'm not claiming that banks had a moral right to a bailout because the Fed failed in its mission. What I am saying is that the Fed should have not failed, and that if it did fail we are already in the position of dealing with second-bests. Giving people confidence that when one branch of government fails, other ones will provide solace is a legitimate concern.

5. and the whole "bank" term is rather tricky and slippery. We are takling about trading entities. not merchant banks. And I recall a lot of stories in thebegining of the crisis about how the neighbordhood banks were doing well...it was the big NY entities or people who had made really hedgdgie type trades (deriviatves and the like) who were in the soup.

Do you know why those stories were from the beginning of the crisis? Because they were early and uninformed. The banks which have failed are regional banks (who also had bailout money available to them, btw) and which DON'T trade away their risks. The biggest moral hazard story continues to be the FDIC, which allows (mostly) small banks to issue ****ty loans, hold them on accrual accounting, borrow money at an undifferentiated rate from banks which do hedge their risks, and then pray nothing goes wrong.

1. In all seriounsness, you are going on and discussing implications and I would like a simple discussion of the meaning of the graph to start. I get that you don't like the spike maybe? But then what is the amount of psikness allowed, etc? Spell it out all.

2. I don't know all the erasons why it exists, but I don't know ahat it only has a single issue. And I think we should be qunatitative about the "amount" oand type of fiscal stability if we define that as a mission.

3. I'm not sure that it is reasonable to expect the Fed to stop us from "demand side rescissions" . Expeically if you accept at least the possiblity that it might have had a rational reason (expectation of socilaism and bailouts)

4. Who should bear the issues of a change in disount rates seems the key concern here. You say you're not eneccsessrily arguing for it athan seem to say you are. which is it? I don't see why the "failure" (an emotinal loaded term) of the Fed needs to make the taxpayers take on liabilityes so that financial institutions and scertain counterparties get backsoptted by red grgrannies in red states.

5. I ahate the FDIC too. But if it is the problem, we should at least be clear. Like with the SnL debacle. Not colud the issue by bailioutg out a bundch of different institutions. but just give depositers back their money if they hae an FOIDC gaurantee. And the rest of the lot can pack sand. That way we know where the problems are. And we don't bail out stuff we don't need to. Adn the risky traders learn their lesson.

[Fake Boris]

Do you know why those stories were from the beginning of the crisis? Because they were early and uninformed. The banks which have failed are regional banks (who also had bailout money available to them, btw) and which DON'T trade away their risks. The biggest moral hazard story continues to be the FDIC, which allows (mostly) small banks to issue ****ty loans, hold them on accrual accounting, borrow money at an undifferentiated rate from banks which do hedge their risks, and then pray nothing goes wrong.

You are saying there is a fixed interest rate between banks?