This post might be a milestones for future readers. Too, it may represent a broadening of focus.
We have mentioned the technique, called using tranches, a few times. Of course, we were derisive of the notion, especially since a lot of the turmoil of the latest downturn was greatly increased by the uncertainty of these types of things. We said: they left the game since who did not knew who was not a crook (given that it takes one to know one or something of that order). That's the lemon problem, folks.
Also, these things magnify losses. Actually, we may still have to unwind some of this type of idiocy from before (toxic assets - how soon we forget?).
Notice the image. It talks about how banks walked away. Sure. They knew the crookery 'neath their crap.
What is the change here? Well, let's just say that people will game. It's part of our character. So, the issue ought to be to keep gaming's influence to that of the gamer or his/her family (assuming that they have a say). For the rest of us (speaking for myself, I don't want to deal with the fallout from idiots, even (perhaps, especially so, for) those with Italian suits), we will tell the bankers (and their ilk) to keep the gaming to their own little milieu.
The CDO (collateralized debt obligation) is a type of gaming. First of all, this is enabled by computation (about which I know a whole lot). Too, it's a way for those who want more to take it (albeit, with a gentleman's agreement) from those who don't mind so much (but, we have to ask about the fiscal responsibility of these people who are giving up to the idiots).
Aside: Forgive me as I pull myself away from the derisive tone. After all, that addiction is a lessor offense that what we see with those who are feeding at the golden teat that Ben has provided (use the taper, Ben, please -- wait, where ought he aim the thing?). Perhaps, the thing to do is to limit mockery to asides, such as this.
The WSJ article talks about the CDOs coming back big time. They're not regulated.
Now, the truth of the matter is that this might be a useful means if the derivatives had something of real value beneath them. How could we assure that? Also, how much information ought we to have when these things are being done behind walls? Say, private equity? You see, more publicly oriented wealth managers might buy in which changes the game.
It may be that this would be a means to have a "sandbox" for those who want to play. We're open to anything that is reasonable and that honors the issues of near zero.
So, expect more quantitative and technical foci here, folks. We'll subsume all this, of course, under the cosmology of business.
08/13/2013 -- Yesterday, we mentioned that President Obama wants to change the mortgage arena.This seems like a good opportunity to start a look back. One would hope that those who are in charge of the changes know the intricacies of why we have idiots running things now. If not, we'll attempt such an analysis here. Idiots? Yes, such inconsistencies of tying up money for 30 years, at a low interest (without acknowledging that taxpayers allowed this to occur in the first place, early on for veterans coming back from WWII). There are others things like this that seem so like chasing after the perpetual-motion machine. Finance, built upon bogus money, has no way to ground itself, essentially. So, let's start with Investors II.
06/22/2013 -- So, how many traded their paper gain (chimera) to solid debt with the downturn? Okay, forget the size of the loser set, how much went from illusory gain (backed by a promise to pay later) to real debt that has to be paid with blood and guts? Wait! Some of those doing the margin calls, and ilk, have some way to weasel (not disparaging the grand animal) out, not doubt.
06/20/2013 -- Can Ben stand quiet? Some charts show that Ben has turned over (morphed, whatever) every time there was a downturn. He would come up with something new to tell the chimera addicts. And, then we saw a rally; there are several charts (and articles) that show this. The net result is that we're at a point where those in the game had their tongues wagging as they awaited another bone. But, there wasn't one. Now, this downturn might just be like messing on the carpet to show displeasure. ... Look, who is selling? I would bet that it's those who bought in long ago, so they've got a gain (ill-begotten, remember?) there. The losers, if they need to sell now, will be the later buyers. ... We really would learn something to see how this settles without Ben's intervention. Would he have to wait for the next opportunity? Not really. But, can he keep from playing hero? ... Too, Ben is not there to inflate the markets. ... Of course, Ben does have to hear what people like the Speaker say about him. Poor guy. Ben pleases the idiots/addicts when he's loose (as he has been for years now). When he talks maturity (like play a fair game, don't expect rigging in your favor, don't look for handouts, ...), does anyone of the idiots listen? ... But, Ben, you've slapped the savers silly now for a long time. You can't hear their groans?
06/19/2013 -- All the media (financial type) were saying that investors were awaiting "guidance" from Ben, and the Fed, this morning. So, Ben has spoken. No change. Yet, other heads, like Stockman (ought we agree with him on this?), say that Ben is asea, doesn't know how to extract himself from the corner into which he has painted himself and us. All the while, Ben has been slapping the savers, way beyond silly.