March 2010
4 posts
Just a Quick note: Morally bankrupt has moved. →
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A Closer Look at Retail Sales
Well, we got new retail sales numbers from the Census Bureau. Calculated Risk reported an increase but, just like last month, these numbers are a little less bright when adjusted for population changes. Please take in mind this is a census year, and we’ll have a new population estimate soon, but if the gap between the 1990 and 2000 estimates is any indication, the difference shouldn’t...
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This is not Progress: Transaction Taxes
There have been many calls for a transaction tax. I oppose all of them. I am not a free-market fundamentalist, but intervention here will help nobody. I understand the desire to tax speculator’s trading activities, they can often be seen as value extracting instead of value creating activities, but at the end of the day, they do add liquidity and lead to tighter spreads, even if the...
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The Benefits of Naked CDS →
In a market where one of Greece’s principal market makers -– Deutsche Bank –- says it will not buy Greek bonds, and where European politicians are having to force their own national banks to do so in order to try and avert the threat of a Greek bond auction failing, the boon from hedge funds looking to hoover-up Greek debt is undeniable.
And the only reason they are in the market to buy is...
February 2010
9 posts
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Per-Capita Adjusted Retail Sales: Not Such a...
Earlier today Calculated Risk posted about an improvement in total retail sales. I was interested in how these numbers would look once adjusted to their per-capita numbers. Obviously the population estimates (from the Census Bureau) might have a little bit of an error margin, but I wanted to see how the spending trends of Americans had, or had not, changed. In essence, I wanted to know if...
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“In any process in an isolated system, the total risk and return remains the...”
– First law of thermodynamics, applied to risk/return. Morally Bankrupt
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“Risk can neither be created nor destroyed. It can only change forms.”
– First law of thermodynamics, applied to financial risk. See also: Conservation of probability. Morally Bankrupt.
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“As financial innovation approaches zero, all value-extracting processes cease...”
– Third law of thermodynamics, applied to finance. Morally Bankrupt
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Entropy: As defined in finance
dS = δQ / T
dS: change in entropy of an economic system δQ: Let δQ be an element of the value given up by the body to any banker/financier during its own changes T: An Absolute Return value
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“In a product, a process that occurs will tend to increase the total entropy of...”
– Second law of thermodynamics, applied to finance. Morally Bankrupt
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“Potential return generally cannot flow spontaneously from an instrument at lower...”
– Clausius statement, applied to finance. Morally Bankrupt
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“It is impossible to convert capital completely into value in an economic...”
– Kelvin’s law, applied to finance. Morally Bankrupt
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“The increase in the return of a product is equal to the amount of return added...”
– First law of thermodynamics, applied to finance. Morally Bankrupt
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The Baseline Scenario: Move Your Politician’s... →
what happens when the location of political candidates’ own money starts to matter. As early as this fall’s primaries, expect to hear people ask politicians in debates and through various kinds of interactions: (1) where do you, personally, keep and borrow money, and (2), in all relevant cases, where did you put public money when it was up to you?
Make them put the money where their mouth is?...
January 2010
9 posts
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Nomenclature: It's important! →
The problem we face is not that the broader population wants pointless or destructive revenge on a financial elite that has done well. Nor is it the case that, if left largely to its own devices, our major banks will guide us back along the path to sustainable growth.
The consensus technocratic assessment is simple: We are smack in the middle of a doomsday cycle of repeated boom-bust-bailout...
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Mortgage Rates, Purchasing Power and Home Prices
As you may have seen, the Case-Shiller housing index has been showing small signs of improvement. While some may consider this a good sign, I am a bit skeptical. Why? Well, as we saw earlier today, mortgage rates are at 40 year lows. These low rates allow us to cover a much bigger principal with the same monthly payment. In the last 40 years mortgage rates have been as high as 18% and as low as...
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Negative Convexity and The Fed
So there’s this article over in FT Alphaville regarding the negative convexity of the Fed’s MBS purchases. No-shit, right? Callable securities exhibiting those features? Uhm… yeah, not so surprised. But, while Tracy does a good point of countering a lot of Krasting’s fears, I want to jump in to this one.
Tracy is right, the risk here is not so much an issue of negative...
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Separating Value Producing activities from Value...
There’s a lot of buzz going on the various financial blogs about Obama’s plans to separate prop trading from regular commercial activities in banks. Misch is claiming GS is nothing more than a hedge fund and hsould have it’s bank holding company status revoked. I’d like to give you my take on it.
Taxing TBTF Away I believe TBTF is a problem. I know that there’s...
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November 2009
1 post
Breaking up of the Banks and it's Effect on...
I was reading this story on the dead-tree version of The Economist the other day and it got me thinking about a friend I have that used to do some derivative’s trades through Citi Private Bank. When speaking about it, he always mentioned the upsides of the banking “supermarket,” namely that they would let him leverage or collateralize assets in one part of the supermarket with...
July 2009
1 post
April 2009
1 post
The real cost of margin.
Call it leverage, call it margin, it’s essentially the same thing, you are using borrowed money to purchase securities. Pursuant to Regulation-T, you are not allowed to use any borrowed monies other than the margin provided to you by your broker dealer. Because you pay interest on margin balances, the goal is not only to make a positive return, but to make a positive return that exceeds the...
March 2009
2 posts
Tim Geithner's Passing the Buck to Sheila Bair:...
On Monday March 23, US Secretary of the Treasury Tim Geithner unveiled his much-touted bank-rescue plan and markets rallied. Geither was seen as both, a champion of free markets and enterprising, with the plans to a to use a public-private venture where the government shared the losses and wins with private investors. Bank stocks rallied, Private Equity firms saw this as a win for capitalism and...
The Derivatives Scam
You are looking at an outdated copy of Morally bankrupt, please read this same post on our new blog
Futures, forwards, options, swaps, no matter what you call them they fall under one broader label: derivatives. While swaps, particularly credit-default swaps, have been the most prominent in the news during the The Panic of ‘08/’09, they are not much different from the rest in one...