Economic oddities and collapses?

[Roxanne Appleby]

The main problem the creditors (banks and other financial firms) are having is counterparty risk: you and I have hundreds, if not thousands, of trades going on between us and I'm beginning to lose my faith that you'll still be solvent in a couple of months.

The driver of counterparty risk isn't that complicated: every financial company has a pile of paper somewhere in its accounts that it knows is in putrid, never-gonna-collect shape. Once they get a feel (not a count - that's usually a reasoned estimate at best) for the size of this shitpile, they start looking around and asking themselves questions like: who's pile is probably worse than mine? If most of your bad paper was generated in market X, and you know company Y to have been the biggest and most aggressive player in market X, you know who you don't want as a counterparty.

That's effectively what happened to Bear: other players realised how vulnerable they were to current market conditions and basically stopped accepting their trades (never mind lending them money - they wouldn't even sell things to them that had to be settled on day of delivery.) When that happens, you're cooked: there is no possible recovery. Somebody bigger, whose funding is not under suspicion buys you out for pennies, or you go to the wall. In this case, the Fed decided that underwriting JPM's investment in Bear was the better course of action, as knowing that Big Brother's wallet would be used to prop up the desperate would reduce the overall amount of counterparty risk in the market.




Here's the Fed's assessment of Bush's economic acumen. In the post-Bear-deal debriefings, Fed officials stressed repeatedly that neither Bush nor his economic advisors had been involved in any way in either the structure or process of the transaction. They took specific pains to ensure everyone knew this deal had been designed by the professionals with zero input from the White House. Draw your own conclusion about how high they rate the executive branch's grasp of current problems...

Hey HP, good to see you around, and a well timed appearance!

Re. your last point, it might also just be evidence that the Fed appreciates the poisonous political atmosphere that prevails these days, and didn't want any of the poison to pollute their deal.

 

[Kev H]

I realize that the rushed questions might make me seem a little daft, but I wanted to get it out before I had to leave. Yes, HP, I understand the difference between the sectors of the govt, and your answer was exactly what I wondered (the Fed Governors would be most inclined to tell Bush to STFU and let them do their job), and Rox's addition make it obvious how bad of a bet any association with the administration would be. The US has made enough bad bets lately. Also, thank you (HP) for your relating of the "shared risks" without many safeguards explanation (counterparty games give me the mental shivers, as unreasonable as that may sound). I've read other things similar to Rox's first post about how system is set up to allow people go way out on a limb, to push the envelope, with little-to-no recourse to them, personally. Our market system seems to really reward this, though it smacks of unethical behaviors to me.

I struggled through Trysail's posts (twice), and I think I get the general idea--which, in general, is still along the lines that the tangle (financial statements) is beyond complex, and this inevitably leads to some serious fuck-ups.

My suspicion is that it's in certain people's best interests to drive the economy hotter than it should run--to really stretch the limits. I don't know/remember enough about economic history to know if it's always been that way (had 3 economy-related classes, macro-, micro-, and political, which I barely passed--definitely not my cup of tea). The "game" with certain people is to amass short-term wealth from a push (or wave), and then get out of the way when it crashes. Instinctively (because of these beliefs), it makes sense to me that the crashes happen occasionally in an effort to correct the foolishness, especially when aided by several strong factors (in this case, mostly by the weakening dollar/confidence in the US, mass layoffs--we've seen staggering amounts of those in the last 3 months, and oil prices).

Correct me if I'm getting this wrong, but the housing market severely over-extended itself, causing a huge supply, which possibly began the decline in prices. Then people, thanks to their strange mortgage programs, began seeing that it was more advantageous to foreclose, which dumped more houses back into the market (or pre-market/mortgage holders--which, if I'm not mistaken, end up being mostly foreign investors that people like the banks and Countrywide resell to). A widespread use (abuse) of this led to the accelerated collapse of the housing market, in general (as it struggles downward to find some equilibrium, ie, when prices get cheap enough for people to start buying instead of dumping...right?).

I am struggling for understanding here, both for intellectual curiosity and because I have a house that needs to be sold pretty soon (oops), so take most of what I say as posted questions--if something is off in my summaries, please correct me and tell me why (and please specify or make it obvious if it's simply your opinion).

What are the other (less obvious) factors that seem to be aggravating this situation? And how are we (are we?) addressing them?

Too bad recessions have to happen, as it seems to really whack the consumers, not the "gamers." Is this yo-yo an implied free-market correction device and to be welcomed (vs feared and over-reacted-to)? Is the government wrong to allow the bailout of Bear (and is it true that the top people were unaffected/insulated by the crash, even though the stocks imploded)?

Inquiringly,

Kev

 

[Handprints]

Hey HP, good to see you around, and a well timed appearance!

Re. your last point, it might also just be evidence that the Fed appreciates the poisonous political atmosphere that prevails these days, and didn't want any of the poison to pollute their deal.

Thank you - nice to be here. New job, new team, new responsibilities, huge learning curve = no free time for the foreseeable future.

No doubt the Fed wanted clean hands - that's (almost always true). I got it second hand, admittedly, but I think anyone who knows the Fed knows it has a relatively low regard for the executive branch's grasp of mechanics. From Greenspan's memoir, it appears Nixon, Ford and Clinton (and their respective teams) were the only ones who ever asked for details.

I'm tempted to offer contrasts with other nations' central bank/government relations but I'm not particularly happy with my own dear national leader's grasp of the obvious right now...

Best,
H

 

[Handprints]

I am struggling for understanding here, both for intellectual curiosity and because I have a house that needs to be sold pretty soon (oops), so take most of what I say as posted questions--if something is off in my summaries, please correct me and tell me why (and please specify or make it obvious if it's simply your opinion).

What are the other (less obvious) factors that seem to be aggravating this situation? And how are we (are we?) addressing them?

Inquiringly,

Kev

Complicated set of questions! Here's a more-or-less theoretical summary of what's happened to complement Trysail's specifics.

Before the widespread use of credit derivative instruments - say 1990 - credit risk was concentrated in relatively small number of institutions - banks, credit card companies, auto financing companies etc - who had a more or less fixed limit on the total dollar value of risk they could accept. We - the upstanding members of the financial community, plus economists - knew that the upper limit on credit availability wasn't being determined by the market-as-a-whole's appetite for such risk, it was determined by the balance sheets of the small subset of the market made up of banks, credit card companies, etc.

Enter credit derivatives (CDOs, CMOs and the like - call them CXOs as a group). Now the risk owners could essentially repackage their risk-carrying loans into products that anyone in financial markets could buy. We bought. Our earlier suspicion was correct - the market-as-a-whole could absorb far more credit risk than the subset could. As a result, credit became much more widely and cheaply available. In fact, the market-as-a-whole's appetite for this risk was so great that, despite record volumes of credit being granted pretty much every year since 1993, demand for credit risk outstripped supply. This meant that originators of credit risk - banks, credit card cos etc - could make a profit just by repackaging the loans into CXOs.

(Note: there's nothing suspicious about this. Almost everyone agreed on these things' risk/reward - the buyers just had more appetite for it than the sellers. Some of these buyers, admittedly, had no idea and just bought because everyone else was. Do I have much sympathy for these buyers, recognising as I do that they include local municipalities, charities and public investors on whom the needy and unfortunate rely? Some, but not much. If I spend 30 minutes of my 40-minute presentation explaining the risks to which my product is subject, I'm giving you as many outs as a fair game requires. Thinking you're an idiot will (and, in my view, should) not stop me from making the sale. As a sainted Morgan Stanley chairman once observed: we're not in this business to help old ladies to cross the street. There is a vast universe of perfectly comprehensible investments available to these less-sophisticated buyers. They're not obliged to return my calls.)

Fast forward to 2007 and credit derivatives are pretty much everywhere: every bond and pension fund, every bank and most municipalities' balance sheet etc. Now the first test arrives: defaults are looking likely as consumers, who have become used to putting everything on the plastic and taking out second mortgages to buy holidays, start realising that they might now be unable to pay the vig. Some of them, in fact, begin to default. Two questions - which, in reality, have very little to do with each other - begin to occur to owners of CXOs: what are these things really worth and what price can I get for them?

The first question is pretty simple to answer: for the most part, they're worth around what you paid for them - maybe 5-10% less except for the riskiest stuff. At least, they will be if you hold them to maturity. Our problem is that very few CXO buyers want to hold them to maturity. They have a number of reasons for this lack of desire. First and foremost, they're required to show the value of these instruments on their reports to investors and annual accounts on a mark-to-market basis. No matter at what length they explain that current market prices don't reflect real value, huge numbers of people will take those losses as evidence that the owners are taking huge, irrecoverable losses. Second, if you hold the CXOs, that's money you can't put to work elsewhere. There are some incredible bargains on offer in markets right now. It may, in many cases, be a good idea to sell your CXOs for an absurdly low price because there's an even more absurdly-priced bargain elsewhere.

The biggest reason you might not want to hold CXOs, however, is the main one in the market's thinking right now. You might be selling them because you have to: because you need to sell everything you've got to cover your own debts - debts you took on in order to buy CXOs. A large number of players at the more speculative end of the spectrum - hedge funds particularly - are in this position right now. The only way they can stay afloat is to sell everything in the portfolio at any price they can get. When there are any desperate sellers in a market, prices drop. When they exist in reasonable number, prices stay at the floor. Why buy from a guy who doesn't really need to sell - and therefore wants a reasonable price - when you can wait for a seller who'll take anything?

That leads us to the second question: what price can I get for my CXOs? A lousy one, even for very high-quality CXOs that almost everyone agrees are a great buy. There's no reason to pay a reasonable price for them until all the unreasonable sellers have been flushed out.

In one sense, over-leveraged homeowners and credit card abusers are to blame: their herd-like rush to bankruptcy is what caused everyone in the market to reconsider the value of their debts - the things which ultimately pay off CXO owners. What's really causing the market chaos (at least within the financial sector) right now is that we've never been here before: we don't know how to decide who's going to be hurt the worst and how badly. As a consequence, we're being extremely choosy about who we'll lend to. When we get that choosy, liquidity dries up, even when the Fed starts driving the key interest rate down to zero. Until we're more confident that our loans (even our one-day loans) are going to be paid back, shares in banks and financial companies with be both ultra-low and exceedingly volatile.

Also, lenders (the originators of credit risk) no longer have broad market in which they can lay off their loans. We're not only back to the pre-1990 situation of mortgage/credit card/auto loans having to be held in-house, many of the key new players in this industry - Countrywide et al - are hemorrhaging cash and can't take on more customers. As a result, consumer credit is much harder to come by, despite near-record low Fed rates.

It will all work better next time. Financial markets rely on precedent far more than, say, judges. Once we've done this once, we'll be good at it.

On your more specific questions: recessions hit financial sector companies harder than anyone, if we measure in percentage of jobs lost. I think the Fed's bailout of Bear was wholly sensible and necessary in that it will likely prevent later runs on big players.

The broader implications of the Fed's recent actions to reduce counterparty/liquidity risk are more unpleasant, although I accept them as necessary in the same way that surgery sometimes is: inflation will be a much larger problem for many more years than would otherwise be the case. Unemployment in the US will rise and stay high for at least the next three years. The US balance of payments will get worse. The dollar will likely fall much, much further if the Fed nears a zero interest rate policy. The alternative, of course, is that the stock and financial markets essentially stop functioning. When that happens, you don't really have some of the economic freedoms that the government and constitution of the US are meant to guarantee. In that light, the Fed was acting to preserve the legitimacy of the American experiment and I can't really fault them for that...

Hope that's of use,
H

 

[JAMESBJOHNSON]

HANDPRINTS

I think you just described the situation prior to the 1929 crash. Everyone is holding large bags of paper they paid too much for.

 

[rgraham666]

Thanks Handprints. An interesting and informative take.

But not to worry. Once we get through this crisis and we learn how to handle CXOs we'll come up with other financial products that we haven't seen before, they'll make people greedy and we'll have another crisis.

It's what the free market does best.

 

[Kev H]

HP, thank you so much for taking the time to weave a broad picture--very fascinating. I can see from your posts that you speculate as little as possible, and this makes it easier to focus on the meat. Assuming "the herd" (lol) doesn't rush to the other side of this boat, I believe you are saying that this short-term pain is payment for long-term lessons (ie, we've picked up brand-new market methods that will be safer in the future, if as you say, we learn).

I tend to take a much more pessimistic view of people (enforced by asshats like those traders who intentionally spread rumors about a "new Northrock" to make money in the panic--hope they get busted hard--heh, give 'em to China; they know how to deal with that type), but it's great to hear informed views that are more optimistic/confident.

 

[trysail]

Theoretically (and you know how dangerous a word that can be), after all the goods and services represented by mark-to-market contracts have been delivered and performed, all the accounting fluctuations that have occurred between contract execution and conclusion will disappear (all else equal- meaning to the extent that the original model assumptions incorporated in the contracts proved accurate). We know that will never occur in practice, for any number of reasons not the least of which is that no forecast ever made turned out to be perfectly accurate (and momentarily forgetting rule #1 of hedging: there is no such thing as a perfect hedge).

Need I mention that readers of financial statements are looking forward to the new disclosures required under SFAS 157 (i.e., Tiers 1,2, and 3)?

All markets are being affected by the behavior of distressed participants (we know why they're distressed: too much leverage and too little liquidity, resulting in forced liquidations). Anyone will recognize that pattern for exactly what it is: a feedback loop.

Market participants with liquidity sufficient to avoid the necessity of forced liquidations will (again, that nasty word) theoretically be unaffected, in the long run-- if it wasn't for the risk of counterparty defaults.

We all know that there have been too many people out there playing with too much leverage. Markets are seized because participants are scared to death of counterparty risk, they're petrified by credit risk (try proving that Merrill, Goldman, JPMorgan, Citi are solvent!) and of a sudden they're acutely aware of complexity risk. These are "interesting times" and I'd be lying if I didn't admit to apprehension.

 

[Handprints]

Since I'm the silver lining type...

There's a healthy, growing number of countries who can honestly say all of: if commodity prices go up or down by 50%, we'll still make unbelievable profits; cost-conscious, debt-reducing US consumers are very good for our (non-commodity) exports; we have very little exposure to anything like sub-prime and our banks' ratios/books are getting better and cleaner every day; our trade in real volumes (as opposed to dollar value) is going up every month; and a falling dollar is no problem at all - we'd quite like to buy more US-made stuff, if prices come down a bit.

Welcome to emerging markets in 2008. Our stockmarkets are taking a de-risking beating but what the hell - we're used to it. Our inflation is growing a little faster than we'd like but it's because we've made so much damn money lately, not because survival re-pricing is kicking in.

Overall, yes I will have some more of that lovely Chilean champagne, thank you. And could you pass the dim sum?

Hope that's of interest,
H

 

[rgraham666]

Glad you're optimistic, HP.

About North America, I'm not. Especially since I believe the current economic crisis will precipitate a political crisis, one we probably won't survive.

 

[Roxanne Appleby]

Since I'm the silver lining type...

There's a healthy, growing number of countries who can honestly say all of: if commodity prices go up or down by 50%, we'll still make unbelievable profits; cost-conscious, debt-reducing US consumers are very good for our (non-commodity) exports; we have very little exposure to anything like sub-prime and our banks' ratios/books are getting better and cleaner every day; our trade in real volumes (as opposed to dollar value) is going up every month; and a falling dollar is no problem at all - we'd quite like to buy more US-made stuff, if prices come down a bit.

Welcome to emerging markets in 2008. Our stockmarkets are taking a de-risking beating but what the hell - we're used to it. Our inflation is growing a little faster than we'd like but it's because we've made so much damn money lately, not because survival re-pricing is kicking in.

Overall, yes I will have some more of that lovely Chilean champagne, thank you. And could you pass the dim sum?

Hope that's of interest,
H

What's the name of that lovely Chilean champagne?

 

[trysail]

Since I'm the silver lining type...

It is of help; god knows, at the moment, I can use some "silver lining" since I am one of the minority folk who are and will be punished for being liquid, solvent and prudent.

I am going to have to pay for the fucking idiots of Bear, Goldman, Merrill, JPMorgan, Countrywide, Bank of America, Wachovia, et al . I am going to have to pay for the fucking goddamn moron professors who brainwashed all the automatons into believing you can run the world without THINKING as long as you use statistical models. I am going to have to pay for all the wet-behind-the-ears simpletons who chose to ignore the fact that not only do hundred year floods occur, they can occur twice in one year. I am going to have to pay for the fact that the goddamn professors and consultants never considered the self-reinforcing feedback loop of six sigma events. I am going to have to pay for the flaws of VaR and the perverse incentives of the "2 and 20" crowd, incentive stock options and mark-to-market accounting.

I am also going to have to pay for all the fucking sheep who believed in Santa Claus, the tooth fairy and trees growing to the sky. They went out and borrowed and borrowed and borrowed and then they borrowed some more. Wanna guess who's going to pay to bail them out?

I am also going to have to pay so that Hillary, John, Barney, Diane, Barack, Christopher, Barbara, Nancy, Charles and all the rest can buy votes using my goddamn money.

 

[mismused]

delete

 

[Handprints]

What's the name of that lovely Chilean champagne?

Tarapaca Brut - methode champagnoise, natch. Hard to find, great to drink when it's hot outside, you're in the money and wish to snub the French.

 

[trysail]

(In case you haven't already seen this-- it has been making the rounds for several months)

As hard as it might be to believe that so-called "intelligent" people could have behaved soooooo stupidly, this little gem is essentially accurate in its description of how the whole sub-prime mess occurred; it is absolutely priceless:

http://www.everydaybullshit.net/uploads/Mortgage_Primer.pps

 

[trysail]

(An email to a friend who introduced me to Nassim Taleb by lending me one of his books)​

This popped up on Bloomberg this morning and I thought you might find it of interest. I think you understand that my main criticism of Taleb is that he is a trader (i.e., NOT an investor). It's a long article and it might be easier to read in its original on-line format: ( http://www.bloomberg.com/apps/news?pid=20601109&sid=aHfkhe8.C._8&refer=home ).

While I have always agreed with his admonitions about the financial world's over-reliance on statistical models based on historical data, my caution arose for an entirely different reason- leverage. It's unexpected outcomes combined with leverage that produce the lethal results- not just statistical outliers. On the whole, I DO think the models are useful- as long as people understand their weaknesses (which, clearly, they didn't).

I have a sneaking suspicion that Taleb's investment record has been greatly exaggerated and embellished. He would not be the first or the last trader who abandoned that field for the greener pastures of peddling "How To" investment books (along the lines of How To Make A Zillion Dollars In Your Spare Time With No Money Down And No Risk). He's probably made far more money doing that than he ever made actually investing.

 

[Kev H]

As the first layer of risky business (subprime) gets peeled back, another shows up: equity loans. Here's an article that discusses it in lay-terms: http://www.nytimes.com/2008/03/27/b...&ex=1207281600&partner=MYWAY&pagewanted=print

Even I (while living on a rock, not under, heh) heard the financial prophets decrying the rampant "crazy consumerism" that led to borrowing against your debt (first mortgage), and as far as I can tell, the issues described in this article come directly from that foolishness. So, when house prices are dropping, how can second and third liens become solvent? Note that there's a short blurb in the article about a Democrat plan to fuck the second+ lien holders while bailing out--with taxpayer money--the consumer who got into the insane mess (via forced, govt-back refinancing). I have never been rabidly anti-government (well, not for very long), but this proposal sounds exactly like the kind of meddling that gives the government a bad name.

Comments/corrections?

 

[trysail]

This fellow has learned a lesson the hard way— and he's learned one that he'll never forget as long as he lives. There's nothing quite as dumb as "young and stupid."

I will give him credit for one thing:
instead of whining and blaming everybody and everything in sight, he's at least man enough to accept responsibility for his own actions.
_____________________________________

California man losing nine homes in mortgage mess

A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market.

Shawn Forgaard, a 37-year-old software company project manager, bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience.

"Everyone stumbles. I'm not going to hide or run or live in denial, or with regrets," Forgaard said. "On the surface it looks like total devastation but it's just the opposite. I'm confident our lives will be much, much richer as a result."

Forgaard bought a house in Santa Cruz, about 60 miles (100 km) south of San Francisco, in 2000. Four years later, using $800,000 in stock options, he began snapping up investment properties, putting 10 percent to 40 percent down on negative amortization loans -- in which payments do not cover the interest so that a borrower's balance grows over time.

It was those "neg-am" loans, which include triggers causing payments to balloon if the debt reaches a certain percentage of the original balance, that would come back to haunt him.

"I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance.

"I didn't anticipate a downturn of epic proportions such that home values are 40 percent less than they were," he said.

The mortgage market has melted down in the past two years in a crisis that began in the subprime sector and has left millions of Americans facing the possibility of foreclosure on their homes.

Forgaard bought his first investment home in the booming housing market of North Las Vegas in 2004, followed in the next two years by eight others in such hot markets as Phoenix and Palm Springs, California, before he realized in 2006 that the situation was worse than he had feared.

"I knew that the market was soft but at that point I'm realizing that this could really get ugly," he said. "At that point I had a bad feeling in my stomach."

Forgaard thought he still had enough equity in the homes to "take a huge hit," possibly losing most of his investment, but thought for a while that he could still ride out the storm.

"It really wasn't until five months ago that I realized, 'Hey, you know what? Not only am I going to lose everything I have invested but this is going to force me into bankruptcy," he said.

"I'm going to lose my car and my primary (home) and we're not going to be able to live in Santa Cruz, where I was born and raised, and live by the beach. And that was pretty tough to take."

Experts say speculators like Forgaard, who count on real estate values to keep rising to pay off their debt, play a risky game and doubly so when they use neg-am loans.

"You are essentially betting the house on the strength of the housing market and if you're that leveraged in debt and the market goes down, you're going to lose your shirt," said Austin King, director of the community organizer ACORN's Financial Justice Center.

"To do it eight or nine times over is eight or nine times as foolish as just doing it once," he said.

The Forgaards likely will sell their Santa Cruz home and declare bankruptcy before banks start foreclosing on his properties. With a newborn son, they intend to start over in his wife's Northern California hometown.

Forgaard said that some good has come out of the experience and that his family is optimistic. He is relieved that he no longer has to deal with 10 homes at once and now will pursue a lifelong dream of starting his own business.

"Where I went wrong is I invested heavily in an area that wasn't my passion and I had a really demanding full-time job so I couldn't pay attention to nuances, the little indicators telling you the housing market was going soft," he said. "I was in over my head."

 

[S-Des]

The average person has no chance of accurately evaluating another's competence or integrity without the kind of observation I note above.

I have a very good friend who's highly educated, intelligent, and comes from a family with a LOT of money and experience in the financial industry. He went the IT route, then became a full-time day trader, racking up over $100,000 in about a year of playing the market. Then Enron crashed and there was a market correction, which almost completely wiped him out. There was even a period this year where he had to supplement his income by delivering pizzas.

 

[Joe Wordsworth]

What regulation did you have in mind in the first quoted sentence

I never said it was . I said self interest was the most successful driver of economic effort. I make no comment about any moral dimension.

I am unsure as to the value of bodies either on or off shields as a useful social impulse .

That's pretty apt.

I would agree that self-interest really is the most successful motivator, and further the point by saying I think it likely that the more we've fought the satisfaction of individuals in the market with meta/moral/macro-controls the more we've developed these problems.

 

[gauchecritic]

two words: fiat. money.

 

[Joe Wordsworth]

Ron Paul 4 life. Republican Gangsta.

 

[amicus]

After reading through this entire thread, and previous ones like it and the links included, I have the thought to offer a comment, but first, an expression of appreciation and admiration for the knowledge, skill and erudite interpretations and history so gratuitously offered by several.

Diogenes comes to mind, I should confirm, but I usually fly by the seat of my pants, intuition, anyway, so what the hell...

A very long time ago I sat through those self same, very dry, micro/macro economic theory classes and the Models the economists swore by and shook my head, befuddled, I would never grasp the overall picture they were painting, just too damned many variables for me.

Fortunately, I was in a position I could bounce what I was learning off the bald heads of investment bankers and financial guru's in the guise of a 'reporter' and moderator who just wanted to learn the lingo and the jingoism.

I began to discover some fundamental concepts that applied not only to banking, investments, et cetera, but to all exchanges between separate entities.

Yes, it involves philosophy and psychology and even sociology and all them things that attempt to comprehend the nature of man and his social relationships with others.

Man to man exchanges of goods and services confirmed with a handshake is not a thing of the past but is inherent in every transaction that takes place at any level.

By that, I mean to imply that basic honesty and integrity remains the basis of a one dollar transaction or a one trillion dollar agreement between entities a world apart as Handprints and Trysail seem to be cognizant.

Now, you may judge my gross ignorance, as I suspect you will readily do, or grasp the essential issue which can be defined as assumed good will between men.

The higher levels of commerce takes on the nature of a game to the participants, be it as a University Professor or a Financial Wizard. They are so far removed from the 'handshake' aspect of human interaction, that they often forget or never learned the essential, defining characteristic that underlies all trades and exchanges, that of good will between men.

Sociologists, or whatever the proper name is for the discipline that has determined that a percentage of all men, (humans, men and women), will have a dishonest nature. They will lie, cheat, steal and do whatever it takes to gain their desired goal. Place that percentage where you wish, as I recall, it was between one and three percent of all people that cannot be trusted.

I suspect that is not a hard and fast percentage and further that it depends greatly upon the environment. By that, I mean to suggest that under a totalitarian state such as the former Soviet Socialists, that people were forced to do anything possible just to survive under such a system.

That is why, as Roxanne pointed out earlier, that those who detest a free society, never offer an alternative to the free market as a means of survival.

We hear a lot about those institutions that failed during the recent and continuing financial crisis; we seldom hear of those 'honest' enterprises that did not corrupt their morals and ethics in the race to succeed at any cost.

I would not be surprised to learn that the percentage of failed investment bankers and firms paralleled the aforementioned numbers.

And yes, I acknowledge the conflict that must be inherent in the competitive nature of such institutions to capitalize on opportunities that present themselves and the hierarchy that exists within such an institution and applies pressure to profit at any cost.

It is not the free market that creates dishonest traders, they exist regardless of the system under which they function.

Just saying, for those of you who read this thread and felt the numbness of the numbers and the sophistication of the arguments offered, that the open or 'free' market, as opposed to the closed or 'command' market differ only in that one honors and functions to preserve human freedom and one does not.

For what it's worth...


Amicus...

 

[JAMESBJOHNSON]

AMICUS

Youre correct. Almost every transaction includes a personal relationship of some kind.

Where I differ from most folks is I dont believe a smile and happy talk counts for much. What counts is fairplay and honesty and performance. I dont need to love you to treat you right.

20-something years ago I sat across a table from the CEO of a huge national construction company. My bid for his project was 10 MILLION bucks. The low bid was 8 MILLION. The CEO thought I was a dunce. But I told him the low bid couldnt do the job for 8 MILLION and would fuck him with inferior materials and overcharges for work not included in the contract. My bid included every item in the scope of work and on the blueprints and specifications. The low bid made many cheap substitutions in the materials.

So he accepted the low bid and went bankrupt.

 

[Kev H]

Oil enigma

The article that led to this post: http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4663676.ece

After all the worries of doubling oil costs (based on factors that are still around), we now have OPEC worried about $100 oil again. Do we actually know anything about what drives the insane futures traders? That they can lower the price because Gustav wasn't as bad as feared when the Russia and Iran mess still goes on is baffling (never mind the talks of shortages, lack of refining, booming China, etc.)--now don't get me wrong, I like low prices like everyone else, but I hate that it makes no sense to me. It indicates I still know nothing, after all this reading. Are the newspaper people just full of shit? Trysail, Hand, have you heard anything that actually justifies this? Is someone playing with politics, or are we Americans actually lowering our demand by that much?

I'm annoyingly lost.