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Cliff Asness: "Keep The Casinos Open"
The latest very much provocative letter from Cliff Asness: "Keep the Casinos Open"
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This page has been archived and commenting is disabled.
The latest very much provocative letter from Cliff Asness: "Keep the Casinos Open"
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Unfortunately, this is a casino economy and investor greed has overtaken common sense and economic sustainability. For that reason, the government (useless as it is) should take the lead to reign in the casino culture and create a platform supportive of sustainable economic growth. Of course, we have zero chance of that happening.
We should reign in volutary exchange, freedom be damned? Please go back and read the article.
You're kidding right? I worked on wall street for years. It's legalized theft, pure and simple. I suggest you take some classes or do a bit of reading yourself.
Thanks for your expert opinion. Imagine my surprise when realized I was replying to someone who had actually worked on wall street. Wow, I am amazed that no one else has seen the truth of your assertion that: "...its legalized theft, pure and simple.." Your case is so elegantly understated, yet so concise that only a great fool could fail to see that only politicians and lawyers can enter into a voluntary transaction with another. As far as Goldman's de facto government subsidy is concerned, it seems to me that many of the transactions and trades under scrutiny had been taking place loooong before any hint that they would be in essence guaranteed by Uncle Sam. In other words, many of the esoteric derivatives transactions in question took place before the presumtion of TBTF. Each party "knew" that they were on the hook if the deal went south.
Signing up for Econ 101 right now!!!
GS knew they were TBTF for a long time. And what don't you and the author of this article understand about the concepts of fraud and systemic risk? Not to mention this type of reckless speculation fed into the housing mania and helped push prices higher.
Please don't get the impression that I am a Goldman apologist. I am not. I understand what fraud is and will be right there next to you cheering when they hang the bad guy. I just want to make sure that we are all clear on who and what the bad guy is. Is it Goldman, maybe/probably. Is it the derivative securities themselves? No! The solution to drunk driving is not to ban all cars. By banning the use of a tool you have prevented its use by the "forces of good" as well. CDS have a place in the portfolio managers toolkit, just as short-selling does. I am only asking that more people appreciate the power and importance of two maxims that should have never been forgotten: CAVEAT EMPTOR and KNOW YOUR CUSTOMER.
Derivative contracts are legalized theft?
Really?
So when entering a derivatives trade, which as the author points out is a voluntary action, and each party swears they are sophisticated investors, it becomes theft?
I must say this is an interesting world view.
Let us not also forget, in order to partcipate in the CDS trading world, the party needs a bank roll of at least $150 million liquid cash before you can even begin trading.
So this claim that CDS is ripping off Joe-Six Pack public is nonesense.
The REAL issue is with the government and not the banks. If the government did not create the moral hazard of bailing firms out (be they banks, auto companies, insurance firm or whoever), this would not even be an issue.
Voluntary exchange be damned.
It is NOT acceptable to allow these companies total freedom to enter any contract that they deem desireable. This would be fine if they were not sucking at the public teat but when you have government guarantees backstopping you you deserve to be highly regulated. The TBTFs make these rediculous bets knowing full well that any profits will accrue to them while any major losses will accrue to the taxpayer. And Cliffie boy thinks that this is ok to go unregulated?
and, hey, as long as the taxpayers, the schmucks who don't even understand what is going, as long as they are backing goldman with a government guarantee, it should go on.
that is the purpose of a peasantry. to make the royalty even richer.
This man has it exactly correct. The carry trade leaches got exactly what they new they wanted. And Paulson gave it to them good and hard.
Obama will be seen in the same way. The Rubes wanted change, Obama promised it, the Rubes bought it, and they will get it. Good and Hard.
Who's the Rube?
Ask the guys over at rubechat...
http://rubechat.kfan.com/viewforum.php?f=37
the problem of course was that all the 'normal' banking that our economy needs to survive got dwarfed by the total casino part of it. Yet they come to congress saying how all the 'normal' banking is going to crash without the bailout...
so why did TPTB let the casino part consume everything? because everone is asleep at the wheel
Flawed analysis. Why allow a casino game that requires the taxpayer to pay the obligations of the losing player and the casino ? It's a zero sum game that in the referenced example required state aid for Goldman and IKB.
Not quite zero sum. Goldman and the other big "house" banks rake in massive bonuses and leave the taxpayers with debt (both directly and indirectly via the government). It's a great racket for them.
And that's the part that must come to a full stop if we're ever going to have a reasonable chance of regaining anything in the ballpark of an "honest" economy. Instead, we'll see more pain on main street.
dude,
side bets.....fine. the problem is fraud - look it up. regulatory capture (corruption), and moral hazard (government backstop against failure).
Gambling against the casino creates a negative expected value, but making liar’s loans creates inevitable, catastrophic losses
And Paulson created which "Liar's Loans," exactly? Then please identify a few that Goldman may have underwritten, please.
When Congress passed the CRA they legislated and triggered the whole liar loan debacle. And made sure to fund it with FNM and FRE. Then when it went TU, they wiped out the investors who had believed that surely the Govt. wouldn't screw them. Including destroying a whole lot of bank capital in the process.
Who is the Rube? They are getting exactly what they asked for. Good and Hard in a thoroughly Regulated way, right now.
http://www.mcclatchydc.com/2009/11/04/77852/why-did-blue-chip-goldman-ta...
new link:
Investors Lost, Goldman Won on WaMu Dealhttp://online.wsj.com/article/SB1000142405274870344140457520659045658138...
again... no reason to bail them out.. they shouldn't gamble past what they can pay out.. even casinos have that little sign that says max bet
these crooks will stop at nothing to protect their corrupt system.
Cliff, why don't you go eat shit and bark at the moon you dickwad.
You believed footnote 2 didnt ya
the dude oughta be in a locked ward someplace.. is Bellevue still open?
Gamble with your own money all you want, Cliff.
It's when you're gambling, though explicit government backstops and bailouts, with my confiscated earnings - or, more accurately, the yet to be confiscated earnings of my children and their children - that I have a real serious problem.
As I said in another post, there are about $10 Trillion in bank deposit/MMFs etc - earning Zero - when they should be earning 3% ( inflation rate). The TBTFs are borrowing at Zero interest rates. This is a transfer of about $300 Billion a year from granma/granpa to all these mighty, fearless warriors on Wall Street to finance their trading operations. Yeah keep the casinos open but lay off granma's money.
Some benefit goes to the banks and Wall Street. However, the biggest beneficiary of the current Teaser Rate financing is the US Govt. Barry can do all his cash for trash plans, distribute money from the stash, pay your mortgage for you, and it won't cost a thing. Change you can benefit from?
Who is the Rube? You asked for it. You got it. Good and Regulated.
It's not just Granny--my MM funds are at 0% right now. But you have wise up and realize that a) you don't have to leave the money there, you just don't put it into equities or bonds. I'm using it to pay off principal on our mortgage. I hate the idea of liquidating retirement accounts, but wtf am I supposed to do? You can pull principal out of a Roth without penalty, you just can't touch the dividends.
And b) For me, a guy in his late 30s, retirement is probably completely off the table. It is stupid to try and save up money when shitheads at Goldman are just going to steal it from you, anyways. The lesson is clear: Lever up and default later. The problem, of course, is that if you want to have any semblance of a middle class, you have to allow people to be on the positive side of the savings balance sheet so that they can cover their future needs. If everyone is in hock all of the time, that is a terrible situation and I would argue an unsustainable situation, but here we are. A smart granny will take out a lot of credit cards and then not pay them.
MODERN BUCKETEERING:
http://williambanzai7.blogspot.com/2010/04/bucketeering.html
yes..... bucket shops !! All the really good cons last through the ages. Once enough time time has passed, the old concept becomes new with just some tinkering and upgrades. And no one is alive to remember it or the hangover.
The Beranke ZIRP policy will easily transfer a lot more money from ma nad pa to the banks than TARP ever did. It is just sneakier .
"To ban something you need to show it does a lot of harm to people that are not party to the transaction"
Where have you been the last 18 months, Asshole. The economy is shambles and millions of people that were not "party to the transaction" lost their jobs due to the implosion of "parties" that lost the "side bets."
When His Ass-Ness says "harm to people that are not party to the transaction", he means "harm to banker bonuses."
I'm not sure what to make of that statement. A lot of people lost their jobs because the real estate market and all of its attendant industries was a huge bubble and finally tanked and took with it all the other side businesses that grew up around a seemingly endless supply of HELOC money (RVs, boats, idiotic and dangerous choppers, etc.).
The CDS story is an even worse one, but the jobs are gone because of the real estate fraud, primarily.
Nothing wrong with derrivatives any more than actually buying and selling. The issue is
1) leverage - mistakes can get very painful very fast
2) greed, in an effort to do some business everyone tries to lowball each other and apparently doesn't price for the catastrophic potential consequence
3) Government backing of said institutions when they fail to consider 1 and pricer properly (2)
So set them up on an exchange or have some way of keeping track of the reasonableness. I mean really - when these companies were private partnerships there was no way they'd allow this kind of risk, if a blowup resulting in the immediate hanging of every employee - there's no way they'd allow this kind of risk. The issue here is not about derrivatives but irresponsible risk taking, poor regulation, and lack of accountability. A derrivative is nothing more than a tool and there are plenty of rational and even risk mitigating uses. The problem is the people doing business and risk/reward system. Fix that...
Cliff Asshead is pretension personified.
http://www.aqrcapital.com/cliff.htm
He needs a good kick in the balls, not some Bernanke blow job.
So, it was all his fault that no value was added...
It's easy to make side bets when it's not your money backing the bet.
It is not just govt backing when they fail - it is continuous Zero Interst rate financing of the trading operations that is the problem. These TBTFs are basically hedge funds with unlimited feeding rights at the Fed window. This is totally preposterous and I don't understand why it is tolerated.
Exactly right. What a moral hazard - those that have been prudent savers, not over-extending themselves are paying the price for all those that got greedy and took on too much debt. It's unbelievable. As far as I am concerned, the Fed rate should be put up to 5% immediately so I can get a decent rate on my cash. Anyone with too much debt - tough luck. Same for the banks - take away their gravy train asap.
So if I take out a life insurance policy on Cliff Assness, does that mean I am merely providing an incentive to root out bankers who will most likely be the targets of the roving lynch mobs once the truth comes out and all semblence of civility breaks down?
I am Chumbawamba.
And one could argue that you and I have an insurable interest in the well-being of Mr. Ass-ness!
Take away the free Fed feed and the stupid shareholders - turn them back into private partnerships - then watch the Big Swinging Dicks turn into Little Quivering ones.
I'm becoming less impressed with Asness the more he posts his crybaby rants.
I'm becoming less impressed the more you post as well.
Jump!
You Fucker!
(Directed @ his Royal Assness in this case, and all his ilk)
Dr. Asness, as his statement is written, has avoided, in his "paper", any discussion of the consiquence of using non players like the average American taxpayer to pay for the losses of the loser. Of course derivatives are useful.
But, IMO this has never really been about trading derivatives at the caseno. If he really wants to make his case he must address the larger case that includes the real issue is FRAUD. To have civil society you must have a mechanism for protection of law abiding citizens from those that aren't. The result is police forces, courts and regulatory bodies.
But regulatory bodies and courts, necessary for preventing fraud cost money. How would Dr Asness propose to pay for the regulatory process? Non participating taxpayers shouldn't be required to pay. The solution is to TAX the players and establish a firewall between the players and the regulators.
Dr. Asness, what is your solution?
Dr Asness is what's wrong with America.
Sorry, But nice to hear from you. Good to hear Your Side. But non-standardized CDS have to go byebye now. It's over. You broke the machine. We will fix it for you.
I don't think he is wrong about the private contracts between free people. The casino type economy is always there for the speculators ever since the market exists. The only thing is that when someone blows their shit up, don't get us to foot the bill. GS is perfectly fine when they call themselves hedge fund. Don't go close to the fed for taxpayers money. The only way to do that is to get Volcker rule in the law or Glass-steagll back. the sad part is that our elected officials are part of the casino.
Assness? Man, what a childhood this guy must have had.
I was wondering about that myself. The experiences of being called, well, whatever, must have left a lasting psychological scar. This is his revenge.
Cliff, piss off!!!
Here is the only way I want to see the casinos remain open; stop all new "bets" backed by the federal government. Allow 6 - 12 mo. to unwind all existing "bets" that could require Federal monies, should the bets go bad. Relinquish any and all government guarantees for such bets. Establish some acceptable leverage ratios for such bets.
Then, open the betting window. When they fail, they fail.
Except, dear Cliff, it was never a "fair bet" in the first place. Of course your twisted maniacal sociopathic mind is incapable of distinguishing that since you got your bonus from such cheating and all that registers with your warped brain is the intense pleasure signal you get out of screwing over grandmas and war vets. You are a pervert, Nr. Asness, a monster, a fiend who needs to be stomped out of existence. Most especially, you and your ilk should never, ever be given permission to go to the taxpayer to be bailed out for your crimes. Instead, we should have shut you down and banned you from any future employment in this entire country with anything having to do with money.
That's how the rest of us see your pathetic whining, Mr. Asness. Beware what you wish for because you might get it, just not quite in the form you expect.
I'll take the William Black informed and unbiased viewpoint against this nonsense.
+1!
I'm not sure the UK taxpayer would agree with Assness as they'll be paying off Abacus for years. What a clown.
This essay is garbage. Cliff is losing his touch.
What I find interesting are the comments which seem to suggest that the "taxpayer" in this country or any other has any say or input as to what should happen to tax dollars. The new Kings and Queens are the old Kings and Queens.
Goldman et al propped the country's purse for decades. The Ponzi of eternal growth or organically sustainable budgets is a fairy tale.
The shyster banksters got us into the mess, let them pull us out.
NOT GOVERNMENT. Especially not a type of government that sees every crisis as an opportunity to extend their reach.
Government is NEVER for you! They don't care about you or where you earn your next meal. They care about their jobs and make sure that they will have a job and their kids will have jobs.
I've got some articles I'd like to post to ZH without any constructive (or otherwise) comment. Can I just call myself TD and do that, too? Oh, I see that the word "provocative" was used. I guess that constitutes commentary.
From Asness to Assness! "Voluntary", "Fair Bet". Yeah, sure Asness, and you have a bridge you want to sell, too. Goldman, Paulson, and Tourre' concealed the fact that Paulson had hand-picked the garbage cases that he planned to short, from ACA and IKB, the "marks". Unethical behavior like this stinks worse than any rotting fish, and people who work in this industry are so accustomed to it that they actually try to convince the public that it smells good. Yeah, we believe that this stab-in-the-back is just what IKB was looking for when they trusted Tourre', when he sold them the "ACA-approved" garbage. Needless to say, Asness wouldn't be singing the same tune if it was his Ass that was getting rammed, but he assures the rest of us that this is what we can expect when we listen to those who use lies as their credentials.
Were these "side bets" or actually mortgages with an underlying residential property title attached to it? If so, then the loss is/was the expected regular payments that ceased and any subsequent "devaluing" of the physical property due to neglect, vandalism, reconstruction, marketing, etc. The return for the purchaser is now going to require "work" and it seems to me, that's what really grates the loser. I still think it stinks, but this episode is still a side show to GS' HFT operations.
Good stuff, Cliff.
Problem is, Uncle Stupid is always trying to stick his fingers into free markets (see FNM, FRE, bailouts, etc...), there is no friggin way to get Barney, Barack & Co. to cease and desist.
The players on both sides of the trade that the SEC has targeted knew the risks and knew one side was bound to lose. It's far from the worst sin of this mess.
By Bill Fleckenstein
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/goldman-deal-gamblers-knew-the-score.aspx
SIDE bet my arse....
What is "side" about this crap.
Aren't these things far more than "side" bets? Have no financial background at all so correct me if wrong....
Isn't the derivatives market huge compared to say, the bond market, stock market, housing market? Isn't that all about leverage?
When you have a market trading a huge multiples to the base thing that applies to it, does that not connote dangerous over-leverage. If SnP stocks were selling a 10,000 to 1 P/E wouldn't we know something was up, about to collapse? If houses were selling for 100,000 times annual rents, wouldn't we know a crach was coming?
What of these "side" bets, do we even know how big the market is, given how unregulated and unfathomable these walled markets are?
Didn't these "side" bets let banks pretend they had more capital than they did? Didn't this "side" action let banks and others bury huge risk behind a wall of mathmetical formulas thus greatly distorting the base markets, not just side action?
Didn't these "side" bets let insider businesses hide fraud behind their previously good name/brand and opaque complications.
When the "side" bets markets become orders of magnitude bigger than base markets, hasn't the game changed. If you were playing a clean, well-observed poker game with $5 hands but had $millions betting things like next time some one folded, next time dealer coughed and these bets were not well checked for cheating, don't we admit the game is no longer poker and we need new rules and watchdogs to make sure the "side" bets are being fairly adminstered and that the "house" has the money to make good on a million wagers, not just the $5 poker hands? Don't we stop calling them a side bets
Didn't these "side" bets allow anyone (completely unconnected) to essentially take out a life insurance policy on any Frankenstein financial instrument. There are reasons we don't let people take out life insurance on a person they have no connection to, and these reasons are sensible and do not obstruct healthy free insurance markets. Is the author arguing that the common sense behind life insurance laws that have well-protected consumers while still allowing for a competitve industry with declining rates and limited fraud is somehow completely void and nonsense when applied to insurance on the life or companies/financial instruments? Should we allow people to take out life insurance on celebrities, business competitors they have no relation to? Should we allow companies take premiums on something they could never pay out for if claim were made (ala AIG)? Would we call it a side bet if $100 million in life insurance policies had taken on on some guy by thousands of complete strangers while his wife had only a 500k policy. What is the side bet, the wife, or the others? Worse yet, should we allow people to create false identities, and then kill off these fake people to collect insurance on them? If I as an individual did this with life insurance and it was found out, wouldn't the insurer scream fraud and ask for me to be arrested under existing laws?Or, should we, as the author seems to argue, rather have the cops simply say, hey, insurance company, your big boys, if you couldn't figure out this person you insured didn't really exist two years ago, to bad, that smarty over their duped you and he should be free to move on, to bad you figured this out too late...
The author tries to make us think these are little teeny tiny fun distractions that are so small and inconsequential. He also seems to argue for financial street anarchy. If someone is smart enough to crack a bank's safe, do we let them off because banks are smart and should have known how to stop theft? No, we arrest bankrobbers breaking the rules and take their ill gotten gains. Many people who invested with Madoff were pretty smart, including hedge funds and charity find managers, I guess they should have known better and its their fault they couldn't see thru Madoffs lies, why put Madoff away for fraud?
If there are no rules, the game is ruined and soon no one wants to play. If a market stinks of fraud and deception, it is not free anymore, it is a rigged casino. Just because people know they will often lose money in a casino, does not make it okay for the casino to rig games. Even ultimate fighting has rules.
I wish for one moment all these masters of the universe would apply their same anarchic logic to street crime...if you are stupid enough to get mugged, then the mugger should be not prosecuted. If you are stupid enough to have a lock that can get picked, than the robber should be blameless....
BS I say....only criminals ask for laws not to be enforced fairly. And only disconnected greedy arses think their "side" bets never hurt anyone.