There is a great article in the Rolling Stone magazine by Matt Taibbi about Goldman Sachs and the bubbles it has created/exploited. Can you guess where the tax money from this is going to go? The next big bubble: carbon credit. And who will benefit from it? The company who is "environmentally conscious", Goldman Sachs.
The US will put a cap on CO2 emission. Company A goes over the cap by 10 units. Company B is under by 10 units. B sells the credits to A. Who is the middle man? Goldman Sachs. To make it worse, this is a speculator's wet dream, far better than Credit Default Swaps. The US will always strive to reduce pollution, thus the cap will be lowered eventually and this will mean that in the long run, prices can ONLY go up for carbon credits. This will attract speculators like there is no tomorrow, and who is the middle man again? Oh yea, Government Sachs. They already own 10% of the exchange (Chicago I think) and seeing other major investment banks out of the picture (Bearn and Lehman) they'll have a quasi monopoly on carbon credit trading.
I wouldn't worry about the tax increases if I were an American, I would worry way more about Government Sachs.
On the other hand, it's not nastier at all than other flu cases. Just look up the number of infected vs number of dead. And don't forget, we humans never encountered this strain, and despite that the deaths are most of the time people with previous health issues (like normal flu).
You can sleep quietly today. The Aporkalypse won't happen... for now.
The solution should be streamlined into the windows installation/post build setup. When a user turns on his/her/its new Dell, Windows prompts for some information like computer name, user name, etc. Why can't it prompt at that time for a browser? User selects browser, Windows installs it, sets it as default browser and problem solved.
The solution is simple but MS wanted to play hardball with EU as in: fuck you, we'll remove the browser. They know that removing the browser will fuck up people who aren't technological literate enough (99% of the planet) to install another browser. Or simply, they know that removing the browser will shift blame/scrutiny to OEMs to make sure OEMs offer the choice of installing different browsers.
And that pissed off the EU, and now the EU is playing hardball with them with: fuck you, pay us another 600 or so millions.
You say that now, but it's an excuse you use to make yourself feel better. Copy Right Infringment feels much better when you give yourself a glorified moral highground to be traveling. Much better then the reality that you're just cheap and like free crap (As most of us do). Even wit hthat policy, you'd still download for free.
And you know that I am a freeloader because...
I have no problem in supporting artists/movies/game studios that put out quality stuff. I have problem supporting shit like EA that installs root kits and fucks up my system with their own CD drive hooks and whatnot. Or when I buy their game and single player version doesn't work because their DRM is a buggy piece of monkey feces.
Back in the 90s I bought many CDs for one song, lack of radio play, no real way of discovering the band. That's no longer the case, thanks to downloads.
In Canada I have 10 days or so to return my Viewsonic 26' monitor because it's a piece of shit, why can't I return my System of a Down CD because it's a piece of shit? Or my digital download of Hellgate London that doesn't work in single player because of DRM issues?
PS: I own 700+ music CDs, 150+ DVDs and over 75 games.
There is this thing call the internet that allows you to search for and find reviews of games, movies, and just about anything else you want.
Yes because reviews are *NEVER* biased. How many stories we get regularly that X game site/magazine reviews are paid by the game publisher? Or how many reviews are forced to make a steaming shitpile of a game look good because game publisher would than withdraw ad funding (basically being bullied into good reviews)?
When I can take a game/CD/DVD I bought and bring it back to the store for refund because it's a steaming pile of male cow feces, then I will never *EVER* download illegally anything.
I use a DNS 323 from DLink in raid-1 mode, works like a charm. Disks are powered down when not used. Costs something like 160$ for the box. Stuff in 2 big hard drives and you are set. Even if the box fails, you can still remove drives and plug it into a linux box and recover the files.
I read somewhere that many people died of bacterial infections too, a flu that weakens heavily the immune system leaves it open to pretty much everything else.
AIG's counterparties were hardly gambling. They were buying CDS contracts from AIG effectively as insurance, believing AIG was big enough and creditworthy enough that this rendered their default risk close to zero.
HAHAHAHAHAHHAAHAHAHAHAHAHAHHAHAH!
That's a good one. No really, you do realize that 90%+ of Credit Default Swaps are used for purely speculative purposes (aka gambling) and their owners have exactly 0$ invested in a specific bond/company/something.
As someone else pointed out, it's akin to taking out a house insurance on your neighbor's house and hope it burns down.
Yeah, I second that one. $165 million is chump change compared to what AIG has taken from the government. They should have been allowed to fail, claim chapter 11 or chapter 7 if it came to that.
The problem isn't AIG failing, it's the domino effect. A lot of innocents would be crushed by AIG and its dependents falling over.
No.
The entities dragged into the quagmire with AIG would have been the same scum who created this clusterfuck.
(1) European banks who using Credit Default Swaps from AIG to evade regulation and leverage themselves to 40 to 1. (2) US banks who just flat out didn't give a fuck about risk because they were blinded by short term profit. (3) A bunch of hedge funds who just gambled.
Ever wonder how did Canadian banks manage to make make profit first quarter of 2009? Despite Canada's economy being totally dependent on the US? How come Canadian banks aren't in need of massive bailouts?
True capitalism is about creative destruction. The strong companies would survive. Not the zombie banks supported by politicians. The US is no longer the haven for capitalism. It's a Frankenstein socialist/corporatist combination.
Which will either head off deflation (never in history been successful) or cause hyperinflation, while we are worried about 0.1% of AIG's bailout funds.
I do agree that the current furor is nothing more than a smokescreen, however hyperinflation is not all that bad for the US. It is however lethal for the creditors like Japan or China. I rather have a hyperinflation than deflationary spiral.
At least the bailout was ostensibly aimed at preventing a financial meltdown that would have wrecked the speculators.
There I fixed it for you. The whole "systemic risk" crap we hear is nothing more than fear mongering. Fear so that the old "governing" elite stays in power at all cost. Had the US let AIG, Citi, JPG, GS, BoA and others drown in their own cesspool it wouldn't have changed much. There are plenty of very solid and well capitalized banks in the US, who could take over the clients of the current zombified giants. However, Paulson, ex CEO of GS managed to proxy bailout GS and keep GS as the top bank.
If you had taken the time to read about the Japanese lost decade you should have realized that their problem wasn't government building roads and bridges but insolvable banks that were kept alive just as AGI, Citi and others are kept alive now.
Actually they did both. The New York Times says "In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office." This was in a country whose GDP was about 1/3rd of the US.
Neither worked. Only being willing to close down the zombie banks worked.
Massive public investment didn't work because the banks were zombies. Economy recovery works when a country has a solid banking system, in which people trust. This wasn't the case of Japan, they kept dicking around with zombie banks and they lost 10 years. Had they taken the path of Sweden (quick nationalizations, cleanup and re-privatization), they would have recovered from their slump.
It didn't work for the Japanese in the 90's, they spent 10 years building roads and bridges and wondering why nothing was happening.
If you had taken the time to read about the Japanese lost decade you should have realized that their problem wasn't government building roads and bridges but insolvable banks that were kept alive just as AGI, Citi and others are kept alive now. Thus the term zombie banks. But, please, don't let facts get in the way of your anti-Keynesian rantings.
You want to turn this economy around? Cut taxes to 20%, max. Reduce regulations on small businesses \ cut the red tape.
Yes, reduce regulation! Geez... what got the US (and pretty much the entire world) into this mess? It has nothing to do with removing some parts of the Glass-Steagel act no? And the complete de-regulation of derivatives, right?
Yes cut taxes. Oh sheesh... what got the US a hugeass deficit? Oh right, tax cuts.
Once again, don't let history and facts get in the way of your tax cut ideology.
You seem to complain about the media's and politicians' problem with speculators, yet you forget that the vast majority of CDS contracts out in the wild are written for purely speculation purposes.
If an entity has invested X dollars into company Y, yes there should be some financial instrument available to this entity to protect its investment. I agree with you there. However, if entity X has 0 dollars invested in company Y, this entity shouldn't have the right to buy a financial instrument targeting company Y and protecting X from Y's default. That is gambling, not investing.
And problems don't really arise with a wholesale breakdown of a credit market, just one ore two big players failing will bring the entire house of cards to collapse.
- Speculator X buys CDS on company A while it has AAA rating. - Speculator pays 2% premium to Lehman. - Company A gets downgraded to AA-. - Speculator X writes a CDS contract to Speculator Y at 4% premium (premiums rise when rating goes down). He nets a 2% profit. If A fails, Lehman pays him and he pays Speculator Y. - Company A gets downgraded to BBB. - Speculator Y writes a CDS at 8% to Speculator Z. - Company A fails. Lehman has to pony up cash for speculator X. Ooops, unregulated derivative, they didn't have any money put aside. They go belly up. Opps Speculator X goes belly up. Ooops Y follows, then Z then the rest of the domino.
Replace X,Y and Z with Citi, BoA, Bear Stearns etc... and you have the reason why we have the current financial clusterfuck. Unregulated derivatives abused by speculators.
Who you think is the biggest oil company on the planet? No, not BP, nor Exxon, nor any other oil company but JP Morgan Chase. Yes an investment bank. Oh and why do you think oil prices are in free fall despite major production cuts by OPEC? That's right, speculators have no more easy access to credit.
Every single speculator needs to be shot. Multiple times. In the head.
You have a very narrow view of the advantages of not running root. Let's say you get infected by a well written rootkit/stealthy trojan that quietly sends data from your computer to the crooks. Your keyboard is logged, email is scanned and who knows what else is transmitted. But since it didn't touch your downloads or music is no problem right? Not being root prevents most of dangerous malware from instantly hijacking your PC. It's far from being the silver bullet security solution but it's a must, unless you like to have your personal data sent to Igor in Vladivostok.
Bank size has nothing to do with the current financial clusterfuck. As you said, financial institutions are interwoven, and that's the problem. Credit Default Swaps are causing the current panic by governments to try to save any bank, big or small. Because even if a small bank goes down, because everyone and their dogs are interwoven with CDS contracts, the entire gambling house of cards crumbles. In fact, I am willing to bet (pun intended) that if one of the big automakers goes down, it would bring the financial system down with them. Or all is needed that a few small banks sell CDS contracts targeting some entity that goes down. And if these small banks go down, they'll take the entire system with them.
The current shadow financial system is the problem because there is zero transparency. If banks would have been forced to put all these gambling bets with CDS on their balance sheets, there would have been bank runs a long time ago and they couldn't have gotten big. Also, other banks might have been reluctant to sell CDS contracts on something like Lehman Brothers if they could have seen Lehman's CDS exposure. The CDS bubble wouldn't have gotten out of hand if only it was on the companies balance sheets.
I don't believe that limiting bank sizes would have prevent any of the current problems. And until CDS contracts are regulated and exposed, and companies are forced to reveal their CDS exposure, the current system will be vulnerable to any minor failure in it.
Why is it so bad that you can buy insurance on something you don't own?
It's called gambling and it's illegal. I have a choice to take out insurance on my 50,000$ stereo, but I can't take out insurance on someone else's stuff. Insurance allows you to insure stuff you own, not someone else's. Since CDS is nothing more than insurance, it should function the same way. But currently, it does not.
What if you own something similar that isn't insurable? Say Mazda bonds or car loans that no one is willing to write a CDS against, is it still gambling?
It's called investing and it comes with risks. These CDS contracts are very recent, developed around 1997. People were investing fine before. And the vast majority of these CDS contracts are used for nothing more than gambling, not protecting an underlying investment. And that is the root of the problem.
The real problem with AIG's writing an insane amount of them was that they failed to consider that the contracts have an important provision to protect buyers from those who don't have one red cent, pledged collateral.
Exactly, when Lehman went belly up, AIG had to pay out a lot of CDS contracts, but they didn't have any collateral so Fed had to step in or AIG would have gone belly up too (and dragged down pretty much the entire financial system into the gutter). This was nobody's fault but AIG's. They didn't keep any collateral to cover their lost bets because no one regulates CDS contracts. Something similar would have been impossible with real insurance, because that is heavily regulated.
Don't get me wrong, I like the idea of a CDS. However it needs to be (1) regulated, (2) traded openly like stocks on a centralized exchange (not over the counter) and (3) people buying these MUST have investments in these entities for the amount they are buying insurance for.
CDSs need to be treated like what they are: insurance, not some made up term that's only goal is to evade regulation.
Taking out a lot of CDS contracts on Ford has negative consequences. The CDS spread, an indicator will tell the market that confidence in Ford is eroding. This might cause a stock fall/collapse. Ford might be downgraded by rating firms, lot of negative results can be achieved by simply buying a lot of CDS contracts.
In fact, as soon as a company/bond/mutual fund/whatever is downgraded by ratings companies, the insurer immediately has to set aside more money because the likelihood of a company going belly up just gone up. This is a collateral call, this is what caused the death of Lehman, too many collateral calls from the Fannie/Freddie nationalization and other downgrades like AIG, AMBAC, MBIA, etc.
So by buying a lot of CDS contracts, people can hurt both the insurer AND the company they buy insurance on.
Oh and what stops me from doing insider trading? Let's say I know Ford is in deep shit because I work in the high spheres of Ford. Downgrade by ratings firm is imminent. I buy a lot of CDS contracts at 2% premium. Ford gets downgraded, the premium goes up to 4%. I sell my CDS contracts and make a lot of money, 110% legal, even if I had insider information because CDS contracts are never regulated and are over the counter.
The sheer amount of abuse of the current system that can be achieved through CDSs is mind blowing.
Kinda makes me wonder about the real causes of this financial crisis...
No need to wonder really, it's all caused by Credit Default Swaps.
The main issue with CDS is not that corporate risk is hard to asses but the fact that anyone can buy a CDS contract without owning one cent in the company he buys insurance on.
For example, I can buy a CDS contract on Ford, betting that Ford will default on its debt and the same time I don't own one single cent in Ford stocks, bonds, whatever. I am merely speculating that Ford will go belly up. If it does, AIG will owe me big money. In car analogy terms, this is the same as if I would take out insurance on my neighbor's car because he drives like a retard and I bet that he'll get into an accident soon. It's all about bets, CDSs are nothing more than speculator's wet dream, it's legalized gambling.
Oh and they are unregulated, traded over the counter and no one knows how many of these CDS contracts are out there. As you mentioned, AIG has written insane amount of these.
the current crisis was caused by breaking the law (mortgage fraud) on a massive scale.
How about: no. Not even close. The current crisis was caused by Credit Default Swaps. Mortgage fraud is a non issue. People living beyond their means was merely the trigger. The failure of a big automaker would have achieved the same exact thing. Another explanation for it: casino capitalism, everyone and their dogs betting on mortgage companies to go down, and when some did, the institutions (Lehman, AIG, Bear Stearns and al) died or almost died because they had no money to cover the lost bets. Oh and these speculators have plenty of bets on each of the big three going down. And guess what will happen when one of those goes under? Yeah, more shit. So are you going to blame that on mortgage fraud too?
The class was balanced quite well by the extensive beta testing
This explains why Blizzard is making major tanking changes in next patch because DK tanks suck. Also, damage dealing wise, they deal out way too much damage. Light years away from being balanced. PS: I play a Death Knight and I think the class is a horrible tank and too good DPS.
Gear has effectively been reset again, but not as severely as it was in The Burning Crusade.
I wonder if the reviewer has played "The Burning Crusade"...
The best 2h weapon available in vanilla WoW was 93ish DPS from Kel'Thuzad in Naxxramas. The best level 70 normal dungeon weapon has the same DPS and item level. Fast forward to WotLK and the best TBC 2h weapon available was around 150ish DPS (Apolyon from Kil'Jaeden). Some level 75ish dungeons already drop comparable weapons and level 80 normal dungeon weapons eclipse the best available TBC weapons, level 80 1h weapons have the same DPS as the best TBC 2h weapons. This is of course because the gear reset is way more severe than during the WoW->TBC transition. Item level gain is far more steeper in WolTK than TBC.
CDS on the surface looks great. It's insurance for a bond you bought, as you have pointed out.
However, there is a huge gaping hole in the system. I can buy a CDS on a company I have 0 cents invested in, just to speculate on its credit worthiness. And that is the 50 trillion dollar elephant in the room. CDS is not used as a tool to hedge risk, instead it morphed into this Frankenstein speculator tool. I don't know where I read it (probably on Big Picture blog) but 90% or so CDS contracts are bought by speculators, not by investors to hedge their investments. And therein likes the problem with CDS.
In car analogy terms, it is as if I could take out insurance on anyone else's vehicle. I could basically gamble who is a good driver and who's not.
Slashdot Mirror
There is a great article in the Rolling Stone magazine by Matt Taibbi about Goldman Sachs and the bubbles it has created/exploited. Can you guess where the tax money from this is going to go? The next big bubble: carbon credit. And who will benefit from it? The company who is "environmentally conscious", Goldman Sachs.
The US will put a cap on CO2 emission. Company A goes over the cap by 10 units. Company B is under by 10 units. B sells the credits to A. Who is the middle man? Goldman Sachs. To make it worse, this is a speculator's wet dream, far better than Credit Default Swaps. The US will always strive to reduce pollution, thus the cap will be lowered eventually and this will mean that in the long run, prices can ONLY go up for carbon credits. This will attract speculators like there is no tomorrow, and who is the middle man again? Oh yea, Government Sachs. They already own 10% of the exchange (Chicago I think) and seeing other major investment banks out of the picture (Bearn and Lehman) they'll have a quasi monopoly on carbon credit trading.
I wouldn't worry about the tax increases if I were an American, I would worry way more about Government Sachs.
This one is much nastier.
[Citation needed]
On the other hand, it's not nastier at all than other flu cases. Just look up the number of infected vs number of dead. And don't forget, we humans never encountered this strain, and despite that the deaths are most of the time people with previous health issues (like normal flu).
You can sleep quietly today. The Aporkalypse won't happen ... for now.
The solution should be streamlined into the windows installation/post build setup. When a user turns on his/her/its new Dell, Windows prompts for some information like computer name, user name, etc. Why can't it prompt at that time for a browser? User selects browser, Windows installs it, sets it as default browser and problem solved.
The solution is simple but MS wanted to play hardball with EU as in: fuck you, we'll remove the browser. They know that removing the browser will fuck up people who aren't technological literate enough (99% of the planet) to install another browser. Or simply, they know that removing the browser will shift blame/scrutiny to OEMs to make sure OEMs offer the choice of installing different browsers.
And that pissed off the EU, and now the EU is playing hardball with them with: fuck you, pay us another 600 or so millions.
You say that now, but it's an excuse you use to make yourself feel better. Copy Right Infringment feels much better when you give yourself a glorified moral highground to be traveling. Much better then the reality that you're just cheap and like free crap (As most of us do). Even wit hthat policy, you'd still download for free.
And you know that I am a freeloader because ...
I have no problem in supporting artists/movies/game studios that put out quality stuff. I have problem supporting shit like EA that installs root kits and fucks up my system with their own CD drive hooks and whatnot. Or when I buy their game and single player version doesn't work because their DRM is a buggy piece of monkey feces.
Back in the 90s I bought many CDs for one song, lack of radio play, no real way of discovering the band. That's no longer the case, thanks to downloads.
In Canada I have 10 days or so to return my Viewsonic 26' monitor because it's a piece of shit, why can't I return my System of a Down CD because it's a piece of shit? Or my digital download of Hellgate London that doesn't work in single player because of DRM issues?
PS: I own 700+ music CDs, 150+ DVDs and over 75 games.
There is this thing call the internet that allows you to search for and find reviews of games, movies, and just about anything else you want.
Yes because reviews are *NEVER* biased. How many stories we get regularly that X game site/magazine reviews are paid by the game publisher? Or how many reviews are forced to make a steaming shitpile of a game look good because game publisher would than withdraw ad funding (basically being bullied into good reviews)?
When I can take a game/CD/DVD I bought and bring it back to the store for refund because it's a steaming pile of male cow feces, then I will never *EVER* download illegally anything.
If your Drobo breaks down, can you recover your files without buying another Drobo?
I use a DNS 323 from DLink in raid-1 mode, works like a charm. Disks are powered down when not used. Costs something like 160$ for the box. Stuff in 2 big hard drives and you are set. Even if the box fails, you can still remove drives and plug it into a linux box and recover the files.
I read somewhere that many people died of bacterial infections too, a flu that weakens heavily the immune system leaves it open to pretty much everything else.
Some doc posted some information on Boing Boing, they don't believe that swine flu is causing Cytokine Storms.
Info here
I think we'll be safe from an Aporkalypse.
I guess we (rich countries) could also try to suck CO2 out of the air, but I haven't yet seen a proven method.
Trees?
AIG's counterparties were hardly gambling. They were buying CDS contracts from AIG effectively as insurance, believing AIG was big enough and creditworthy enough that this rendered their default risk close to zero.
HAHAHAHAHAHHAAHAHAHAHAHAHAHHAHAH!
That's a good one. No really, you do realize that 90%+ of Credit Default Swaps are used for purely speculative purposes (aka gambling) and their owners have exactly 0$ invested in a specific bond/company/something.
As someone else pointed out, it's akin to taking out a house insurance on your neighbor's house and hope it burns down.
The problem isn't AIG failing, it's the domino effect. A lot of innocents would be crushed by AIG and its dependents falling over.
No.
The entities dragged into the quagmire with AIG would have been the same scum who created this clusterfuck.
(1) European banks who using Credit Default Swaps from AIG to evade regulation and leverage themselves to 40 to 1.
(2) US banks who just flat out didn't give a fuck about risk because they were blinded by short term profit.
(3) A bunch of hedge funds who just gambled.
Ever wonder how did Canadian banks manage to make make profit first quarter of 2009? Despite Canada's economy being totally dependent on the US? How come Canadian banks aren't in need of massive bailouts?
True capitalism is about creative destruction. The strong companies would survive. Not the zombie banks supported by politicians. The US is no longer the haven for capitalism. It's a Frankenstein socialist/corporatist combination.
It was a distraction, while the Fed pumps another $1 trillion into circulation:
http://www.iht.com/articles/2009/03/18/business/fed.php
Which will either head off deflation (never in history been successful) or cause hyperinflation, while we are worried about 0.1% of AIG's bailout funds.
I do agree that the current furor is nothing more than a smokescreen, however hyperinflation is not all that bad for the US. It is however lethal for the creditors like Japan or China. I rather have a hyperinflation than deflationary spiral.
At least the bailout was ostensibly aimed at preventing a financial meltdown that would have wrecked the speculators.
There I fixed it for you. The whole "systemic risk" crap we hear is nothing more than fear mongering. Fear so that the old "governing" elite stays in power at all cost. Had the US let AIG, Citi, JPG, GS, BoA and others drown in their own cesspool it wouldn't have changed much. There are plenty of very solid and well capitalized banks in the US, who could take over the clients of the current zombified giants. However, Paulson, ex CEO of GS managed to proxy bailout GS and keep GS as the top bank.
If you had taken the time to read about the Japanese lost decade you should have realized that their problem wasn't government building roads and bridges but insolvable banks that were kept alive just as AGI, Citi and others are kept alive now.
Actually they did both. The New York Times says "In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office." This was in a country whose GDP was about 1/3rd of the US.
Neither worked. Only being willing to close down the zombie banks worked.
Massive public investment didn't work because the banks were zombies. Economy recovery works when a country has a solid banking system, in which people trust. This wasn't the case of Japan, they kept dicking around with zombie banks and they lost 10 years. Had they taken the path of Sweden (quick nationalizations, cleanup and re-privatization), they would have recovered from their slump.
It didn't work for the Japanese in the 90's, they spent 10 years building roads and bridges and wondering why nothing was happening.
If you had taken the time to read about the Japanese lost decade you should have realized that their problem wasn't government building roads and bridges but insolvable banks that were kept alive just as AGI, Citi and others are kept alive now. Thus the term zombie banks. But, please, don't let facts get in the way of your anti-Keynesian rantings.
You want to turn this economy around? Cut taxes to 20%, max. Reduce regulations on small businesses \ cut the red tape.
Yes, reduce regulation! Geez ... what got the US (and pretty much the entire world) into this mess? It has nothing to do with removing some parts of the Glass-Steagel act no? And the complete de-regulation of derivatives, right?
Yes cut taxes. Oh sheesh ... what got the US a hugeass deficit? Oh right, tax cuts.
Once again, don't let history and facts get in the way of your tax cut ideology.
You seem to complain about the media's and politicians' problem with speculators, yet you forget that the vast majority of CDS contracts out in the wild are written for purely speculation purposes.
If an entity has invested X dollars into company Y, yes there should be some financial instrument available to this entity to protect its investment. I agree with you there. However, if entity X has 0 dollars invested in company Y, this entity shouldn't have the right to buy a financial instrument targeting company Y and protecting X from Y's default. That is gambling, not investing.
And problems don't really arise with a wholesale breakdown of a credit market, just one ore two big players failing will bring the entire house of cards to collapse.
- Speculator X buys CDS on company A while it has AAA rating.
- Speculator pays 2% premium to Lehman.
- Company A gets downgraded to AA-.
- Speculator X writes a CDS contract to Speculator Y at 4% premium (premiums rise when rating goes down). He nets a 2% profit. If A fails, Lehman pays him and he pays Speculator Y.
- Company A gets downgraded to BBB.
- Speculator Y writes a CDS at 8% to Speculator Z.
- Company A fails. Lehman has to pony up cash for speculator X. Ooops, unregulated derivative, they didn't have any money put aside. They go belly up. Opps Speculator X goes belly up. Ooops Y follows, then Z then the rest of the domino.
Replace X,Y and Z with Citi, BoA, Bear Stearns etc ... and you have the reason why we have the current financial clusterfuck. Unregulated derivatives abused by speculators.
Who you think is the biggest oil company on the planet? No, not BP, nor Exxon, nor any other oil company but JP Morgan Chase. Yes an investment bank. Oh and why do you think oil prices are in free fall despite major production cuts by OPEC? That's right, speculators have no more easy access to credit.
Every single speculator needs to be shot. Multiple times. In the head.
You have a very narrow view of the advantages of not running root. Let's say you get infected by a well written rootkit/stealthy trojan that quietly sends data from your computer to the crooks. Your keyboard is logged, email is scanned and who knows what else is transmitted. But since it didn't touch your downloads or music is no problem right? Not being root prevents most of dangerous malware from instantly hijacking your PC. It's far from being the silver bullet security solution but it's a must, unless you like to have your personal data sent to Igor in Vladivostok.
Bank size has nothing to do with the current financial clusterfuck. As you said, financial institutions are interwoven, and that's the problem. Credit Default Swaps are causing the current panic by governments to try to save any bank, big or small. Because even if a small bank goes down, because everyone and their dogs are interwoven with CDS contracts, the entire gambling house of cards crumbles. In fact, I am willing to bet (pun intended) that if one of the big automakers goes down, it would bring the financial system down with them. Or all is needed that a few small banks sell CDS contracts targeting some entity that goes down. And if these small banks go down, they'll take the entire system with them.
The current shadow financial system is the problem because there is zero transparency. If banks would have been forced to put all these gambling bets with CDS on their balance sheets, there would have been bank runs a long time ago and they couldn't have gotten big. Also, other banks might have been reluctant to sell CDS contracts on something like Lehman Brothers if they could have seen Lehman's CDS exposure. The CDS bubble wouldn't have gotten out of hand if only it was on the companies balance sheets.
I don't believe that limiting bank sizes would have prevent any of the current problems. And until CDS contracts are regulated and exposed, and companies are forced to reveal their CDS exposure, the current system will be vulnerable to any minor failure in it.
Why is it so bad that you can buy insurance on something you don't own?
It's called gambling and it's illegal. I have a choice to take out insurance on my 50,000$ stereo, but I can't take out insurance on someone else's stuff. Insurance allows you to insure stuff you own, not someone else's. Since CDS is nothing more than insurance, it should function the same way. But currently, it does not.
What if you own something similar that isn't insurable? Say Mazda bonds or car loans that no one is willing to write a CDS against, is it still gambling?
It's called investing and it comes with risks. These CDS contracts are very recent, developed around 1997. People were investing fine before. And the vast majority of these CDS contracts are used for nothing more than gambling, not protecting an underlying investment. And that is the root of the problem.
The real problem with AIG's writing an insane amount of them was that they failed to consider that the contracts have an important provision to protect buyers from those who don't have one red cent, pledged collateral.
Exactly, when Lehman went belly up, AIG had to pay out a lot of CDS contracts, but they didn't have any collateral so Fed had to step in or AIG would have gone belly up too (and dragged down pretty much the entire financial system into the gutter). This was nobody's fault but AIG's. They didn't keep any collateral to cover their lost bets because no one regulates CDS contracts. Something similar would have been impossible with real insurance, because that is heavily regulated.
Don't get me wrong, I like the idea of a CDS. However it needs to be (1) regulated, (2) traded openly like stocks on a centralized exchange (not over the counter) and (3) people buying these MUST have investments in these entities for the amount they are buying insurance for.
CDSs need to be treated like what they are: insurance, not some made up term that's only goal is to evade regulation.
Taking out a lot of CDS contracts on Ford has negative consequences. The CDS spread, an indicator will tell the market that confidence in Ford is eroding. This might cause a stock fall/collapse. Ford might be downgraded by rating firms, lot of negative results can be achieved by simply buying a lot of CDS contracts.
In fact, as soon as a company/bond/mutual fund/whatever is downgraded by ratings companies, the insurer immediately has to set aside more money because the likelihood of a company going belly up just gone up. This is a collateral call, this is what caused the death of Lehman, too many collateral calls from the Fannie/Freddie nationalization and other downgrades like AIG, AMBAC, MBIA, etc.
So by buying a lot of CDS contracts, people can hurt both the insurer AND the company they buy insurance on.
Oh and what stops me from doing insider trading? Let's say I know Ford is in deep shit because I work in the high spheres of Ford. Downgrade by ratings firm is imminent. I buy a lot of CDS contracts at 2% premium. Ford gets downgraded, the premium goes up to 4%. I sell my CDS contracts and make a lot of money, 110% legal, even if I had insider information because CDS contracts are never regulated and are over the counter.
The sheer amount of abuse of the current system that can be achieved through CDSs is mind blowing.
Kinda makes me wonder about the real causes of this financial crisis...
No need to wonder really, it's all caused by Credit Default Swaps.
The main issue with CDS is not that corporate risk is hard to asses but the fact that anyone can buy a CDS contract without owning one cent in the company he buys insurance on.
For example, I can buy a CDS contract on Ford, betting that Ford will default on its debt and the same time I don't own one single cent in Ford stocks, bonds, whatever. I am merely speculating that Ford will go belly up. If it does, AIG will owe me big money. In car analogy terms, this is the same as if I would take out insurance on my neighbor's car because he drives like a retard and I bet that he'll get into an accident soon. It's all about bets, CDSs are nothing more than speculator's wet dream, it's legalized gambling.
Oh and they are unregulated, traded over the counter and no one knows how many of these CDS contracts are out there. As you mentioned, AIG has written insane amount of these.
the current crisis was caused by breaking the law (mortgage fraud) on a massive scale.
How about: no. Not even close. The current crisis was caused by Credit Default Swaps. Mortgage fraud is a non issue. People living beyond their means was merely the trigger. The failure of a big automaker would have achieved the same exact thing. Another explanation for it: casino capitalism, everyone and their dogs betting on mortgage companies to go down, and when some did, the institutions (Lehman, AIG, Bear Stearns and al) died or almost died because they had no money to cover the lost bets. Oh and these speculators have plenty of bets on each of the big three going down. And guess what will happen when one of those goes under? Yeah, more shit. So are you going to blame that on mortgage fraud too?
The class was balanced quite well by the extensive beta testing
This explains why Blizzard is making major tanking changes in next patch because DK tanks suck. Also, damage dealing wise, they deal out way too much damage. Light years away from being balanced. PS: I play a Death Knight and I think the class is a horrible tank and too good DPS.
Gear has effectively been reset again, but not as severely as it was in The Burning Crusade.
I wonder if the reviewer has played "The Burning Crusade"...
The best 2h weapon available in vanilla WoW was 93ish DPS from Kel'Thuzad in Naxxramas. The best level 70 normal dungeon weapon has the same DPS and item level. Fast forward to WotLK and the best TBC 2h weapon available was around 150ish DPS (Apolyon from Kil'Jaeden). Some level 75ish dungeons already drop comparable weapons and level 80 normal dungeon weapons eclipse the best available TBC weapons, level 80 1h weapons have the same DPS as the best TBC 2h weapons. This is of course because the gear reset is way more severe than during the WoW->TBC transition. Item level gain is far more steeper in WolTK than TBC.
CDS on the surface looks great. It's insurance for a bond you bought, as you have pointed out.
However, there is a huge gaping hole in the system. I can buy a CDS on a company I have 0 cents invested in, just to speculate on its credit worthiness. And that is the 50 trillion dollar elephant in the room. CDS is not used as a tool to hedge risk, instead it morphed into this Frankenstein speculator tool. I don't know where I read it (probably on Big Picture blog) but 90% or so CDS contracts are bought by speculators, not by investors to hedge their investments. And therein likes the problem with CDS.
In car analogy terms, it is as if I could take out insurance on anyone else's vehicle. I could basically gamble who is a good driver and who's not.