You are completely right – it is the other people who are confusing you. “Shadow Banking” is when non-banks, such a pension funds and money markets provide funding for lending instead of the banks.
Credit Default swap is a bad example. If it is held by the bank then it is on the books. It might be mispriced but that is another issue.
Commercial paper is the classic example. Companies go out into the market and borrow money for less than 270 days. The normally sell to money market funds and the like. Banks help in issues and selling the paper. It is off the books but it is lending. A lot of firms were borrowing lots of money like this because it was cheap. And at the end of the 270 days you just rolled it over. When the financial crisis hit nobody wanted to buy anything so you could not roll over your paper. A lot of good companies had to scramble.
Asset Backed Securities might be better. A bank (or GE, Target, or anybody selling almost anything) has 100m in loans. They then package those loans into a bond and sell 90m of that bond. They sell mainly to pension funds. Now the bank only has 10m on the books. This keeps leverage low and regulators happy. However now they are dependent on the market to buy their bonds. If they can’t sell their bonds then they can’t lend.
I am still reading the underlying article but it looks like the figures are referring to nominal value – not real value. Nominal value will normally way overstate how large the shadow banking system is.
Example – I enter into a future to swap 2m US Dollars for 1m British Pounds in 90 days. (not the right exchange but I am trying to keep things simple.) The nominal value is either 2 or 4m depending on how you counting. In reality you are agreeing to swap to things of equal value so the economic value is zero.
Read up on Terry Redlin. Yes, he is a American known for his landscapes. I think he was banal and kitsch but each to their own. He lands right between original art work and postcards.
He figured out that reproductions could look very good if they were printed on canvas and if some oil paint was daubed over to get it that “oil painted” feel. So he would paint a original and then start cranking out copies. IIRC he “painted” all of his copies – at least a few brush strokes. The rest would be completed by his assistances. The cost of the original reproductions would depend on how much work he had done verse his assistants.
He has been dead for some years and they are still cranking out originals – canvas that he had started but the assistants have not finished. He made a mint.
So more work was put in Redlin’s pictures then in some of Andy Warhol’s factor work. On the other hand, since each Ferrari is hand built, more work is put into them either Redlin or Warhol’s work.
For me it is a grey area that requires subjective judgment.
And I am going to have to disagree with you on the printing. Lithography and photography is a art form.
In reality I think they chose the gun not because it represented the highest level of art of the printer but because it is controversial and thus will draw people.
To you point, in a more abstract view, I have a bias in museum for more solid, concert things – to anchor things to a point in time. The dog may have a bad day. Or the dog may be dead so all you get is a stuffed dog. So a recording is better. Would it be cool it see a 3D printer chugging away – Yes. But I would think that would be more of a science museum thing. But I think that is splitting hairs. The gun is a legitimate thing to display – a tangible thing to mark a point in history.
I think you are missing the point. The point is not that high quality design of the gun – the point is the high quality output of a 3D printer. It is kind of like getting your dog to sing. You don’t listen to the dog for it’s amazing voice, you are amazed that it can do it at all.
It depends what you mean by “normal”. There rules are normal for people who trade heavily. Most day traders fall under these rules. I have seen a few – and I mean less than a dozen individuals - trip up and trigger these.
These rules fall under the “constructive sale” rules.
Could I get a cite for a exemption on same day transactions? I know there is a exception for same day operation transactions – for example FX trading to make loan or supplier payments. But I am not aware of any exception for stock trading – unless our account are wrong.
And can you explain how higher spreads are better for you and not for the middle man? I mean the spread is how they make their money. You have to pay more to buy the stock and you get less when you make the stock. I can’t think of good thing about that.
I am going to have to contest you logic on volatility. If that were true then dual listed stocks (e.g. stocks listed on both the Paris and London exchange) would have about the same volatility. One of the ways that HFT make money is to exploit the price differences on different markets. If markets were frictionless then the same stock on different markets should have the same price and volatility. The tobin tax introduces friction. After the tobin tax the volatility of stocks in the Paris exchange was higher than that of London.
And as a aside, there has been an argument about HFT, volatility, liquidity and spreads. The general concusses is that HFT increase liquidity and decrease spreads during normal operations and that this is a good thing. (flash crash aside). Some have argued that they increase volatility, such as flash crashes, which is a bad thing. However the proof of this is currently weak. The argument goes on.
I will point out that there is a difference in investing in French companies and investing though the French stock market. If you check more and more shares of French companies are trading outside of France.
You know, the same argument was made about railroads back in the 1850s. The railroads added nothing of value because they created nothing - only moved things around. Moved things around at 20% of the old cost, but still only moved things around.
Let us make a daring assumption that the Capital Markets actually create some value by allocating economic resources. If that is the case we can make the same case about algorithmic trading. They have done nothing except reduce the cost of trading by 80%.
The difference between algorithmic trading and HFT is the same difference between speculators and investors – purely subjective. Do HFT make big bucks? Sure – but much less than the fat days of yesteryears.
No, they are taxed on their profit. They are even taxed on their potential profit. “Trading Positions” are taxed on their unrealized loss at the end of every year. So in fact they have to pay more profits.
And there has been a lot of debate on the effect of a Tobin tax the actual effect has been less then advertised. When France introduced one last they got more volatility, lower liquidity, and higher spreads. The last 2 imply that the middle men (such as HFT) were making more money per trade and “stealing” more profits from small stock traders.
You know, that was a great thing about James Cameron’s Abyss. Bud, the hero, is in the dark and needs to cut the red wire but all of the wire are white due to the green chem light that he is using.
Just because you can write a script and generate a city does not mean you can generate a good city. You might generate a badly functioning city.
Or things may happen that cause you to rebuild a city. Tokyo was a great city but then Godzilla happens. Detroit was a great city but then the auto manufactures happened. What should be rebuilt on the bones of the old?
You still make choices but it is the simulation which is more accurate.
I think we are getting closer to the point. How do monopolies abuse their power? It is because they can offer a take it or leave it offer. It is fight between someone bare handed verse somebody with a gun?
Is a car manufacture a monopoly? If you are a GM dealer there is only one place to get your cars. Can you switch to another manufacture? Maybe – assuming that the other manufactures don't have a dealership in your territory. In any event the transaction cost is going to be high. It is like going into a gun fight with a knife – better than bare handed but still not good.
So if you don't want to read up on game theory read up on market structure. Free market does not automatically mean competition. Sometimes you can have 2 companies and it is competitive – sometimes not. A lot depends on how the market is structured which goes back to regulations and laws.
I can think of cases where the transaction cost of switch is low. In those cases it is the franchisors who woe the franchises.
Generally speaking state franchise laws protect against this.
Most require that the size of the territory is spelled out so the franchisor can’t launch a surprise competitor across the street.
Most require that franchisor threat their franchisors fairly and equally. If they offer a “better, cheaper” service to one franchise they must disclose and offer that same level of service to all.
It may not be more efficient to sell directly – see my post below. But for your other coners..
Franchise laws are supposed maintain a balance of power between big companies and little franchisers. Remember, a free market works on the assumption that people freely trade. If one side is stronger and can bully the other side – well – toss out the free market.
Let’s go back to the 20s when this all started. Big companies franchised out their operations. After a few years the local entrepreneur had built up a business. Then the big company would come along and refuse to renew the agreement, jack up the fee, open a new store across the street. Etc.
I disagree how the franchise law is working here but not on the general principals.
Read up on game theory. Or there a lot of good economic articles on when there is a asymmetry in power or information and how that distorts the market.
To be fair it is not just about the capital, it is about aligning interest. Big distant companies want local passionate people who want to build the business for the long haul – not just to scam people for a quick buck. Giving ownership to a local person helps ensure that they are looking long term.
On the other hand I think you are spot on. If Tesla had a local franchise that they were trying to swamp that would be one thing. However, nobody locally (or anywhere) has dropped a dime for a franchise. No conflict of interest so Tesla should not be forced into the franchise model.
As your definition states it is when industry and regulators swap jobs often so the insider dominate. In Texas the regulators and car industry and not swapping jobs. This is a concern when the industry is highly technical – see Wall Street vs. SEC, FDIC, Federal Reserve, etc. Joint the SEC as a junior lawyer, understand the byzantine laws, go private for 10 times the price.
No, what I think you are looking for is: “” from the late Congressional rep Tip O'Neill. Car dealerships tend to dominate local politics since they tend to be owned by local families.
Yes, engineers are great but they may have a different idea then yours.
I am thinking about Effile (of the tower) who designed a iron bridge that could be transported by camels. i.e. lots of small pieces that can be assembled into a whole.
I too am still scratching my heads. Canada is amazing expensive – because you can’t just dump asphalt on the ground. Specifically, the mineral mines that lay in the far north. I think most of the road is tundra which is fiendishly tough to build roads on. No exactly a cite but..
I am going to make the assumption that the army wants to protect their soldiers from concussive blast (from bombs, RPGs, etc.), chemical, and nuclear fallout. In order to protect from these threats you need a air tight seal which then bright up issues on how to cool the soldiers. Look back at Gulf War I and what soldiers had to endure under the threat of chemical attack.
I am also going to assume that the army does not mean “AC” when the article says “AC”. I would think any cooling system would work. I have seen some weird studies about how to cool soldiers down.
You are looking at “Express mail” – something that the courts have defined as something different then letter delivery.
Quick question – do couriers, telegrams, and phones compete with USPS? Kind of – they all carry information – yet they are different. You may argue that we are splitting hairs – I am telling you the Federal Courts have already split those hairs.
The Constitution grants the right to create and regulate – it does not require the USPS to be a monopoly. The USPS is not part of the federal government – “merely” a federal charted corporation.
Also, the postal service is not natural monopoly – or if it is one it is a weak one. I have seen plans where the postal service is privatized. Some of these plans even keep universal service. It used to be that the postal service had to be tightly integrated to offer the quality of service required. Technology now lets us deaggregate most of these functions.
But these would require huge changes and risks to the current system which works fairly well.
Huh – that is an interesting point that I have not thought about.
Checks UPS financials, find pension obligations are overfunded. Checks FedEx financials, find them overfunded as well.
So maybe not.
I will admit 2 points. First, I suspect UPS an FedEx use define contributions (401(K)s) while the USPS uses define benefits (traditional pensions). Second the USPS uses good accounting for it’s pension liabilities which cannot be said for many – either private or public.
But I think the point still stands. Pension liabilities are real costs and should be accounted for. Better to account for it now rather than use fake accounting hide them.
Namely when you said "The USPS has a monopoly on letter delivery" - which is demonstrably false. You can send your letters via FedEx and UPS if you like.
Let us look at this closer. What do you mean by “letter”.
FedEx and UPS offer “express mail” or package shipments, but I can’t find a non-urgent letter service – which is what the USPS has an explicit monopoly on. Court cases have been fought over this and you cannot directly compete with the post office on plain vanilla service – it must be differentiated in some way – such as being “express”.
As to the point that I was trying to make – you argued that the USPS can’t be a monopoly because it is losing money and well run. My point is that neither of those conditions defines what a monopoly is – is the ability to offer a exclusive product or service. (And how you define what category a service belongs to is a always evolving argument.)
Slashdot Mirror
You are completely right – it is the other people who are confusing you. “Shadow Banking” is when non-banks, such a pension funds and money markets provide funding for lending instead of the banks.
Credit Default swap is a bad example. If it is held by the bank then it is on the books. It might be mispriced but that is another issue.
Commercial paper is the classic example. Companies go out into the market and borrow money for less than 270 days. The normally sell to money market funds and the like. Banks help in issues and selling the paper. It is off the books but it is lending. A lot of firms were borrowing lots of money like this because it was cheap. And at the end of the 270 days you just rolled it over. When the financial crisis hit nobody wanted to buy anything so you could not roll over your paper. A lot of good companies had to scramble.
Asset Backed Securities might be better. A bank (or GE, Target, or anybody selling almost anything) has 100m in loans. They then package those loans into a bond and sell 90m of that bond. They sell mainly to pension funds. Now the bank only has 10m on the books. This keeps leverage low and regulators happy. However now they are dependent on the market to buy their bonds. If they can’t sell their bonds then they can’t lend.
I am still reading the underlying article but it looks like the figures are referring to nominal value – not real value. Nominal value will normally way overstate how large the shadow banking system is.
Example – I enter into a future to swap 2m US Dollars for 1m British Pounds in 90 days. (not the right exchange but I am trying to keep things simple.) The nominal value is either 2 or 4m depending on how you counting. In reality you are agreeing to swap to things of equal value so the economic value is zero.
Read up on Terry Redlin. Yes, he is a American known for his landscapes. I think he was banal and kitsch but each to their own. He lands right between original art work and postcards.
He figured out that reproductions could look very good if they were printed on canvas and if some oil paint was daubed over to get it that “oil painted” feel. So he would paint a original and then start cranking out copies. IIRC he “painted” all of his copies – at least a few brush strokes. The rest would be completed by his assistances. The cost of the original reproductions would depend on how much work he had done verse his assistants.
He has been dead for some years and they are still cranking out originals – canvas that he had started but the assistants have not finished. He made a mint.
So more work was put in Redlin’s pictures then in some of Andy Warhol’s factor work. On the other hand, since each Ferrari is hand built, more work is put into them either Redlin or Warhol’s work.
For me it is a grey area that requires subjective judgment.
And I am going to have to disagree with you on the printing. Lithography and photography is a art form.
In reality I think they chose the gun not because it represented the highest level of art of the printer but because it is controversial and thus will draw people.
To you point, in a more abstract view, I have a bias in museum for more solid, concert things – to anchor things to a point in time. The dog may have a bad day. Or the dog may be dead so all you get is a stuffed dog. So a recording is better. Would it be cool it see a 3D printer chugging away – Yes. But I would think that would be more of a science museum thing. But I think that is splitting hairs. The gun is a legitimate thing to display – a tangible thing to mark a point in history.
Out of curiosity, what is your opinion on:
Andy Warhol and his factory
Terry Redlin
Ferraris
I think you are missing the point. The point is not that high quality design of the gun – the point is the high quality output of a 3D printer. It is kind of like getting your dog to sing. You don’t listen to the dog for it’s amazing voice, you are amazed that it can do it at all.
http://www.economist.com/news/finance-and-economics/21568433-early-evidence-french-tax-skimming-froth
It depends what you mean by “normal”. There rules are normal for people who trade heavily. Most day traders fall under these rules. I have seen a few – and I mean less than a dozen individuals - trip up and trigger these.
These rules fall under the “constructive sale” rules.
http://www.irs.gov/publications/p550/ch04.html#en_US_2012_publink100010758
Could I get a cite for a exemption on same day transactions? I know there is a exception for same day operation transactions – for example FX trading to make loan or supplier payments. But I am not aware of any exception for stock trading – unless our account are wrong.
And can you explain how higher spreads are better for you and not for the middle man? I mean the spread is how they make their money. You have to pay more to buy the stock and you get less when you make the stock. I can’t think of good thing about that.
I am going to have to contest you logic on volatility. If that were true then dual listed stocks (e.g. stocks listed on both the Paris and London exchange) would have about the same volatility. One of the ways that HFT make money is to exploit the price differences on different markets. If markets were frictionless then the same stock on different markets should have the same price and volatility. The tobin tax introduces friction. After the tobin tax the volatility of stocks in the Paris exchange was higher than that of London.
And as a aside, there has been an argument about HFT, volatility, liquidity and spreads. The general concusses is that HFT increase liquidity and decrease spreads during normal operations and that this is a good thing. (flash crash aside). Some have argued that they increase volatility, such as flash crashes, which is a bad thing. However the proof of this is currently weak. The argument goes on.
I will point out that there is a difference in investing in French companies and investing though the French stock market. If you check more and more shares of French companies are trading outside of France.
You know, the same argument was made about railroads back in the 1850s. The railroads added nothing of value because they created nothing - only moved things around. Moved things around at 20% of the old cost, but still only moved things around.
Let us make a daring assumption that the Capital Markets actually create some value by allocating economic resources. If that is the case we can make the same case about algorithmic trading. They have done nothing except reduce the cost of trading by 80%.
The difference between algorithmic trading and HFT is the same difference between speculators and investors – purely subjective. Do HFT make big bucks? Sure – but much less than the fat days of yesteryears.
No, they are taxed on their profit. They are even taxed on their potential profit. “Trading Positions” are taxed on their unrealized loss at the end of every year. So in fact they have to pay more profits.
And there has been a lot of debate on the effect of a Tobin tax the actual effect has been less then advertised. When France introduced one last they got more volatility, lower liquidity, and higher spreads. The last 2 imply that the middle men (such as HFT) were making more money per trade and “stealing” more profits from small stock traders.
You know, that was a great thing about James Cameron’s Abyss. Bud, the hero, is in the dark and needs to cut the red wire but all of the wire are white due to the green chem light that he is using.
I don’t think it is a troll.
Just because you can write a script and generate a city does not mean you can generate a good city. You might generate a badly functioning city.
Or things may happen that cause you to rebuild a city. Tokyo was a great city but then Godzilla happens. Detroit was a great city but then the auto manufactures happened. What should be rebuilt on the bones of the old?
You still make choices but it is the simulation which is more accurate.
I think we are getting closer to the point. How do monopolies abuse their power? It is because they can offer a take it or leave it offer. It is fight between someone bare handed verse somebody with a gun?
Is a car manufacture a monopoly? If you are a GM dealer there is only one place to get your cars. Can you switch to another manufacture? Maybe – assuming that the other manufactures don't have a dealership in your territory. In any event the transaction cost is going to be high. It is like going into a gun fight with a knife – better than bare handed but still not good.
So if you don't want to read up on game theory read up on market structure. Free market does not automatically mean competition. Sometimes you can have 2 companies and it is competitive – sometimes not. A lot depends on how the market is structured which goes back to regulations and laws.
I can think of cases where the transaction cost of switch is low. In those cases it is the franchisors who woe the franchises.
Generally speaking state franchise laws protect against this.
Most require that the size of the territory is spelled out so the franchisor can’t launch a surprise competitor across the street.
Most require that franchisor threat their franchisors fairly and equally. If they offer a “better, cheaper” service to one franchise they must disclose and offer that same level of service to all.
It may not be more efficient to sell directly – see my post below. But for your other coners..
Franchise laws are supposed maintain a balance of power between big companies and little franchisers. Remember, a free market works on the assumption that people freely trade. If one side is stronger and can bully the other side – well – toss out the free market.
Let’s go back to the 20s when this all started. Big companies franchised out their operations. After a few years the local entrepreneur had built up a business. Then the big company would come along and refuse to renew the agreement, jack up the fee, open a new store across the street. Etc.
I disagree how the franchise law is working here but not on the general principals.
Read up on game theory. Or there a lot of good economic articles on when there is a asymmetry in power or information and how that distorts the market.
To be fair it is not just about the capital, it is about aligning interest. Big distant companies want local passionate people who want to build the business for the long haul – not just to scam people for a quick buck. Giving ownership to a local person helps ensure that they are looking long term.
On the other hand I think you are spot on. If Tesla had a local franchise that they were trying to swamp that would be one thing. However, nobody locally (or anywhere) has dropped a dime for a franchise. No conflict of interest so Tesla should not be forced into the franchise model.
This is not “Regulator Capture”.
As your definition states it is when industry and regulators swap jobs often so the insider dominate. In Texas the regulators and car industry and not swapping jobs. This is a concern when the industry is highly technical – see Wall Street vs. SEC, FDIC, Federal Reserve, etc. Joint the SEC as a junior lawyer, understand the byzantine laws, go private for 10 times the price.
No, what I think you are looking for is: “” from the late Congressional rep Tip O'Neill. Car dealerships tend to dominate local politics since they tend to be owned by local families.
Yes, engineers are great but they may have a different idea then yours.
I am thinking about Effile (of the tower) who designed a iron bridge that could be transported by camels. i.e. lots of small pieces that can be assembled into a whole.
I too am still scratching my heads. Canada is amazing expensive – because you can’t just dump asphalt on the ground. Specifically, the mineral mines that lay in the far north. I think most of the road is tundra which is fiendishly tough to build roads on. No exactly a cite but..
http://en.wikipedia.org/wiki/Ice_Road_Truckers
I am going to make the assumption that the army wants to protect their soldiers from concussive blast (from bombs, RPGs, etc.), chemical, and nuclear fallout. In order to protect from these threats you need a air tight seal which then bright up issues on how to cool the soldiers. Look back at Gulf War I and what soldiers had to endure under the threat of chemical attack.
I am also going to assume that the army does not mean “AC” when the article says “AC”. I would think any cooling system would work. I have seen some weird studies about how to cool soldiers down.
The barrier you are looking for is the Constitution, Congress, and the Federal courts. The USPS will sue you out of business.
The (narrow) monopoly for letters (i.e. non-urgent) is explicit.
http://en.wikipedia.org/wiki/American_Letter_Mail_Company
http://www.cato.org/sites/cato.org/files/serials/files/policy-report/1999/3/cpr-21n2.html
You are looking at “Express mail” – something that the courts have defined as something different then letter delivery.
Quick question – do couriers, telegrams, and phones compete with USPS? Kind of – they all carry information – yet they are different. You may argue that we are splitting hairs – I am telling you the Federal Courts have already split those hairs.
Maybe.
The Constitution grants the right to create and regulate – it does not require the USPS to be a monopoly. The USPS is not part of the federal government – “merely” a federal charted corporation.
Also, the postal service is not natural monopoly – or if it is one it is a weak one. I have seen plans where the postal service is privatized. Some of these plans even keep universal service. It used to be that the postal service had to be tightly integrated to offer the quality of service required. Technology now lets us deaggregate most of these functions.
But these would require huge changes and risks to the current system which works fairly well.
Huh – that is an interesting point that I have not thought about.
Checks UPS financials, find pension obligations are overfunded. Checks FedEx financials, find them overfunded as well.
So maybe not.
I will admit 2 points. First, I suspect UPS an FedEx use define contributions (401(K)s) while the USPS uses define benefits (traditional pensions). Second the USPS uses good accounting for it’s pension liabilities which cannot be said for many – either private or public.
But I think the point still stands. Pension liabilities are real costs and should be accounted for. Better to account for it now rather than use fake accounting hide them.
Namely when you said "The USPS has a monopoly on letter delivery" - which is demonstrably false. You can send your letters via FedEx and UPS if you like.
Let us look at this closer. What do you mean by “letter”.
FedEx and UPS offer “express mail” or package shipments, but I can’t find a non-urgent letter service – which is what the USPS has an explicit monopoly on. Court cases have been fought over this and you cannot directly compete with the post office on plain vanilla service – it must be differentiated in some way – such as being “express”.
As to the point that I was trying to make – you argued that the USPS can’t be a monopoly because it is losing money and well run. My point is that neither of those conditions defines what a monopoly is – is the ability to offer a exclusive product or service. (And how you define what category a service belongs to is a always evolving argument.)