Wall Street - Faulty Risk Analysis?

[909]

obviously, you aren't investing for the long term.

[aerius]

Nope, there's no way I'm investing long term in a rigged market where the rules change on a weekly basis. Scalp the short term gains, get the fuck out.

[909]

get the fuck out.

[Beefy]

Picking a bottom is an inexact science. Even for scientists, Beefy.

This all reminds me of an interesting article I read in New Scientist about two months ago. The conclusion of a particular research group was that pretty much all of the equilibrium theories of market behaviour are entirely wrong - not due to the classic reasons, but predominantly due to human interactions.

They essentially simulated a group of traders with various personalities who all responded to randomised good and bad news about a particular stock, as well as base financials, etc as would be expected under equilibrium. So long as each individual trader took no notice of what the other traders were doing, the market remained relatively stable and nobody lost too much money. A nice, healthy equilibrium.

But as soon as the simulated traders began taking into account what other traders were doing, everything started going completely chaotic. Massive boom and bust cycles, and the majority of traders reporting losses to a select few lucky ones who made big profits. A really good example of how human greed, fear and sometimes outright stupidity can mess up an otherwise good system......

[hadden]

Please look at the graph more closely. Buying near the top in the late 20s means a twenty year or more wait to get back to square one if you are looking at the broad market. Also notice the looong drawn out flatline through the 60s and 70s, which pretty much killed the mutual fund market, or whatever it was called at the time. We haven't had a truly bad patch for a generation. People DO NOT have the patience or forsight or historical perspectve to wait through a true Bear.

[Old Pa]

Paid off the mortgage ten years ago, no credit card debt or car loans, doing the full kitchen re-model out-of-pocket. How? Work hard, don't waste, and save. The portfolio values look sad, but I'm not planning to turn them into losses by selling any time soon. Even SWMBO is looking at me as prescient.

[Old Pa]

It's now been over a week since Secretary Paulson declared a national credit emergency requiring immediate legislative action to avoid immediate impending catastrophic economic doom. Paulson and the congressional leadership drafted a 200 page $700 billion package affording unparalleled discretion and lack of review to the Secretary of the Treasury in purchasing mortgage backed securities. On Monday we were told that the crisis was no longer a matter of being days or weeks away, but mere hours.

But the House narrowly defeated the bill and the DOW went down an additional 400 points after the vote. We are then subjected to a frenzy of finger pointing and blame gaming from all sides, but the fact remains that congressional members on both sides were receiving communications from their constituents overwhelmingly against the bailout. Ninety congressional Democrats in highly contested races voted against the bill as well. And no more banks failed and the immediate doom did not materialize.

So the Senate comes back and porks and earmarks up the bill for an additional 250 pages and to over a trillion dollars, but only 700 billion for actual bailout, and passes the bill by a comfortable margin but with almost every Democratic member who is standing for election voting against it. And the DOW goes down another 400 points with the passage of the bill in the Senate. And no more banks fail and the forecasts of impending credit doom seem greatly exaggerated.

Then this morning Wells Fargo steps in past CitiBank and buys Wachovia in a stock deal. This deal does not require the FDIC to buy Wachovia's bad debt with out money. And Warren Buffet buys a load of GE's preferred to go along with the load of Goldman Sachs he bought recently as well (and Buffet, no financial dummie, has a large position in Wells Fargo as well). Result? The private sector is working out the credit crisis itself. And no more banks have failed and the immediate doom forecast by Paulson has not materialized.

So what gives? October Surprise.

It's time to say no to the bailout October Surprise and to panic in general. It's time to stop saving the banks and institutions that engaged in bad judgment and greed. Working through the credit problems is painful and there are and will be casualties, but it's better to lose the weak and corrupt quickly than to have them propped up by public funds to carry on as usual. It's time for the House to stop being given the bum's rush towards something the overwhelming majority of their constituents are rightfully against. If this bill was a pig (and it was) for $700 billion, it's an even bigger one porked up to a trillion with none of the additional earmarks for actual credit crisis relief. What it is is and unvarnished invitation to Big Government and socialism. Bad idea. Just say "no".

[Hopstretch]

What it is is and unvarnished invitation to Big Government and socialism. Bad idea.

As opposed to the outstanding success of the unfettered free market in running us into this ditch to begin with?

[grawk]

It wasn't free market to begin with. The government was actively encouraging poor lending to "expand home ownership". That's one of the things "community organizers" were for, as an example.

[Old Pa]

As opposed to the outstanding success of the unfettered free market in running us into this ditch to begin with?

Apples and oranges. I've been against the low doc/no doc/NINA mortgage loan practices since they came in in the late 90s. You'll get no argument from me that heightened regulation is necessary there and in other consumer credit areas. I am only talking about a trillion plus bill with bad provisions that is being fear-mongered upon us.

[Hopstretch]

It wasn't free market to begin with. The government was actively encouraging poor lending to "expand home ownership". That's one of the things "community organizers" were for, as an example.

Right. And communism was a good idea, just never properly implemented.

You certainly heard constant howls of protest from the finance industry during the decade or so when they were being "forced" to make billions of dollars in profits off of the subprime market. Didn't you?

[hungrych]

It's now been over a week since Secretary Paulson declared a national credit emergency requiring immediate legislative action to avoid immediate impending catastrophic economic doom. Paulson and the congressional leadership drafted a 200 page $700 billion package affording unparalleled discretion and lack of review to the Secretary of the Treasury in purchasing mortgage backed securities. On Monday we were told that the crisis was no longer a matter of being days or weeks away, but mere hours.

But the House narrowly defeated the bill and the DOW went down an additional 400 points after the vote. We are then subjected to a frenzy of finger pointing and blame gaming from all sides, but the fact remains that congressional members on both sides were receiving communications from their constituents overwhelmingly against the bailout. Ninety congressional Democrats in highly contested races voted against the bill as well. And no more banks failed and the immediate doom did not materialize.

So the Senate comes back and porks and earmarks up the bill for an additional 250 pages and to over a trillion dollars, but only 700 billion for actual bailout, and passes the bill by a comfortable margin but with almost every Democratic member who is standing for election voting against it. And the DOW goes down another 400 points with the passage of the bill in the Senate. And no more banks fail and the forecasts of impending credit doom seem greatly exaggerated.

Then this morning Wells Fargo steps in past CitiBank and buys Wachovia in a stock deal. This deal does not require the FDIC to buy Wachovia's bad debt with out money. And Warren Buffet buys a load of GE's preferred to go along with the load of Goldman Sachs he bought recently as well (and Buffet, no financial dummie, has a large position in Wells Fargo as well). Result? The private sector is working out the credit crisis itself. And no more banks have failed and the immediate doom forecast by Paulson has not materialized.

So what gives? October Surprise.

It's time to say no to the bailout October Surprise and to panic in general. It's time to stop saving the banks and institutions that engaged in bad judgment and greed. Working through the credit problems is painful and there are and will be casualties, but it's better to lose the weak and corrupt quickly than to have them propped up by public funds to carry on as usual. It's time for the House to stop being given the bum's rush towards something the overwhelming majority of their constituents are rightfully against. If this bill was a pig (and it was) for $700 billion, it's an even bigger one porked up to a trillion with none of the additional earmarks for actual credit crisis relief. What it is is and unvarnished invitation to Big Government and socialism. Bad idea. Just say "no".