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Will the global economy implode in 2016?
We're hosed - I have stocked up on canned goods
My private security guards will shoot the paupers
We'll be good or at least coast along
I have no earthly clue
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Junior G-man
Sep 15, 2004

Wrapped in a mystery, inside an enigma


Since this will probably keep the news busy for the coming few weeks, I thought it might be useful to have a central overview and discussion place, otherwise there's 4-6 megathreads to keep on reading:

General

Welp, 2016 started hasn't so much started with a bang as with an (awaited) implosion:

  • The Chinese economy is hitting the skids, and only state trickery and massive injections of capital reserves are keeping the ship upright.
  • The American economy is doing better, but it remains a hideously unequal society - is the Fed ready for another round bank failures, if they come? Also US Presidential elections and a completely hosed political system.
  • The European economy is still tottering and reeling from many rounds of self-inflicted monetary sadism (also known as austerity)
  • The BRIC economies - Once upon a time though to be the new engines of global prosperity and profit:
    - Brazil: Stuck in the mud with parliamentary and business scandals too numerous to count.
    - Russia: Autocratic basket case dependent on the price of oil and gas
    - India: Seems to be holding steady
    - China: Oh, dear.
  • The Middle East: Oil is tanking, things are blowing up and lots and lots and lots of young people are unemployed.

NON-EXHAUSTIVE List of Issues and/or problems:

:siren: OIL :siren:



Oil has been skidding downwards for a long while now, at first fueled by the growth of shale gas/fracking and then by the Saudis et al. opening the pump as fast and hard as they can. The Saudis are flooding the market in order to drown the shale gas industry. This appears to be working as US fracking etc needs very high initial investment to get the wells going, which means borrowing lots of money from commercial banks. Currently, the oil price (at 28$ per barrel) is too low to support the investment and US fracking companies have been going bust at a fairly impressive rate, with estimates of one half to to one third in danger of fading before 2017.

The problem for the US is that all the fracking financing, which seemed like a dream-come-true a few years ago, may now turn sour in a big way. The default risk in the US energy sector is the highest since the Great Depression. Already banks are putting money aside to deal with collapsing investments. Depending on how big they are, those banks may be in trouble.

In the Middle east meanwhile, the collapsing oil prices mean that IMF has estimated that state could go bankrupt by 2020 if oil prices do not recover. Right now, the riyal is pegged to the dollar, but that might not last. In order to plug the current gap, the Saudi's are even considering selling shares in Aramco, the state oil company, which is their equivalent to selling the family silver on the cheap.

Not to mention that the Iranians, fresh from getting out from a lot of sanctions, are back in the global oil market in a big way. This could, of course, see oil prices go even lower as they join a massive global oversupply.

The upside of all of this is that consumers will see lower prices at the pump, leaving them with more disposable income etc. which can increase consumption in the West - the 'traditional' motor of global of economic growth.

The downside is that the collapse in price of commodities like oil, gas , iron and copper ore are no good at all for developing countries and others (looking at you, Canada and Australia) who depend on bulk commodities in order to make their budgets and economies move.

:siren: EUROPE :siren:



Austerity is bad, and Europe continues to prove it.

If you thought that Greece was settled, think again:

quote:

Farmers’ roadblocks, ferries immobilised in ports, pensioners taking to the streets: protest has returned to Greece in what many fear could be the beginning of the crisis-plagued country’s most confrontational winter yet.

From the Greek-Bulgarian frontier to the southern island of Crete, farmers are up in arms over the spectre of more internationally mandated austerity.

“It’s war,” says Dimitris Vergos, a corn grower speaking from the northern town of Naoussa. “If they [politicians] go on pushing us to the edge, if they want to dehumanise us further, we will come to Athens and burn them all.”

With the rhetoric at such levels, prime minister Alexis Tsipras’s leftist-led administration has suddenly found itself on the defensive. Faced with a series of demonstrations – fishermen and stockbreeders will join blockades on Thursday when public and private sector workers also take to the streets – analysts say any honeymoon period Tsipras may once have enjoyed is over.

On Wednesday, convoys of tractors in Thessaly, the nation’s breadbasket, blocked the road at Tempi, effectively cutting the country’s main north-south highway. Hundreds more lined the seafront in Thessaloniki while, further north, police were forced to fire rounds of tear gas at protestors barricading Evangelos Apostolou, the agriculture minister, in an administrative building as fierce clashes erupted in Komotini.

Their fury is focused on proposed pension and tax measures, the latest in a battery of reforms set as the price of the debt-stricken nation receiving a third, €86bn, bailout last summer.

While it's no longer the threat it posed in 2010, a collapse in Greece would still be very nasty for the EU economy, the Euro project and the EU as a political/civic union, especially if you look at how many refugees they are processing.

The Italian banking system is still in a bad way and any bail-in or out will be very expensive indeed if it goes on the slide. There are rumours that the 3rd largest bank is suffering from a bank run, and its shares are taking a nosedive.

In Portugal meanwhile, there is a new left-wing coalition and the Presidential elections are expected to be won by the right. Austerity is the name of the game here and more uncertainty, in possible combination with Greece, could make things interesting again.

New election results in Spain meanwhile mean that their Parliament will be in a jam for a while to come, with reversal of austerity rules possible, depending on the outcome.

France, with only 0.3% growth in Q3 2015 is saddled with persistent high unemployment at 10.6% and 25.7% youth unemployment and is currently led by the go-nowhere government of Francois Hollande, who is still stuck at 30% approval ratings even after the Paris attacks. The Front National, under Marine le Pen, is a serious contender now, and they are no good news for anyone.

Germany is still doing well. with higher wages, economic output and all kinds of indicators doing well. However, 1.7% GDP growth isn't exactly a star.. What happens to Volkswagen (either the largest or second-largest company in Germany) after their revolting cheating is still to be seen. Plus, with the current migrant crisis, their politics could take a large wobble, especially if another Cologne-like event takes place.

In short, Europe's definitely not out of the weeds yet, may be pulled back into them, and what happens when they are is anyone's guess.

Plus, the current EU refugee crisis continues to roil the continent, costing much more than expected, the Schengen common border area may collapse, and it's causing more problems everywhere. The joint EU-Turkey solution is a joke.

Also, Brexit.

:siren: CHINA :siren:

https://www.youtube.com/watch?v=rPILhiTJv7E

Hurling down the economic cliff as we speak,, the once-great hope of the global economy is cracking very badly. A hugely inflated market, with over 28 TRILLION $ in debt, with probably even more in the super opaque shadow banking system, and literal ghost cities full of empty buildings could be on the edge of some pretty horrid shocks.

With so much (western) capital now inside the Chinese market (due to lack of returns anywhere else), a collapse in China would be very bad for the global banking system. Plus, who would be left to export to? Mars?

Improving / making matters much worse is the Chinese state, which does everything from forcing shareholders to buy in a crashing market to injecting capital to fluffing numbers. The official growth figures for the last quarter are 6.7%, but who really knows at this point.

:siren: THE STOCK MARKET :siren:

https://twitter.com/Schuldensuehner/status/690062595668209669/photo/1?ref_src=twsrc%5Etfw

Global markets have been taking a bath for the last few days due to the abovementioned reasons and more.

quote:

Shares in Asia experienced further turmoil after an earlier rally petered out, extending the rout on global stock markets prompted by growing fears over the global economy.

European stock markets turned negative after a small rebound earlier on, as oil prices continued their slide. Similarly in Asia Pacific, modest early gains were soon wiped out as gloom took hold in late afternoon trading, led by heavy selling in Japan, Hong Kong, mainland China and South Korea.

On Wednesday, London’s leading index followed other major stock markets including the Dax, CAC and Nikkei into bear market territory. On Wall Street, Standard & Poor’s 500 index closed at its lowest level in more than a year, adding to fears that the global economy could be heading for a repeat of the 2008 financial crisis.

The FTSE 100 in London initially rose more than 50 points to 5725.23 in early trading on Thursday, up 0.9%, but the gains swiftly evaporated. It slipped 0.2%, a fall of nearly 9 points, to 5661.81, hovering around a three-year low.

Germany’s Dax fell 0.4%, France’s CAC slipped 0.2%, Italy’s FTSE MiB lost 0.6% and Spain’s Ibex was flat.

After hitting fresh 13-year lows on Wednesday, oil prices fell further. Brent crude was down 1.3% at $27.52 a barrel while US crude shed 1.4% to $27.95, after crashing 6.6% on Wednesday.
With the Russian economy heavily reliant on oil exports, the rouble hit a record low against the dollar for the second day running.

After a wild day of trading, Japan’s Nikkei benchmark closed down 2.4% as hopes faded of a recovery from Wednesday’s losses when it plunged 3.7% to its lowest point since October 2014. The Hang Seng in Hong Kong was down 1.8%.

Australia’s stock market was the only major index left in positive territory, closing 0.5% higher.


:siren: INEQUALITY :siren:



Richest 62 people as wealthy as half of world's population, says Oxfam

quote:

The vast and growing gap between rich and poor has been laid bare in a new Oxfam report showing that the 62 richest billionaires own as much wealth as the poorer half of the world’s population.

Timed to coincide with this week’s gathering of many of the super-rich at the annual World Economic Forum in Davos, the report calls for urgent action to deal with a trend showing that 1% of people own more wealth than the other 99% combined.

Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn (£350bn) to $1.76tn.

The charity said that, in 2010, the 388 richest people owned the same wealth as the poorest 50%. This dropped to 80 in 2014 before falling again in 2015.

One address in the Cayman Islands houses 20.000 companies

quote:

When Barack Obama criticised tax havens, he singled out one building on Cayman, Ugland House, which he claimed housed “12,000 corporations. Now, that’s either the biggest building or the biggest tax scam on record.” But Obama got it wrong – there are closer to 20,000 companies registered there, and 100,000 companies in Cayman as a whole. They include ones linked – or that have been linked in the past – to a bewildering array of British household names: Tesco, Sainsbury’s, BP, Manchester United – even the National Grid. In total, Cayman is home to nearly twice as many companies as people. Which is odd, because when I went to find them, there wasn’t much physical evidence of their presence. But they’re here all right, on paper.

There might be as much as 21 Trillion Dollar hidden offshore

quote:

A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.

He shows that at least £13tn – perhaps up to £20tn – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, "protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy". According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.

The burden of bailing out the last crisis has already fallen on the poorest, both globally and in western societies. How much more do they have to give? Or are willing to take it up the rear end? Their lack of consumption isn't doing the global economy any good and another hammer blow could see significant numbers of people pushed out of the middle class.

:siren: So what now? :siren:



Is this a crisis? Are we hosed?

The consensus seems to be that it's not one .... yet .... but all the ingredients for a second Great Blowout are in place.

However, the Royal Bank of Scotland gives the following advice

quote:

Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.
.

The only thing that we can already say is that the tools to get out of the next crisis will need to be invented, probably by our paralysed political systems (with US elections on the horizon). Any further crisis could put a whole host of unpleasant people (Le Pen, Trump, Wilders et al) in power and essentially turn the page towards nationalism and economic competition through tariffs and whatnot. Even without them, the Western Central Banks have very little ammunition left, with interest rates already through the floor.

:siren: Resources :siren:

Austerity is entirely self-defeating and cannot work

https://www.youtube.com/watch?v=JQuHSQXxsjM

Why the American Housing Bubble led to the Eurocrisis led to the China Crisis:

https://www.youtube.com/watch?v=V3FPmu2_J_0

(Yes, I happen to like Mark Blyth)

If you need one, this site doesn't do a terrible job at providing a daily smorgasbord of economic news links. Don't read their opinion pieces as they are often vague.

Junior G-man fucked around with this message at 16:13 on Jan 21, 2016

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7c Nickel
Apr 27, 2008
I would like to add the caveat that my "We'll Coast Along" vote is very America centric. Other sections of the world may be hosed.

WorldsStongestNerd
Apr 28, 2010

by Fluffdaddy
This is end stage capitalism as predicted. The same highs and lows we have always had, except the cycle is faster and the high is a little less higher and the lows are a little lower each time.

Now I'm not necessarily knocking capitalism here. Death is certain regardless of your socio-economic system.

Junior G-man
Sep 15, 2004

Wrapped in a mystery, inside an enigma


7c Nickel posted:

I would like to add the caveat that my "We'll Coast Along" vote is very America centric. Other sections of the world may be hosed.

This is very true, but I'm assuming that whoever reads 'we' in that sentence will apply that to his/her own country/region.

Shao821
May 28, 2005

You want SHOCK?! I'll SHOCK you full of SHOCK!

A lot of large corporations are starting layoff proceedings - I think they've already seen where this road leads and are dropping excess weight Transporter style.

Of course if anyone had any money to drive demand in this economy all this could be avoided...

Dead Cosmonaut
Nov 14, 2015

by FactsAreUseless
Cohan wrote this piece back in 2012 on why the Dodd Frank and the Volcker Rule couldn't theoretically protect us from another banking crisis:

How We Got the Crash Wrong posted:

ONE OF THE most seductive narratives about the recent financial crisis is that it was caused by dizzying increases in the amount of leverage on the balance sheets of Wall Street firms, leaving the financial system virtually no margin for error. Leverage, we’ve been told repeatedly, went from about 12-to-1 in 2004 to 33-to-1 in 2008. (Leverage is the ratio of debt or assets to equity; at 33-to-1 leverage, a mere 3 percent drop in the value of a firm’s assets can wipe out its equity.) The reason for the increase, so the story goes, was an underappreciated change, in April 2004, to an obscure Securities and Exchange Commission rule, which let Wall Street off its short leash and allowed unprecedented risk-taking. If not for that, according to the popular press and many accomplished scholars, the crisis might not have happened. The acceptance of this thesis has colored not only how we think about what happened but also the new laws that were designed to prevent the next crisis. The problem is, it’s flat wrong. And because we have misunderstood the facts, we may now be trying to cure the wrong disease.

The spread and evolution of the idea that the financial crisis was caused by a giant increase in leverage, enabled by the SEC, bears a passing resemblance to the old-fashioned, elementary-school game of telephone. While the change to the SEC’s so-called net-capital rule in 2004 was plenty esoteric, in the main, it did not allow big securities firms to take on more leverage. The SEC did two things in 2004: First, it assumed the added responsibility of regulating Wall Street’s larger holding companies—as opposed to just the broker-dealer subsidiaries within them. That’s where more and more funky and risky assets, such as derivatives and mortgages, had been housed over the years. Second, the SEC required the holding companies to report their capital adequacy in a way that was consistent with international standards, and to discount their assets for market, credit, and operational risks. Clearly, the SEC did a poor job of monitoring Wall Street once it obtained this increased regulatory authority. But the rule change increased rather than decreased the SEC’s oversight of the financial sector, and did not suddenly permit a dramatic increase in leverage.

Yet that’s not how the rule change got interpreted. In the aftermath of the collapse of Bear Stearns, in March 2008, people were eager to know how a company that had thrived for 85 years, and that had $18 billion in cash on its balance sheet, could evaporate in a week’s time. Enter Lee Pickard, a former director of the SEC’s trading-and-markets division and one of the architects of the net-capital rule in 1975. In an August 2008 essay in American Banker, Pickard lambasted the 2004 change, which he believed had allowed Bear Stearns to incur “high debt leverage” without “substantially increasing [its] capital base.” He argued that the original net-capital rule required securities firms to discount, or “haircut,” the value of their assets depending on the assets’ perceived risk, and that it limited the amount of debt they could incur “to about 12 times [their] net capital.” After the SEC’s 2004 rule change, he wrote, the large securities firms were permitted to avoid the haircuts and the limitations on indebtedness. According to Pickard, “The losses incurred by Bear Stearns and other large broker-dealers” were caused “by inadequate net capital and the lack of constraints on the incurring of debt.”

Pickard’s criticism appealed to journalists eager to understand the causes of the crisis. On September 18, 2008, The New York Sun ran an article summarizing Pickard’s assertions and quoted him as saying “The SEC modification in 2004 is the primary reason for all of the losses that have occurred.” The SEC’s trading-and-markets division tried to refute Pickard’s critique in a little-read appendix to a report issued on September 25 on the collapse of Bear Stearns. “[Pickard] says that broker-dealers were formerly subject to a leverage ratio limit of 12x net capital,” the commission wrote, but they “were not.”

Nonetheless, the idea kept picking up steam. At the end of September, TheNew York Times began a series about the causes of the financial crisis. One headline blared: “Agency’s ’04 Rule Let Banks Pile Up New Debt.” On December 5, the Columbia Law professor John Coffee added his imprimatur. In the New York Law Journal, Coffee wrote of the 2004 rule change, “The result was predictable: all five of these major investment banks increased their debt-to-equity leverage ratios significantly in the period following” the change. Around the same time, Coffee’s esteemed colleague, Joseph Stiglitz, writing in Vanity Fair, described five key “mistakes” that had helped cause the financial crisis. Sure enough, the 2004 rule change got prominent play. And for the first time, Stiglitz explicitly mentioned the extent to which the leverage ratios had increased—“from 12:1 to 30:1, or higher,” he wrote, allowing the banks to “buy more mortgage-backed securities, inflating the housing bubble in the process.” The idea that the SEC’s rule change had allowed leverage to balloon now had the backing of a Nobel Prize winner.

On January 3, 2009, Susan Woodward, who was the SEC’s chief economist from 1992 to 1995, spoke at the American Economic Association. Her slides repeated Pickard’s thesis and used the same numerical ratios that Stiglitz had used. One of her fellow panelists that day was Alan Blinder, a former vice chairman of the Board of Governors of the Federal Reserve System and an economics professor at Princeton.

Three weeks later, Blinder wrote an opinion column for TheNew York Times about the “six errors on the path to the financial crisis.” Error No. 2, Blinder wrote, was “sky high leverage” enabled by the 2004 rule change. He, too, noted how securities firms’ leverage had grown, this time to 33-to-1, from 12-to-1. “What were the S.E.C. and the heads of the firms thinking?” he wondered. Blinder’s column firmly established the conventional wisdom, which proved increasingly difficult to dislodge.

BOTH STIGLITZ AND Blinder were right to point out that Wall Street was highly leveraged before the crash, on the order of 33-to-1 or more. But the truth is that in recent decades, Wall Street firms have almost always been highly leveraged. For instance, according to a 1992 study by the U.S. General Accounting Office (now the Government Accountability Office), the average leverage ratio for the top 13 investment banks was 27-to-1 midway through 1991 (up from 18-to-1 in 1990). A subsequent GAO report, in 2009, noted that the big Wall Street investment banks had higher leverage in 1998 than in 2006. According to SEC filings, in 1998, the year before it went public, Goldman Sachs was leveraged at nearly 32-to-1, while in 2006 it was leveraged at 22-to-1. In 1998, Bear Stearns’s leverage was 35-to-1; in 2006, its leverage was 28-to-1. Similar patterns applied at Merrill Lynch and Lehman Brothers. To be sure, leverage has fluctuated over time: In the early 1970s, for instance, it was generally below 8-to-1. But in the 1950s, it sometimes exceeded 35-to-1.


Of course, even a dollar of debt is too much if you are clueless about how to manage risk. And with one or two notable exceptions (Goldman Sachs and JPMorgan Chase among them), by the time 2008 rolled around, risk management on Wall Street had become a farce, with risk managers being steamrolled by bankers, traders, and executives focused nearly exclusively on maximizing annual profits—and the size of their annual bonuses. Yet there was a long era—roughly between 1935 and the late 1980s—when Wall Street’s ability to manage risk was one of its singular successes, bringing its partners and executives great wealth, making its firms the envy of the world, and helping to raise the standard of living for most Americans by making capital available to businesses large and small alike. What changed was not so much the leverage, but the attitude toward risk.

After Pickard’s article appeared, SEC officials contacted Pickard and urged him to correct his essay. But he wouldn’t budge. Finally, on April 9, 2009, Erik Sirri, who then held the same SEC job that Pickard once had, gave a speech before the National Economists Club in Washington to try to set the record straight. Sirri said that the effort to paint the 2004 rule change as the cause of the crisis “lacks foundation in fact.” Instead, Sirri reminded his audience, the change expanded regulatory oversight. And while the changes allowed Wall Street firms to marginally adjust the way they calculated their net capital, these adjustments did not meaningfully allow them to increase their leverage or reduce their equity capital.

Shortly after reading Sirri’s speech, which the media did not cover, Jacob Goldfield, a former partner and trader at Goldman Sachs, corresponded with Blinder and his editor at The New York Times, and urged the paper to run a correction. According to Goldfield and Blinder, TheTimes agreed to make the change. “Anyway, it remains unfixed,” Goldfield told me recently.

In December 2010, at the Federal Reserve Bank of Chicago, Goldfield gave a presentation about the misperception. As anyone could have, Goldfield had dug out the historical financial statements of the Wall Street firms—on file with the SEC—and made the calculations himself. He found that Wall Street’s leverage ratio was never remotely close to 12-to-1 in 2004. On slide after slide, Goldfield wrote of the alleged increase in financial leverage brought on by the rule change: “It didn’t happen.”

A breakthrough, of sorts, in the debate came last October, when Andrew Lo, an economics professor at the MIT Sloan School of Management, wrote a paper that was later published in the Journal of Economic Literature, in which he reviewed 21 books about the financial crisis written by an array of scholars and journalists (and including House of Cards, my book about the collapse of Bear Stearns). Many of the books described the rule change and its impact. After parsing them, Lo observed that the authors could not even agree on what caused the crisis—like the role the SEC’s 2004 rule change played in financial leverage, for instance.

“If such sophisticated and informed individuals can be misled on a relatively simple and empirically verifiable issue, what does that imply about less-informed stakeholders in the financial system?” he wondered. Lo suggested that the misguided narrative fit neatly into people’s preconceived notions about the causes of the financial crisis and the need to apportion blame. “This example should serve as a cautionary tale for all of us,” he wrote, “and underscores the critical need to collect, check, and accumulate data from which more accurate inferences can then be drawn.” (Goldfield had alerted Lo to his cause; they were once classmates at the Bronx High School of Science.)

Blinder, for one, now admits he made a mistake. “The way I should have put it is that leverage is much too high,” he told me in March. “Period.” He said he would again urge TheTimes to correct the record. Susan Woodward also concedes the point that the 2004 rule change was not the problem. But, she told Reuters, “Everyone agrees that too much leverage was a key cause.” Pickard, meanwhile, is sticking to his guns. He told me recently that he is still “100 percent behind what [he] wrote.”

JUST AS THE idea of too much leverage has occupied a large place in the popular understanding of the financial crisis, it has also preoccupied our legislators and regulators, who’ve fixated on reducing leverage. The Dodd-Frank Act, signed into law in July 2010, limits leverage to 15-to-1, while the still-being-written Volcker Rule contemplates vastly limiting the amount and kind of proprietary risk that Wall Street firms can take.

While most people welcome leverage limits as the just consequence of Wall Street’s greed, and conclude that we will be safer if these businesses are run more prosaically, there is a real danger that we have focused on the wrong problem, and will condemn our once enviable capital markets to a period of bland ineffectiveness. While lower leverage would certainly provide more of a margin against the inevitable future errors of Wall Street executives, hard limits on risk-taking might also lead to stifled innovation and slow economic growth. Would Michael Milken, at Drexel Burnham, still have created the junk-bond market—or Lewis Ranieri, at Salomon Brothers, the securitization market—if the Dodd-Frank law or the Volcker Rule had been around to curb their firms’ ability to take risk?

The problem on Wall Street has never been about the absolute amount of leverage, but rather about whether financiers have the right incentives to properly manage the risks they are taking. During Wall Street’s heyday, when these firms were private partnerships and each partner’s entire net worth was on the line every day, shared risk ensured a modicum of prudence even though leverage was often higher than 30-to-1. Not surprisingly, that prudence gave way to pure greed when, starting in 1970 and continuing through 2006, one Wall Street partnership after another became a public corporation—and the partnership culture gave way to a bonus culture, in which employees felt free to take huge risks with other people’s money in order to generate revenue and big bonuses.

People are pretty simple: they do what they are rewarded for doing. If they get multimillion-dollar bonuses by taking huge risks with other people’s money—as they still do—then they will continue to take those huge risks, and not give it another thought. To prevent another crisis, Wall Street’s top executives, bankers, and traders should once again have something close to their full net worth on the line every day—not just the portion represented by company stock or options—so that they will collectively take risk management more seriously. That’s a solution that has nothing to do with the amount of leverage on Wall Street’s balance sheets.

Junior G-man
Sep 15, 2004

Wrapped in a mystery, inside an enigma


Shao821 posted:

A lot of large corporations are starting layoff proceedings - I think they've already seen where this road leads and are dropping excess weight Transporter style.

Of course if anyone had any money to drive demand in this economy all this could be avoided...

Well, we can create more debt-driven demand, but uhhhh .... even that's now reaching its limits. Household debt is still ballooning everywhere, and especially the UK is trying to cover it by inflating another housing bubble (can't go wrong, that!).

Mo_Steel
Mar 7, 2008

Let's Clock Into The Sunset Together

Fun Shoe
OP please don't worry too much, I've been informed that these markets will regulate themselves and the invisible hand of the markets will keep us saf- :suicide:

Junior G-man
Sep 15, 2004

Wrapped in a mystery, inside an enigma


Dead Cosmonaut posted:

Cohan wrote this piece back in 2012 on why the Dodd Frank and the Volcker Rule couldn't theoretically protect us from another banking crisis:

Yeah, I don't entirely disagree with that reading about incentives vs. leverage, but my answer to this would be that even if you got incentives under (better) control, allowing leverage of 30-35 to one would still be irresponsible (and should be illegal) for systematically important (i.e. too-big-to-fail) banks; even when the incentives are right even a small black swan event can crash such a bank, needing bailouts.

He's wrong to pose it as an either-or proposition; it should certainly be both. Or you know, we need to unwind all banks that are capable of causing systemic risk. That would be the real answer.

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

So Recession and fascism is on the rise throughout europe and most of the west. Welp

WAR CRIME GIGOLO fucked around with this message at 17:48 on Jan 21, 2016

Junior G-man
Sep 15, 2004

Wrapped in a mystery, inside an enigma


LeoMarr posted:

So Recession and fascism is on the rise throughout europe and most of the west. Welp

Woah can you resize that?

And it's not necessarily fascism that follows recession. Although traditionally speaking, closed borders and pointing fingers at 'other' people has been really popular.

To be frank, I don't even know what would happen to the European social democratic model; it could go hard left, hard right, or mutate into something else entirely.

vyelkin
Jan 2, 2011

Junior G-man posted:

Well, we can create more debt-driven demand, but uhhhh .... even that's now reaching its limits. Household debt is still ballooning everywhere, and especially the UK is trying to cover it by inflating another housing bubble (can't go wrong, that!).

It's not just the UK, Canada and Australia are also inflating housing bubbles. I don't know a lot about the Australian case but in Canada it's essentially being done to allow debt-laden consumers to continue spending even while underwater because there's nothing else driving any economic growth at all.

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

Junior G-man posted:

Woah can you resize that?

And it's not necessarily fascism that follows recession. Although traditionally speaking, closed borders and pointing fingers at 'other' people has been really popular.

To be frank, I don't even know what would happen to the European social democratic model; it could go hard left, hard right, or mutate into something else entirely.

Not to say that fascism is a direct result of receding economies. However fascism has been on the rise recently and that will definitely affect Europe in conjunction with a receding economy and austerity death spirals the recovery process

Dreylad
Jun 19, 2001

vyelkin posted:

It's not just the UK, Canada and Australia are also inflating housing bubbles. I don't know a lot about the Australian case but in Canada it's essentially being done to allow debt-laden consumers to continue spending even while underwater because there's nothing else driving any economic growth at all.

See: the related thread. With oil prices cratering Canada's last major industry is housing. Coupled with Canadians saddled with tremendous mortgage debt backed by a federal mortgage agency and, well, you Americans know how well that goes.

TheBuilder
Jul 11, 2001

LeoMarr posted:

So Recession and fascism is on the rise throughout europe and most of the west. Welp


This movie sucked bigtime.

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

Are we going to see even more countries thrown into an Austerity death spiral because of this economic climate? Greece's issues are resurging as austerityXXX takes its toll as well as the possibility of a brexit. This could be the last hurrah of the EU.

MikeCrotch
Nov 5, 2011

I AM UNJUSTIFIABLY PROUD OF MY SPAGHETTI BOLOGNESE RECIPE

YES, IT IS AN INCREDIBLY SIMPLE DISH

NO, IT IS NOT NORMAL TO USE A PEPPERAMI INSTEAD OF MINCED MEAT

YES, THERE IS TOO MUCH SALT IN MY RECIPE

NO, I WON'T STOP SHARING IT

more like BOLLOCKnese
Any kind of European economic crash that affects Britain is going to make things very interesting for the tories in the UK. They have bet the horse on being better economically than the Labour opposition, having a 'Long Term Economic Plan' (now slowly being replaced with 'gently caress Off Brown People) and that austerity will cure Britain's ills. A crash would almost certainly be a huge blow to the tories but whether people start flocking to Labour or just blame it all on Europe and back UKIP will remain to be seen.

WorldsStrongestNerd posted:

Death is certain

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

MikeCrotch posted:

Any kind of European economic crash that affects Britain is going to make things very interesting for the tories in the UK. They have bet the horse on being better economically than the Labour opposition, having a 'Long Term Economic Plan' (now slowly being replaced with 'gently caress Off Brown People) and that austerity will cure Britain's ills. A crash would almost certainly be a huge blow to the tories but whether people start flocking to Labour or just blame it all on Europe and back UKIP will remain to be seen.

icantfindaname
Jul 1, 2008


LeoMarr posted:

Are we going to see even more countries thrown into an Austerity death spiral because of this economic climate? Greece's issues are resurging as austerityXXX takes its toll as well as the possibility of a brexit. This could be the last hurrah of the EU.

The economic core areas of Germany and Japan are in deflationary death spirals, but the periphery of Europe that Germany's forcing austerity on are more likely to just elect fascists like Poland/Hungary and tell the austerians to piss off. Not sure which is the better outcome

UCS Hellmaker
Mar 29, 2008
Toilet Rascal
Besides Automotive production and its side industries Manufacturing in the US is taking a bloodbath right now. My company is seeing a lot less than expected already and a lot of our customers have either done shutdowns or in some cases that were a major deciding factor in opening a new shop gone out of business. Along with that a lot of the big companies are dumping product to stay busy which is starting to kill off smaller companies and compounding problems. That isn't even considering that China has flooded alot of the base material in tube pipe and other assorted material to get out what they have stocked up to inflate their GDP and other number, we have been seeing more and more material and steel that is of horrible quality or worthless in the last 6 months. If something doesn't start changing soon expect to see manufactoring number in the news and last time that happened it was a precursor to the economy dropping.

ToxicSlurpee
Nov 5, 2003

-=SEND HELP=-


Pillbug
When China has its coming implosion and damages the world economy expect to hear a bit of "we need a world government to make sure this doesn't happen, people are literally dying because of greed" and a cacophony of "PROTECTIVE TARIFFS!!! ISOLATIONISM!!! TRADE IS BAD!!! GLOBALIZATION IS AWFUL!!! XENOPHOBIA HATE HATE HATE THE CHINESE ARE AWFUL AND DID THIS ON PURPOSE ALSO IRAN IS INVOLVED SOMEHOW!!!" Meanwhile those 62 people that effectively own everything are going to mysteriously and suddenly own more while money they touched just happens to find its way into the pockets of people that find reasons to justify austerity.

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

ToxicSlurpee posted:

When China has its coming implosion and damages the world economy expect to hear a bit of "we need a world government to make sure this doesn't happen, people are literally dying because of greed" and a cacophony of "PROTECTIVE TARIFFS!!! ISOLATIONISM!!! TRADE IS BAD!!! GLOBALIZATION IS AWFUL!!! XENOPHOBIA HATE HATE HATE THE CHINESE ARE AWFUL AND DID THIS ON PURPOSE ALSO IRAN IS INVOLVED SOMEHOW!!!" Meanwhile those 62 people that effectively own everything are going to mysteriously and suddenly own more while money they touched just happens to find its way into the pockets of people that find reasons to justify austerity.

Jeb! 2016

Helsing
Aug 23, 2003

DON'T POST IN THE ELECTION THREAD UNLESS YOU :love::love::love: JOE BIDEN

WorldsStrongestNerd posted:

This is end stage capitalism as predicted. The same highs and lows we have always had, except the cycle is faster and the high is a little less higher and the lows are a little lower each time.

Now I'm not necessarily knocking capitalism here. Death is certain regardless of your socio-economic system.

That or we're just in the bad part of a kondratieff wave.

Ardennes
May 12, 2002

Helsing posted:

That or we're just in the bad part of a kondratieff wave.

Ultimately, the question is if the world will go on another reformist course as it did 1929-1980 or that without the immediate threat of Marxism/the Soviets or if the world will gradually and inevitably slide into a series of stagnating basket cases run by hard right populist governments because that threat doesn't exist?

Helsing
Aug 23, 2003

DON'T POST IN THE ELECTION THREAD UNLESS YOU :love::love::love: JOE BIDEN
That assumes that some kind of left liberal reformism is the only solution to the crisis. I find that plausible from an ethical standpoint but not necessarily an economic one. Could be that some authoritarian political system will stumble onto a workable economic formula for the 21st century. Stranger things have happened.

ToxicSlurpee
Nov 5, 2003

-=SEND HELP=-


Pillbug

Helsing posted:

That assumes that some kind of left liberal reformism is the only solution to the crisis. I find that plausible from an ethical standpoint but not necessarily an economic one. Could be that some authoritarian political system will stumble onto a workable economic formula for the 21st century. Stranger things have happened.

One of the big contradictions of it all is that poo poo is only going to get worse until governments start running into the banks and cracking heads.

A Buttery Pastry
Sep 4, 2011

Delicious and Informative!
:3:

ToxicSlurpee posted:

One of the big contradictions of it all is that poo poo is only going to get worse until governments start running into the banks and cracking heads.
"My fellow Americans, I'm pleased to tell you today that I've signed legislation that will outlaw banks forever. We begin bombing in five minutes."

Pinch Me Im Meming
Jun 26, 2005
Out of the god drat million years of human race on this Earth I had to experience both the death of David Bowie and the End Times. gently caress my life.

Raere
Dec 13, 2007

The recession part of the economic cycle is due right about now, right? Why isn't this just another regular dip?

BabelFish
Jul 20, 2013

Fallen Rib

Junior G-man posted:

Austerity is entirely self-defeating and cannot work

https://www.youtube.com/watch?v=JQuHSQXxsjM

I'm only about half way through this but god he's good. I don't understand how people don't get why Germany keeps holding up the Euro (hint: they need export markets,) but he gets it.

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

His 2015 Glasgow Lecture was pretty spot in in terms of explaining greece and other potential death spirals.
https://www.youtube.com/watch?v=B6vV8_uQmxs

You borrow at one
You buy at ten
You use the spread
To bury the dead
You bank it at four
And repo more
And then go knock
On the ECB's door

Baxta
Feb 18, 2004

Needs More Pirate
Australian banks are over-leveraged, our mining boom is over and successive governments have stopped all attempts at renewable energy (to support the biggest political donors, the oil and coal industries). House prices are some of the least affordable in the world.

We escaped relatively unscathed after the 2008 crisis but this was due to our mining sector generating massive gains. We have nothing to buffer ourselves this time around.

A massive amount of people have something like 20 - 30% of their superannuation funds stuck in commodities which is exactly what happened last time around (although a lot of people were 100% in property last time).

In short, we will be pretty hosed.

Dead Cosmonaut
Nov 14, 2015

by FactsAreUseless
That lecture is fantastic. Thanks for linking it.

WAR CRIME GIGOLO
Oct 3, 2012

The Hague
tryna get me
for these glutes

Baxta posted:

Australian banks are over-leveraged, our mining boom is over and successive governments have stopped all attempts at renewable energy (to support the biggest political donors, the oil and coal industries). House prices are some of the least affordable in the world.

We escaped relatively unscathed after the 2008 crisis but this was due to our mining sector generating massive gains. We have nothing to buffer ourselves this time around.

A massive amount of people have something like 20 - 30% of their superannuation funds stuck in commodities which is exactly what happened last time around (although a lot of people were 100% in property last time).

In short, we will be pretty hosed.

Australia, the first country on the War on Coal's butcher bill.

Freezer
Apr 20, 2001

The Earth is the cradle of the mind, but one cannot stay in the cradle forever.
Chiming in from Mexico: Doing better than most of Latin America and weathering the storm for now.

Low oil prices and speculation have pummeled the peso, and it went from 15 for a dollar a year ago to 19 per dollar today. This has the manufacturing and tourism sectors sitting happy, but anyone importing anything is feeling the pain.
Curiously, this still hasn't resulted in rampant inflation yet, so that's good (keyword: yet).

The national oil company is in rough shape and has debts for more than it's assets' worth. 18 dollars per barrel doesn't help at all.

Salaries are mediocre and there's a massive informal economy, but hey, we're not Venezuela.

Tl;dr, have your holidays in Mexico, it's dirt cheap for you gringos now.

i say swears online
Mar 4, 2005

Freezer posted:


Tl;dr, have your holidays in Mexico, it's dirt cheap for you gringos now.

And it's loving awesome, but it's my secret so I don't tell anyone. My most recent trip was way under-budget.

UV_Catastrophe
Dec 29, 2008

Of all the words of mice and men, the saddest are,

"It might have been."
Pillbug
For me and most of the people I know, the past eight years since the '08 crash have been pretty god awful, even while things were "recovering". I don't want to think about how things are going to be when economy really starts going south again, especially if fate sees fit to give us a US government under the full control of current GOP leadership.

I could foresee a future where historical documentaries explain the year 2016 using grainy footage of Donald Trump rallies and dark, ominous accompanying music.

MODS CURE JOKES
Nov 11, 2009

OFFICIAL SAS 90s REMEMBERER
As a transplant from the NYC-area to Buffalo, I can honestly say that the stock downturns have no real consequences to our put-putting economic engine... but that's because Buffalo has been economically depressed since the first Great Depression. :v:

In all seriousness, America will probably come out on top of this one sitting pretty. Everyone who lost their jobs and money in the last bubble haven't gone back to building in the "flood zone", as it were. I would wager to say that, save for the oil industry, Americans haven't anywhere to go but up - if only because they've already hit rock bottom. To expand on this, I see less idiots getting into sub-prime debt obligations - nobody doubles down on that poo poo just 'cause anymore. Those who have, well, they obviously can't learn from the past.

My suggestion to you, SA, is to move to a place where they're about to start manufacturing some sweet high-tech poo poo (big ups to Our Benevolent Oligarchs, Elon Musk and Terry Pegula).

Ratoslov
Feb 15, 2012

Now prepare yourselves! You're the guests of honor at the Greatest Kung Fu Cannibal BBQ Ever!

UV_Catastrophe posted:

I could foresee a future where historical documentaries explain the year 2016 using grainy footage of Donald Trump rallies and dark, ominous accompanying music.

Good news! Digital video doesn't get grainy as it ages. :v:

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Numlock
May 19, 2007

The simplest seppo on the forums
I work in the Oil Services industry and I'm shocked I still have a job.

I'll probably be making GBS threads unicorn eggs if I still have the same job by this time next year (unless we glass the middle east or something).

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