What is a Punk Staffer ?
Robert Waldmann
John Boehner makes it clear. He agrees with Senator Durbin that, frankly, bankers own that place. However, he thinks that’s the way it should be. Why the constitution says right in article 1 of the constitution that congress may ”regulate trade between the several states so long as the masters of the universe approve of the regulations.” Boehner told bankers to protect the constitution and not let congress aka “punk staffers” deprive them of their legitimate authority to legislate.
Extensive efforts at achieving inter-generational communication follow the jump.
Repo has two meanings – A Repo account is the way in which hedge funds interact with most of the rest of the universe, the way in which Lehman hid assets and debt off it’s balance sheets and one of the ways in which non depositary institutions managed to make it possible for there to be a non-bank run on a non-bank.
A repo man is someone who repossesses (or forecloses on) automobiles purchased on credit from people who have not made required payments. Many (perhaps not most) people my age have fond memories of the truly twisted film “Repo Man” which followed the trials and tribulations of an LA punk who decided to become respectable and became a Repo Man.
Ah Repo Man.
I recall the film includes said punk eating from a can labeled with a bar code and the word “food” that is eating generic food (why pay more for the name brands like “meat” and “vegetables,” and seeing a friend get shot trying to rob a convenience store, said friend said (roughly) “society did this to me” Jr Repo man says “B.S. you are a suburban punk just like me.” His soon to be deceased friend replies “It still hurts.” I sure hope Boehner says the same thing on the second Wednesday after the first Monday in November 2010.
The brilliant twisted genius who directed that film also directed a totally other than completely honest film about Sid Vicious and Nancy Spungen (sp?) entitled “Sid and Nancy.” Sid Vicious was second fiddle to the butter commercial guy in the UrPunk band the (original) Sex Pistols. He was an actually totally authentic punk as is demonstrated by the fact that he destroyed himself before reaching half my current age.
Anyway Repo Man is important to people of my generation. One of the things which bother Beohner is that we are taking over. Now current staffers were probably not even born when Sid Vicious killed Nancy Spungen(sp?)’s cat, but if one is as old as Boehner, we all look alike. So ex-punks are people who find the use of Repo to refer to repurchase accounts funny (why don’t the masters of the universe call them repu accounts ? Would be bad for their repu tations?).
Also Boehner made it clear that the Republican party considers it necessary and proper for bankers to make it clear to Congress who is boss.
Many here like to dump on my PhD supervisor so I will just note that he took the ball dropped by Boehner and ran walked inched forward with it.
Excuse me Robert, but I’ve got to ask. What the F___K are you talkin’ about? “Are you talkin’ ta me?”
So yeah, for those of us who continue to live on the Bowery, your punk/repo pun makes a lot of sense. But why the surprise? Oligarchs have assumed they own the world by virtue of their ability to function at a high level. It’s up to the government to represent the people and tone them down a bit. Republicans are distinguished by their willingness to expose their bias toward supporting the oligarchs. They will never relinquish their position and never back down unless they are forced to. I hope the highly compromised democrats are willing to take a stand and put some form of regulation in place. Of course it’s not quite so black and white because as another Republican senator said, “No bank that’s well capitalized, well run, and well regulated has ever failed.”
Stop me before I
strikethroughagain!I work around the military, and strange to say Army officers use less profane and more professional language than these tough guy bankers. What next? Will they wear camoflauge pinstripes?
Friends don’t let friends blog drunk.
I agree with Jack.
thanks Seth
Good point John. However, I was sober.
Robert:
Does a wolf put on sheep’s skin to blend with the herd after taking one down? Undoubtedly so in Larry’s case. The flames must be getting a little bit closer to both Larry and Timmy with regard to the Wall Street melt down. He has gone from this:
“cast the shadow of regulatory uncertainty over an otherwise thriving market, raising risks for the stability and competitiveness of American derivative trading.”
http://www.stanfordalumni.org/news/magazine/2009/marapr/features/born.html “Prophet and Loss”
to this:
“Rather, we believe that the events of the last two years point something up that is profoundly problematic.
The function of the financial system is to allocate capital. It is to diversify and distribute risk. It has in many respects performed that function very well. But all too often, a system that is designed to diversify and spread risk has instead been a source of risk.”
The former comes after the LTCM meltdown and the later after the overall Wall Street meltdown. Larry and Timmy are the anchors of reality pulling Obama and his administration downward cutting off any chance of taking both seriously when it comes to matters of financial reform. In any case, Larry knows what side his bread is buttered on with regard to Wall Street and Obama. If he really wants to score some hists on Wall Street, Banks, and Investment firms: he should start talking about the Financial Product Safety Commission which the banking lobbyists are stripping of any teeth; Sachs and its past activities with CDS, bonuses, etc.; and TBTF banks.
Can’t do that though, Larry would lose a rather large source of income. I can’t imagine what it is like to get $135,000 for a 1 day visit to Sachs just to talk. As it was when I was consulting on manufacturing, I would bill at $200/hour plus coffee (not to fear, my take-home was $40-50/hour). I am sorry I can’t take Larry seriously seriously Robert. He is part of the problem.
As to the “pols” and their ilk????
“Donald J. Boudreaux) says that it is inaccurate to call politicians prostitutes. Specifically, he says ‘that they are more correct to call them ‘pimps’, since they are pimping out the American people to the financial giants . . . ‘”
Nobody here has come up with a believable story on how derivatives hurt the economy or were the cause of the recession. All we really get is a claim that they happened together and the further assertion that derivates caused the recession rather than the more likely story that derivatives were the victim of the recession. But then establishing causality is not a strong point of this blog (buy the book their peddling here and you get a case study in spurious analysis that botches the relationship between cause and effect).
Nobody forces another party to buy a derivative and the purchase of derivatives prove they provide a social useful value. Otherwise people free to act in their own self interest would not buy them. So they’re here to stay.
Also, like with global warming legislation the healthcare issue has expended all Obama’s and the democrats political capital. So they can’t really do anything else. The bookies has my side losing on this one but if so that’s not the end of the story. This is a principal issue and where the democrats thought getting the legislation was a foot in the door my goal going forward is not only to stop their hoped for expansion but to kick them out in the cold again.
Cantab,
At a minimum, shouldn’t derivatives be correctly priced based on realworld risk distributions rather than just arbitrarily truncating thin tailed normal distributions and then figure that Uncle Sam will clean up the mess if things go bad? Don’t you think there should at least be some transparency in what is being bought and sold? Don’t you think businesses that rate risk should be honest brokers and not in cahoots with investment bankers lookig to hoodwink innocent suckers? Don’t you think there ought to be lmits on leverage if we’re going to limit liability?
And it’s not at all clear that derivatives accomplished anything useful. They sure didn’t do what they were supposed to do, which is to reduce systemic risk. In fact, they seem to have increased systemic risk.
Slugs,
I don’t think anything you are suggesting is needed. People that buy credit default swaps are generally professional money managers and big banks so there really are no innocent investers in this market. And I would go further, there is no such thing as an innocent investor that invests in derivatives. If you buy derivatives then by my definition you are not innocent, although probably a fine individual.
Since people are still buying derivatives it’s clear that they serve a social function, the proof is the existence of the market, and I have yet to hear a believable story about how they could increase systematic risk since the systematic risk is in the underlying and the derivative inherits its risk from the underlying — so again derivatives were the victim of systematic risk and not the cause of it.
Cantab,
If I’m an investor with $100B in capital and I lose $99.99B, then my loss and other party gains offset. It’s a zero sum and there’s no systemic problem. So no harm done. But if I’m an investor with $2B in capital and I lose $99.99B, then we’ve got a systemic problem because $97.99B in losses has to spill over to investors who weren’t directly involved. This causes the price of all assets to fall, including ordinary folks who weren’t in anyway involved in the derivatives market. As long as assets are correctly priced (and good luck with that) and as long as there are reasonable capitalization requirements, then there’s probably nothing wrong with derivatives and other exotics. But those two conditions weren’t even close to being true. We had a corrupt systems of risk rating and ridiculous degrees of leveraging. And we also had plenty of stories in which the technical, workerbee quants were warning management about overleveraging and bad risk. We know that firms were simply truncating risk because it wasn’t convenient. If the only folks involved were investors losing their shirts, then no one would care. Just one school of sharks eating another. No big deal. But due to leveraging and understated risk…and in some cases fraudulently understated risk, losses went beyond the professional investor class.
Thanks, slugs, for this lucid explanation.
“Since people are still buying derivatives it’s clear that they serve a social function . . .”
This strikes me as a defense of homocide. After all, since people are still committing homocide, it’s clear that homocide serves a social function. And indeed it does. Not one most responsible adults would defend, though.
Slugs,
You still don’t have it. For your $2B investor if he pays $99.99B then he is the loser and the entity getting the $99.99B gains. So $99.99B (party A) – 99.99B (party b) = 0 (a zero sum game). However, there is still a 99.99B loss because of the default of the underling. The derivative tansactions zeros out while the default of the underling is the loss due to systematic risk and is the main issue. If party A defaults then party b takes the loss. Somebody has to take the loss because the bond failed. But the derivative transaction zeros out.
Joel,
Thanks, slugs, for this lucid explanation.
My explanations are better. Its your shortcoming that you do understand this.
Cantab,
Then explain why the Fed’s Flow of Funds shows a drop in wealth?
For your $2B investor if he pays $99.99B then he is the loser and the entity getting the $99.99B gains.
Except that he never paid $99.99B. It was all done with leveraging assets that were fraudently mispriced.
Slugs,
You have to separate the loss in the value of the underling from the cost to the net exchange from the derivative. 99.99B was lost in say mortages. Now it becomes a game of hot potato on who’s going to eat that loss. But somebody has to, and this would be true if there were not derivatives.
“My explanations are better. Its your shortcoming that you do understand this.”
Heh.
Thanks, Cantab. Every bit as lucid as your “explanations.”
“But somebody has to, and this would be true if there were not derivatives.”
Uh, no. if there were “not derivatives,” the loss would not have occurred.
Joel,
Uh, no. if there were “not derivatives,” the loss would not have occurred.
With a CDS this is the way it works. Some fund manager does not want to deal with default risk so he makes a trade to pay the issuer of a CDS a periodic payment that corresponds to the bond’s default risk. If the bond makes all its payments on time the bondholder gets his interest and principal and pays some points to the CDS issuer. Now if the bond fails, and this is a failure underling, the issuer of the CDS pays the bondholder an amount likely to be the outstanding pre-default value of the bond set in the derivatives contract, and the issuer of the CDS takes possession of the defaulted bond and tries to recover what he can. So the loss is from the underling and not the CDS. In the case where the issuer of the CDS makes good on the CDS contract he is the one that eats the loss. In addition, everyone in this market knows that there is a chance that the issuer of the CDS may default on his committment. And if the issuer of the CDS defaults then the fund manager would eat the loss of the bond. So the loss in totally the result of the default of the underling and it does not rise or fall based on if the CDS issuer pays or not, but the derivative spreads the risk around, and that’s why they exists and will continue to.
Cantab,
No one said derivatives alone were a problem. It was derivatives coupled with mispriced assets and too much leverage as a result of lax regulation. As I said earlier, derivatives backed by adequate capital requirements are fine.
Cantab,
In addition, everyone in this market knows that there is a chance that the issuer of the CDS may default on his committment.
No. Not everyone knew this because certain actors went out of their way to disguise the true risk. And investment banking houses truncated risk and imposed thin tailed distributions. And rating agencies lied about the risks. And people didn’t actually know what was bundled in the aggregated risks.
Fat tails? I thought we stopped talking about Clinton’s ex-girlfriends.
Banks do their own analysis and looking at and fitting distributions is a trivial exercise. All you have to do it use a tool like EasyFit (check it out) and it will estimate all well know and some not so well know distributions (see below) and you can trade off goodness of fit with how esoteric sounding the distribution is. Next you use the theory of copulas to generate bivariate and multivarite functions to generate random numbers that you can use to do sensativity analysis and simulations. Even a cave can do these things (maybe not coberly though).
The real issue is that the estimated parameters of these models do not exhibit statistically regularity. This means that in down times correlations of default goes up making the model you estimated in normal times misfire with its predictions. I could see physicist wall street rocket scientists having a problem with his since they are used to constants and laws of physics that generally hold over time.
From the CFA curriculum:
Credit risk arises in a swap due to the possibility that a party will not be able to make its payments. Current credit risk is the risk of a party being unable to make the upcoming payment. Potential credit risk is the risk of a party being unable to make future payment. Credit risk is faced only by the pary that is owed the greater amount.
This is just basic knowledge for people working in this field.
EasyFit Distributions:
Gamma (3P),Gen. Extreme Value,Gen. Gamma,Gen. Gamma (4P),Gen. Pareto,Gumbel Max,Gumbel Min,Hypersecant,Inv. Gaussian,Inv. Gaussian (3P),Johnson SB,Johnson SU,Kumraswamy,Laplace,Levy,Levy (2P),
Log-Gamma,Logistic,Log-Logistic,Log-Logistic (3P),Lognormal,Lognormal (3P),Log Pearson 3, Nakaami, Normal, Pareto, Pareto 2,Pearson 5, Pearson 5 (3P),Pearson 6, Pearson 6 (4P), Pert,Power Function,Rayleigh,Rayleigh (2P),Reciprocal,Rice,Student’s t,Triagular,Uniform,Weibull,Weibull (3P),Binomial,D. Uniform,Geometric,Logarithmic,Poisson,Bernoulli,Hypergeometric,Neg. Binomial
Even a cave man makes typos too.