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> Those investors include Japanese banks as well as investors in hedge funds, mutual funds and pension funds (in other words, you and me). I laughed. You and m

> Those investors include Japanese banks as well as investors in hedge funds, mutual funds and pension funds (in other words, you and me). I laughed. You and me, NYT reader who is rich enough to have a 401k. > The existential question remains: Why do investors fail to learn the harsh lessons about risk, even though the consequences of them still remain so fresh? I hate to be that guy, but at what point can I blame the Fed for near-zero interest rates that have motivated traders to seek higher gains? I appreciate that people are being more vigilant about reporting on this, but I’m starting to think blaming it on the traders is the easy way out. It seems especially easy when we can draw obvious comparisons to 2007-8 (CDO => CLO, that’s just one letter changed it must be the same thing!). And it sounds like even if these traders weren’t trying to force overleveraged companies into bankruptcy, those companies must be in a precarious enough position that it could happen on its own. Am I mistaken?

pjc50 8y ago
The near-zero interest rates aren't low enough. Small negative rates are probably required to suck some money out of the speculative economy. > motivated traders to seek higher gains A trader who doesn't seek higher gains is a shark that stops swimming and dies. There's no need to blame interest rates for this.
- rpz 8y ago
  Negative rates won't send traders out of business. There are still plenty of trades to make in a negative rate environment. In any case, I'd be interested to hear your argument on why small negative rates are good for the economy in general.
  - Nasrudith 8y ago
    Not the poster but the theory is that it discourages deflationary behavior of funds sitting around and keeping demand down. Personally I suspect that it is overly risk boosting and encourages economically perverse behavior but it apparently hasn't proven disastrous yet in the locales that have tried it.
- isoskeles 8y ago
  Higher interest rates would disallow for a world where so much corporate debt is out there (RTFA and Janet Yellen's quote), and thus disallow for a world where an exploit for higher gains is to buy out insurance policies on investment instruments in companies with too much debt and attempt to force them to go bankrupt. Sure, other problems will exist, more around the lack of easy credit. > Small negative rates are probably required to suck some money out of the speculative economy. Please explain, as this comment comes off as purely speculative.
- whatok 8y ago
  > A trader who doesn't seek higher gains is a shark that stops swimming and dies. There's no need to blame interest rates for this. Pension plans (including the Japanese one mentioned) have return targets that need to be met in order to make sustainable payments. Their targets remain the same regardless of where rates are but are much harder to hit when rates are low and encourages managers to invest in riskier investments.
deogeo 8y ago
> at what point can I blame the Fed for near-zero interest rates that have motivated traders to seek higher gains? This looks a lot like the public paying protection money (in the form of interest) to investors, to keep them from causing another market crash.
aidenn0 8y ago
Not all pension plans are 401(k)s. I have a friend who is a cop, has a pension, and has a salary low enough that he qualifies for SNAP.

pjc50 8y ago

The near-zero interest rates aren't low enough. Small negative rates are probably required to suck some money out of the speculative economy. > motivated traders to seek higher gains A trader who doesn't seek higher gains is a shark that stops swimming and dies. There's no need to blame interest rates for this.

rpz 8y ago
Negative rates won't send traders out of business. There are still plenty of trades to make in a negative rate environment. In any case, I'd be interested to hear your argument on why small negative rates are good for the economy in general.
- Nasrudith 8y ago
  Not the poster but the theory is that it discourages deflationary behavior of funds sitting around and keeping demand down. Personally I suspect that it is overly risk boosting and encourages economically perverse behavior but it apparently hasn't proven disastrous yet in the locales that have tried it.
isoskeles 8y ago
Higher interest rates would disallow for a world where so much corporate debt is out there (RTFA and Janet Yellen's quote), and thus disallow for a world where an exploit for higher gains is to buy out insurance policies on investment instruments in companies with too much debt and attempt to force them to go bankrupt. Sure, other problems will exist, more around the lack of easy credit. > Small negative rates are probably required to suck some money out of the speculative economy. Please explain, as this comment comes off as purely speculative.
whatok 8y ago
> A trader who doesn't seek higher gains is a shark that stops swimming and dies. There's no need to blame interest rates for this. Pension plans (including the Japanese one mentioned) have return targets that need to be met in order to make sustainable payments. Their targets remain the same regardless of where rates are but are much harder to hit when rates are low and encourages managers to invest in riskier investments.

deogeo 8y ago

> at what point can I blame the Fed for near-zero interest rates that have motivated traders to seek higher gains? This looks a lot like the public paying protection money (in the form of interest) to investors, to keep them from causing another market crash.

aidenn0 8y ago

Not all pension plans are 401(k)s. I have a friend who is a cop, has a pension, and has a salary low enough that he qualifies for SNAP.