3 ms·

Apply Lenin's maxim... the banks made it through 2008; in fact Lehmans were really shocked that they got thrown under the bus. The miscalculation was that the a

by sgt101 4y ago

Apply Lenin's maxim... the banks made it through 2008; in fact Lehmans were really shocked that they got thrown under the bus. The miscalculation was that the authorities would act irrationally in the crisis and let a broker dealer go under. All the banks had tested this with LTCM and were confident that they would get bailed and could collect on both sides. They were mostly right. The lesson for me is that authorities need to act a bit like an old testament god. Some random smiting would change market behaviour significantly, and for the good.

ENGNR 4y ago
I never thought I'd agree with such a thing but.... Yes, random smiting!
bb88 4y ago
> All the banks had tested this with LTCM Yeah I was just remembering this tonight. https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management The argument there was that LTCM was "too big to fail". Really they probably weren't, but they had 1.25T derivative positions off-book apparently. Love or hate Paul Krugman, he argued that TARP could have been better put to use as a social safety net. The banks who took the risky investments can burn to the ground, but the citizens could be just fine.
- sgt101 4y ago
  I think it's like doctors arguing about what skin cream to use to treat smallpox. The requirement is to prevent market participants from being able to act like this, and the way to do that is to make the people who trade with them face nasty penalties like sudden liquidation of their businesses. That mechanism would make counterparties very careful about other people's business models.
  - bb88 4y ago
    I'm kinda more of a 'provide regulations and let the courts settle this out with the shareholders' kinda guy. Also a true free market allows trading strategies that let you bet against something. Yes, they're abused, but in many cases they provide the best form of market regulation.

by sgt101 4y ago

ENGNR 4y ago

I never thought I'd agree with such a thing but.... Yes, random smiting!

bb88 4y ago

> All the banks had tested this with LTCM Yeah I was just remembering this tonight. https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management The argument there was that LTCM was "too big to fail". Really they probably weren't, but they had 1.25T derivative positions off-book apparently. Love or hate Paul Krugman, he argued that TARP could have been better put to use as a social safety net. The banks who took the risky investments can burn to the ground, but the citizens could be just fine.

sgt101 4y ago
I think it's like doctors arguing about what skin cream to use to treat smallpox. The requirement is to prevent market participants from being able to act like this, and the way to do that is to make the people who trade with them face nasty penalties like sudden liquidation of their businesses. That mechanism would make counterparties very careful about other people's business models.
- bb88 4y ago
  I'm kinda more of a 'provide regulations and let the courts settle this out with the shareholders' kinda guy. Also a true free market allows trading strategies that let you bet against something. Yes, they're abused, but in many cases they provide the best form of market regulation.