5 ms·

The banks’ secret endgame

42 points by moeffju 13y ago

jamesrom 13y ago
Link is broken. Anyone have a mirror?
- mipapage 13y ago
  Vice: http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo http://www.vice.com/en_uk/read/larry-summers-and-the-secret-...
MattBearman 13y ago
Google cache works - http://webcache.googleusercontent.com/search?q=cache%3Awww.gregpalast.com%2Flarry-summers-and-the-secret-end-game-memo%2F&oq=cache%3Awww.gregpalast.com%2Flarry-summers-and-the-secret-end-game-memo%2F&aqs=chrome..69i57j69i58j69i60.2226j0 http://webcache.googleusercontent.com/search?q=cache%3Awww.g...
pedrocr 13y ago
The discussion of the vice post from yesterday: https://news.ycombinator.com/item?id=6260126 https://news.ycombinator.com/item?id=6260126
retube 13y ago
Why are investment banks casinos? what's so terrible about derivatives? They're not "pseudo" products, or any more "dangerous" than say a stock. Firstly derivatives have been in use for thusands of years - first employed to lock in prices for future crop harvests. Now millions of businesses rely on derivatives to manage fx exposures, commodity exposures, interest rate exposures and so on. Without recourse to such products companies future cash flows would be much less predictable and expose companies to material risks. Contrary to what you might hear, derivatives ARE socially useful (e.g think the S.Korean business who hedges his USD-denominated payroll liabilities). Secondly, IBs are not casinos. They take risks, but so do retail banks (they borrow short and lend long so you have a duration mis-match leading to credit, liquidity and interest rate exposures). The financial crisis was born out of over-enthusiastic mortgage lending - i.e your basic retail product. Even lehman brothers, a classic IB, went down due to it's large commercial property portfolio which tanked in the crisis (again, nothing to do with derivatives). In all crises governments and the media need someone to blame. IBs are the scape goat this time. But the reality is a heck of a lot more complex than a simplistic "greedy IB assholes running amoke and stealing the world's wealth with nasty derivatives". Indeed all the regulation that's now been implemented is incredibly counter-productive. It doesn't make banks safer (people can and will always make stupid business decisions no matter how much regulation you deploy), it increases costs and restricts lending - the very opposite of what's needed to finance a return to, or increase in growth.
- marcosdumay 13y ago
  > Secondly, IBs are not casinos. They take risks, but so do retail banks They are different things. Retail banks take risks with their money (if a lend doesn't pay off, they are the ones that pay for it), IBs take risks with other people's money. In principle, there is nothing wrong with that, but IBs get money when they get positive returns for your investment, but don't suffer when the return is negative. That, again, is not a problem by itself, but it's an incentive for the IBs to assume the highest risks they can find around. And if left unchecked, they do become casinos.
  - onebaddude 13y ago
    >They are different things. Retail banks take risks with their money (if a lend doesn't pay off, they are the ones that pay for it), IBs take risks with other people's money. When I buy stock in, say, Google or General Motors, whose money are they taking risks with? I didn't tell Google that I wanted them to put money into Uber, nor do I think it's a great idea. Too bad for me I guess. And what do you mean "they pay for it"? Do you think when Joe Public defaults on his mortgage it comes out of the broker's bonus? No, the default risk is priced into every transaction the bank does. You and I and every other shareholder or bondholder pay for it. Investing is investing.
  - retube 13y ago
    > Retail banks take risks with their money Huh? No! They are taking risks with YOUR money. When they lend on a mortgage, or make a corporate loan to a business they're doing that with YOUR deposits. This is how a savings account pays interest. They take your money, lend it at some interest rate and pay you a slightly lesser one. If the bank goes bust it's YOUR money which is lost: and this is why in most countries there are Federal Deposit Guarantees (i.e the govt will cover you up to some level if a retail bank goes bust) Ironically this is precisely the OPPOSITE of the IB business model. They are NOT taking risks with your money: they fund in the money and debt markets, i.e they borrow the money to fund their activities.
- digitalengineer 13y ago
  In my country borrowing for your company became incredibly difficult (if not outright impossible) if you didn't 'hedge' yourself using derivatives. None of the (AAA) banks like Rabobank explained what the risks of using these products were. They were sold as 'safe' interest-fixed products. Apart from that most were locked at the Euribor rate. You know, the one they forged...
jacques_chester 13y ago
> But Lula's refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis. I guess Australia doesn't exist in conspiracy theories.
- speeder 13y ago
  Australia is in the west?
  - 001sky 13y ago
    Canada is doing pretty well too, if you need a more geographically literal example. Colloquilly, the anipodean democracies are considered "western" in their culture (as opposed to traditionally Asian).
  - chad_oliver 13y ago
    Culturally, they're a Western nation.
  - artiface 13y ago
    Everything is in the west of something.
- chad_oliver 13y ago
  Or New Zealand, for that matter.
moeffju 13y ago
Apologies, I didn’t find this discussion from yesterday: https://news.ycombinator.com/item?id=6260126 https://news.ycombinator.com/item?id=6260126 where the article is on vice.com.

42 points by moeffju 13y ago

jamesrom 13y ago

Link is broken. Anyone have a mirror?

mipapage 13y ago
Vice: http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo http://www.vice.com/en_uk/read/larry-summers-and-the-secret-...

MattBearman 13y ago

Google cache works - http://webcache.googleusercontent.com/search?q=cache%3Awww.gregpalast.com%2Flarry-summers-and-the-secret-end-game-memo%2F&oq=cache%3Awww.gregpalast.com%2Flarry-summers-and-the-secret-end-game-memo%2F&aqs=chrome..69i57j69i58j69i60.2226j0 http://webcache.googleusercontent.com/search?q=cache%3Awww.g...

pedrocr 13y ago

The discussion of the vice post from yesterday: https://news.ycombinator.com/item?id=6260126 https://news.ycombinator.com/item?id=6260126

retube 13y ago

Why are investment banks casinos? what's so terrible about derivatives? They're not "pseudo" products, or any more "dangerous" than say a stock. Firstly derivatives have been in use for thusands of years - first employed to lock in prices for future crop harvests. Now millions of businesses rely on derivatives to manage fx exposures, commodity exposures, interest rate exposures and so on. Without recourse to such products companies future cash flows would be much less predictable and expose companies to material risks. Contrary to what you might hear, derivatives ARE socially useful (e.g think the S.Korean business who hedges his USD-denominated payroll liabilities). Secondly, IBs are not casinos. They take risks, but so do retail banks (they borrow short and lend long so you have a duration mis-match leading to credit, liquidity and interest rate exposures). The financial crisis was born out of over-enthusiastic mortgage lending - i.e your basic retail product. Even lehman brothers, a classic IB, went down due to it's large commercial property portfolio which tanked in the crisis (again, nothing to do with derivatives). In all crises governments and the media need someone to blame. IBs are the scape goat this time. But the reality is a heck of a lot more complex than a simplistic "greedy IB assholes running amoke and stealing the world's wealth with nasty derivatives". Indeed all the regulation that's now been implemented is incredibly counter-productive. It doesn't make banks safer (people can and will always make stupid business decisions no matter how much regulation you deploy), it increases costs and restricts lending - the very opposite of what's needed to finance a return to, or increase in growth.

marcosdumay 13y ago
> Secondly, IBs are not casinos. They take risks, but so do retail banks They are different things. Retail banks take risks with their money (if a lend doesn't pay off, they are the ones that pay for it), IBs take risks with other people's money. In principle, there is nothing wrong with that, but IBs get money when they get positive returns for your investment, but don't suffer when the return is negative. That, again, is not a problem by itself, but it's an incentive for the IBs to assume the highest risks they can find around. And if left unchecked, they do become casinos.
- onebaddude 13y ago
  >They are different things. Retail banks take risks with their money (if a lend doesn't pay off, they are the ones that pay for it), IBs take risks with other people's money. When I buy stock in, say, Google or General Motors, whose money are they taking risks with? I didn't tell Google that I wanted them to put money into Uber, nor do I think it's a great idea. Too bad for me I guess. And what do you mean "they pay for it"? Do you think when Joe Public defaults on his mortgage it comes out of the broker's bonus? No, the default risk is priced into every transaction the bank does. You and I and every other shareholder or bondholder pay for it. Investing is investing.
- retube 13y ago
  > Retail banks take risks with their money Huh? No! They are taking risks with YOUR money. When they lend on a mortgage, or make a corporate loan to a business they're doing that with YOUR deposits. This is how a savings account pays interest. They take your money, lend it at some interest rate and pay you a slightly lesser one. If the bank goes bust it's YOUR money which is lost: and this is why in most countries there are Federal Deposit Guarantees (i.e the govt will cover you up to some level if a retail bank goes bust) Ironically this is precisely the OPPOSITE of the IB business model. They are NOT taking risks with your money: they fund in the money and debt markets, i.e they borrow the money to fund their activities.
digitalengineer 13y ago
In my country borrowing for your company became incredibly difficult (if not outright impossible) if you didn't 'hedge' yourself using derivatives. None of the (AAA) banks like Rabobank explained what the risks of using these products were. They were sold as 'safe' interest-fixed products. Apart from that most were locked at the Euribor rate. You know, the one they forged...

jacques_chester 13y ago

> But Lula's refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis. I guess Australia doesn't exist in conspiracy theories.

speeder 13y ago
Australia is in the west?
- 001sky 13y ago
  Canada is doing pretty well too, if you need a more geographically literal example. Colloquilly, the anipodean democracies are considered "western" in their culture (as opposed to traditionally Asian).
- chad_oliver 13y ago
  Culturally, they're a Western nation.
- artiface 13y ago
  Everything is in the west of something.
chad_oliver 13y ago
Or New Zealand, for that matter.

moeffju 13y ago

Apologies, I didn’t find this discussion from yesterday: https://news.ycombinator.com/item?id=6260126 https://news.ycombinator.com/item?id=6260126 where the article is on vice.com.