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It's convenient to blame the finance peeps. But wrong. It is a face saving measure by the people actually responsible, namely Pension Funds and Government Poli

by tezza 11y ago

It's convenient to blame the finance peeps. But wrong. It is a face saving measure by the people actually responsible, namely Pension Funds and Government Policy makers in that order. Pension Funds were chasing returns... and finance types depend on Pension funding at many levels. Pension funds own 95+ percent of the stockmarket shares overall and in some cases closer to 100%. Shareholders elect the board who appoint the staff. Further Hedge Funds do not hedge their own money exclusively. They sell to outside people, ultimately again mostly coming from Pension Funds. Government agencies like Alan Greenspan had the option to use their blunt tools to control matters via interest rates and perhaps policy changes. They chose not to do so. To me it is like a Railway Tycoon shouting "faster faster.." to the train drivers and then blaming the driver of the day when a massive accident happens. Even if the driver is reckless... who hired they guy and gave guidance to ignore the warning signals ??

crdoconnor 11y ago
It's convenient to blame the pension funds. But wrong. Pension funds only started chasing returns after the crisis. Why did they do that? Because the government made a policy decision to drop interest rates like a stone. Why did they do that? Because the too big to fail banks were sitting on a pile of mortgages without sufficient collateral because of a popping bubble that they created and they couldn't withstand the potential onslaught of defaults. They were exposed and insolvent and in danger of being destroyed unless quick political action was taken. Fortunately, for them, quick political action was taken and they were saved from facing the consequences of their actions. We had to deal with them instead.
- tezza 11y ago
  Dude, they've always chased returns... It didn't magically start happening post 2008 The sub funds that Pensions invest in get rewarded according to Alpha... the amount the sub fund exceeded the main stock price movement. How is that not chasing returns?? http://www.investopedia.com/terms/a/alpha.asp http://www.investopedia.com/terms/a/alpha.asp
  - crdoconnor 11y ago
    Pension funds used to be highly invested in government bonds, which are risk-free. The risks they did take were, by and large, reasonable and minimal. They owned some shares as well, of course. They weren't taking outsized risks in order to chase an outsized gain - "chasing returns" as you put it. 2008 changed all that. Once government debt yields dropped to zero (done to save the bankers' hides), in order to still maintain the same returns which they needed, they started chasing returns. This was more done out of desperation than greed. They had made promises pre-crisis that presumed the economy would continue as normal - exactly what economists and bankers of the time promised us would happen.
    - tezza 11y ago
      They're highly invested in literally everything. Again they own the shares in the companies that own other assets. They do buy government bonds as an asset class but have a diversified approach where they own FX, property etc. The only non pension funds who own anything substantial are governments. Private holdings are vanishingly small. Who do you think owned the shares in the banks that took all the risks? 99% Pension Funds. Even if the Pension Funds had 85% as Government Bonds, from the rest they still owned 99% of the banks and hedge funds and private equity.
      - crdoconnor 11y ago
        Yes, pension funds do have investments in a lot of things. Some did own banking shares, too, though banks were not 99% owned by pensioners. Holding bank shares is a suckers' game, however. Real money is made in bonuses: http://www.cbsnews.com/news/study-bank-bonuses-far-exceeded-profits/ http://www.cbsnews.com/news/study-bank-bonuses-far-exceeded-... Control is more important than holding a share certificate entitling you to a residual claim on profits.
    - walshemj 11y ago
      pension funds used to invest in gilts back in the 50's your out by decades
- cm2187 11y ago
  That's not correct. Spreads before the crisis were at records lows and asset managers had to buy credit they would have preferred not to in order to get a little bit of value. This is really what fuelled the whole subprime story.
- davidmr 11y ago
  Your point in general that public pension funds have investigated in riskier assets over time is correct, but your claim that the 2008 crisis had any significant uptick after the 2008 crisis is quite simply false. Honestly, to make a claim like that and present no data to back it up is... unhelpful http://www.pewtrusts.org/~/media/Assets/2014/06/PensionInvestments06032014.pdf http://www.pewtrusts.org/~/media/Assets/2014/06/PensionInves... By far, the largest uptick in the shift from low risk bonds to higher risk assets like equities was in the 80s, but it's been happening longer than that. You could make a claim that there has been an increased shift to alternative assets since the crisis, but you didn't, and the uptick isn't massive anyway.

by tezza 11y ago

crdoconnor 11y ago

It's convenient to blame the pension funds. But wrong. Pension funds only started chasing returns after the crisis. Why did they do that? Because the government made a policy decision to drop interest rates like a stone. Why did they do that? Because the too big to fail banks were sitting on a pile of mortgages without sufficient collateral because of a popping bubble that they created and they couldn't withstand the potential onslaught of defaults. They were exposed and insolvent and in danger of being destroyed unless quick political action was taken. Fortunately, for them, quick political action was taken and they were saved from facing the consequences of their actions. We had to deal with them instead.

tezza 11y ago
Dude, they've always chased returns... It didn't magically start happening post 2008 The sub funds that Pensions invest in get rewarded according to Alpha... the amount the sub fund exceeded the main stock price movement. How is that not chasing returns?? http://www.investopedia.com/terms/a/alpha.asp http://www.investopedia.com/terms/a/alpha.asp
- crdoconnor 11y ago
  Pension funds used to be highly invested in government bonds, which are risk-free. The risks they did take were, by and large, reasonable and minimal. They owned some shares as well, of course. They weren't taking outsized risks in order to chase an outsized gain - "chasing returns" as you put it. 2008 changed all that. Once government debt yields dropped to zero (done to save the bankers' hides), in order to still maintain the same returns which they needed, they started chasing returns. This was more done out of desperation than greed. They had made promises pre-crisis that presumed the economy would continue as normal - exactly what economists and bankers of the time promised us would happen.
  - tezza 11y ago
    They're highly invested in literally everything. Again they own the shares in the companies that own other assets. They do buy government bonds as an asset class but have a diversified approach where they own FX, property etc. The only non pension funds who own anything substantial are governments. Private holdings are vanishingly small. Who do you think owned the shares in the banks that took all the risks? 99% Pension Funds. Even if the Pension Funds had 85% as Government Bonds, from the rest they still owned 99% of the banks and hedge funds and private equity.
    - crdoconnor 11y ago
      Yes, pension funds do have investments in a lot of things. Some did own banking shares, too, though banks were not 99% owned by pensioners. Holding bank shares is a suckers' game, however. Real money is made in bonuses: http://www.cbsnews.com/news/study-bank-bonuses-far-exceeded-profits/ http://www.cbsnews.com/news/study-bank-bonuses-far-exceeded-... Control is more important than holding a share certificate entitling you to a residual claim on profits.
  - walshemj 11y ago
    pension funds used to invest in gilts back in the 50's your out by decades
cm2187 11y ago
That's not correct. Spreads before the crisis were at records lows and asset managers had to buy credit they would have preferred not to in order to get a little bit of value. This is really what fuelled the whole subprime story.
davidmr 11y ago
Your point in general that public pension funds have investigated in riskier assets over time is correct, but your claim that the 2008 crisis had any significant uptick after the 2008 crisis is quite simply false. Honestly, to make a claim like that and present no data to back it up is... unhelpful http://www.pewtrusts.org/~/media/Assets/2014/06/PensionInvestments06032014.pdf http://www.pewtrusts.org/~/media/Assets/2014/06/PensionInves... By far, the largest uptick in the shift from low risk bonds to higher risk assets like equities was in the 80s, but it's been happening longer than that. You could make a claim that there has been an increased shift to alternative assets since the crisis, but you didn't, and the uptick isn't massive anyway.