Bondad goes on to say “The absolute last thing we need is for anyone to second guess the Fed's interest rate decisions.”
I strongly disagree. It is entirely correct to second guess the Fed’s interest rate policy. The reason is the Fed has done nothing but blow bubbles of increasing magnitude for decades.
It should be crystal clear to everyone that the Fed held interest rates too low, too long spawning off the world’s biggest credit bubble as well as the world’s biggest real estate bubble.
Amazingly, Bondad does not want anyone questioning Fed policy, no matter how bad it is. Apparently the Fed is God, who cannot be questioned or make a mistake.
It was my understanding from Robert's challenge that
1) establish a revenue stream to aid well...supposedly infrastructure and jobs (I'm dubious about this as I just don't trust Congress).
2) Curtail OTC activity
3) Attempt to rain in market malarky like the exchanges selling "previews."
Oh yes, I did read those loop holes. And now I'm also hearing rumors that certain "banks" that provide liquidity of a certain caliber would be exempt. It is a rumor, but it's also on Bloomberg. As you can see, it's already starting on the hanky panky I warned about.
But anyways, back to your comments, my friend. Regarding hedge funds, no they would not qualify. As mentioned, if it is a financial firm working on behalf of a company who is actually in the commercial side of the underlying, then it is the latter that would get the credit not the financial firm. Hedge funds are just another trading desk in my book, and they would be excluded.
The scaling on fees is doable. especially on treasuries. If you think about it, if interest rates have to increase to sell bonds, this fee on treasury securities would sorta recoup that. I know it's a stretch.
Ag products have wilder swings, especially if you take seasonality into consideration. Scaling on these could end up hurting farmers, one can substitute various grains for another. You really can't say that about petroleum except for switching from that to say nat gas. But I highly doubt companies like United or even Virgin have the money to overhaul their fleets completely, let alone on the fly. The same with automobiles, you're not going to change your car overnight are you? But you can switch from one type of wheat to another if one is relatively cheaper. I'm reminded of a drought situation back in the mid 95-96, corn had skyrocketed from $2.40/per bushel to the mid $5.60. It had taken almost a year of constant upswings and limit locks. But when it hit that 560 mark it started falling and fast. By early autumn of '96 corn was back around 2.60.
Lastly, you're not going to get anything global with fees. If you make them innocuous enough, others may copy it. In the example I wrote, I had the US, EU, UK and Canada implement the fees (or their version). The only global agreements I see happening is between the exchanges on the products. Honestly, if you want worldwide, you have to go through the exchanges. Asia thinks itself as a growth economy and that "its their time in the sun now." They will hold any proposals like this as an attempt to stifle their chance at economic growth. Look at how China and India are reacting at Copenhagen. Thats another reason why I included the exclusions on economic players of the underlying. Asia either manufactures things or grows things. Give the rice farmer and the company buying the commodity a break, and you will get an agreement. Outside of Singapore and Tokyo, the financial sector is mainly geared towards aiding the export economy. In Tokyo, they've only now come around with stuff that doesn't involve export. So they don't care about fancy contracts like we do here. Hence you focus on the underlying. You see what I'm getting at here?
What are we trying to accomplish with a transaction tax? Is it to generate revenue? Is it to punish the financial sector? Is it to make the financial sector smaller?
While the idea of a transaction tax is interesting we have to be cognizant of the purpose. If we are trying to generate revenue there are better ways of doing that - ie income tax code.
If we want to punish financial sector and/or make the financial sector smaller? There are better was to accomplish that - eliminate "too big to fail" concept and market transparency.
I agree with JV's points on regulation of markets but unfortunately that is not where we are heading with current bills.
I also believe that we need to decide if some of these derivatives really have value - particularly some social value or are they a means for some entity to derive more fees.
and unfortunately I've seen much of these and guess what, our Congress is busy making swiss cheese instead of regulatory reform, esp. on derivatives.
I think you saw the 4 5 major loopholes which exempt 50% from clearing, 100% from trading requirements.
Supposedly this isn't enough and the lobbyists are gearing up for the Senate
But I especially like the scaled idea of a transaction tax. these absolutes Congress loves simply do not work in a real time dynamic economy.
On transaction taxes, they do have to be global or some sort of thing that stops a mass exodus. Sweden implemented a Tobin (transaction) tax and this is precisely what happened.
I don't have issue with "high frequency" trades but believe that technology itself, needs to be regulated. I said this on the mathematical models being used in derivatives as well. It's too easy to game the system with technology. (See GS Flash trading as an example, supposedly using fast routing algorithms).
I think different fees and scales for different types of trades is right on. I'm fairly certain one of the targets is that great gambling casino on critical commodities.
Oil is one you're talking about but another is Ag.
Food prices are set to skyrocket next year, so we know what that means in terms of "gambling casino" and on something like food, a bubble is really not a good idea for the globe.
When you say "hedgers" are you talking about the many companies that hedge or "hedge funds", because the later are getting away with murder, basically paying a 15% income tax de facto as base.
So, I wouldn't just labeled this completely neo-liberal BS...
I do believe it needs to be a. global b. finely tuned
We want GS to pay their share and esp. hedge funds, which currently enjoy a glorified 15% tax on their income, but also stop wild speculation which can create commodity futures bubbles and wreck havoc with the economy. We also want to get those derivatives.
But nailing daytraders who are pulling in personally say $500k or less and other individuals we sure don't.
But I am kind of sick of this focus on the markets instead of looking to invest in the "real economy"...ya know like say a VC fund or Angel investor fund to take those "big return" gambles, but they take a good 5 yrs to pop out.
The author of this post does not understand how financial market work. A 1% tax on transactions wouldn't raise much revenue, it would simply eliminate nearly all financial transactions. Stocks, bonds, and futures trading would halt. Mortgage issuance, and therefore mortgage loans, would halt. Short term debt issuance would be impossible. Companies would no longer have access to capital. There would be a massive, massive cash crunch and massive bankruptcies.
A smaller tax, such as the proposed .25% tax, would probably eliminate 95-99% of all trading activity. Once again, the absurd revenue estimates based on current transactions levels would have to be reduce by a factor of 100.
Even the .01% tax would have a big impact. Look at financial markets. The spreads are incredibly small. This is a good thing. It promotes the efficient allocation of capital which in turn increases liquidity and access to capital. Companies need capital. The last thing any civilization should do is to act to impede it's inhabitants ability to transfer capital from unproductive enterprises to productive ones.
Herd behavior too.....oh the profits are in EEs (emerging economies), run, invest there and fund it with dollars (come on everybody!) oops, Greece is collapsing, run away, run back to the dollar (come on everybody!) Yo-yo critical commodities. Real Economy on investments that are in the national interest and plan make sense....nowhere. Middle class? Squeezed as usual.
I should have said that dollar carry trade will collapse in the not too distant future. A lot of forecasters are looking for the Fed to increase their rate by August, 2010. Thereby, they see an unwind coming in the Spring of 2010, probably May.
OTH, there are numerous articles warning against the dangers of this extended ZIRP policy by the Fed. Here's one from Bloomberg today. The USD carry trade has encouraged excessive "investment" in emerging markets that are maintaining high interest rates. In other words, it is creating new investment bubbles in those countries.
I just get the feeling that everything the Fed and Treasury have been attempting for the past 14/15 months is tantamount to defying the laws of nature. And every schoolboy knows that you fon't duck with Mother Nature!
Tell ya what, I'll take a look at it and post in an Instapopulist. We stopped linking to bonddad because those guys have some serious issues not only with analysis but with some sort of need to insult/attack "economics blog/economist du jour" these days.
I don't think so from their free money position, although the strengthening of the dollar is happening right now because of Greece imploding and major concern of a domino effect.
I got burnt by this the first time round. I had assumed with so much debt the dollar would deflate and didn't get "safe haven" still with dollars. i.e. my gold play didn't pan out (yes this little silly metaphor is intended).
Don't forget that the USD has been pummeled throughout the fall. Everything consumers buy that is imported and/or oil related is looking relatively more expensive. We are starting to see some global risk aversion due to Dubai/Greece/Spain/et al. The USD has strengthened dramatically just in the past 2/3 days. The USD carry trade will start to unwind fairly soon I would think, which will really send the USD rebounding. This could get messy in the not too distant future.
According to New Deal democrat initial jobless claims in November at 480,000 implies that “actual job growth is taking place in the economy this month.” This proposition gives new meaning to “Orwellian.”
This is not to criticize his analysis, which is consistent with other economist. Rather, to indicate what a ridicules discipline Economics is. The English language has no meaning in the mouth of economist.
Yes! Yes! I know. “Different Surveys!”
(What’s up is down and what’s down is up”, said “The Red Queen” in Alice’s Wonderland).
Next time round I'll look into weights for the index but yeah, one can do a "rocket slope" of medical costs, insurance premiums by itself. That's why I stopped monitoring health care "reform" because the minute they gave in to the insurance lobby I knew the real thing, which is costs, isn't going to come down. We are plain captured and getting ripped off and also the system is beyond inefficient.
Like I have to call to communicate with my Doctor. No email, no text (and these are for non-emergency type things).
So, I go on hold for 15 minutes through a huge obnoxious voice menu, then I have to talk to some intake person, who then takes forever to write down the message of what I'm talking to ask about, who then hands it to the physician's assistant, who then asks the Doctor about it, who them must interpret what I asked about through 2 different people's interpretation and then decide what to do or to call me...which is another 10 minutes of me explaining what I said earlier.
Just one minor example but it's so inefficient and these sorts of things which don't cost a dime....
not getting fixed. I have insurance which I can get "mental health treatment" acupuncture, chiropractic visits...
but when it comes to lab work, tests, oops, that's assigned to the deductible. It's insane, that's the #1 tool Doctors need for early detection and they have it set up so of course people will avoid diagnostic/maintenance tests because they are out of pocket....yet I can go waste thousands on nebulous treatments like a glorified back rub, which in many cases show no results and can even be caused by an underlying untreated medical condition.
i.e. at every turn in the U.S. system one can find gross inefficiencies and stupidity.
Now the Senate just gives a mega gift to the insurance industry which is going to cost the middle class like 20% of their net pay and they are just making it mandatory to pay these sharks. They need to kill the bill and start over and put together something that makes sense....
but D.C. won't kick out the lobbyists.
Yeah, I can't understand how the hell it is he's not in favor of this. He and I got into an argument over the air on this.
I didn't know that Mish was even aware of Bonddad.
It was my understanding from Robert's challenge that
1) establish a revenue stream to aid well...supposedly infrastructure and jobs (I'm dubious about this as I just don't trust Congress).
2) Curtail OTC activity
3) Attempt to rain in market malarky like the exchanges selling "previews."
Oh yes, I did read those loop holes. And now I'm also hearing rumors that certain "banks" that provide liquidity of a certain caliber would be exempt. It is a rumor, but it's also on Bloomberg. As you can see, it's already starting on the hanky panky I warned about.
But anyways, back to your comments, my friend. Regarding hedge funds, no they would not qualify. As mentioned, if it is a financial firm working on behalf of a company who is actually in the commercial side of the underlying, then it is the latter that would get the credit not the financial firm. Hedge funds are just another trading desk in my book, and they would be excluded.
The scaling on fees is doable. especially on treasuries. If you think about it, if interest rates have to increase to sell bonds, this fee on treasury securities would sorta recoup that. I know it's a stretch.
Ag products have wilder swings, especially if you take seasonality into consideration. Scaling on these could end up hurting farmers, one can substitute various grains for another. You really can't say that about petroleum except for switching from that to say nat gas. But I highly doubt companies like United or even Virgin have the money to overhaul their fleets completely, let alone on the fly. The same with automobiles, you're not going to change your car overnight are you? But you can switch from one type of wheat to another if one is relatively cheaper. I'm reminded of a drought situation back in the mid 95-96, corn had skyrocketed from $2.40/per bushel to the mid $5.60. It had taken almost a year of constant upswings and limit locks. But when it hit that 560 mark it started falling and fast. By early autumn of '96 corn was back around 2.60.
Lastly, you're not going to get anything global with fees. If you make them innocuous enough, others may copy it. In the example I wrote, I had the US, EU, UK and Canada implement the fees (or their version). The only global agreements I see happening is between the exchanges on the products. Honestly, if you want worldwide, you have to go through the exchanges. Asia thinks itself as a growth economy and that "its their time in the sun now." They will hold any proposals like this as an attempt to stifle their chance at economic growth. Look at how China and India are reacting at Copenhagen. Thats another reason why I included the exclusions on economic players of the underlying. Asia either manufactures things or grows things. Give the rice farmer and the company buying the commodity a break, and you will get an agreement. Outside of Singapore and Tokyo, the financial sector is mainly geared towards aiding the export economy. In Tokyo, they've only now come around with stuff that doesn't involve export. So they don't care about fancy contracts like we do here. Hence you focus on the underlying. You see what I'm getting at here?
is what that is, i.e. separate out commercial banking from investment banking.
This might be the wrong thread for this but oh well. This is very simple:
If they want to trade derivatives then set up another company and they can do it with their own capital.
RebelCapitalist.com - Financial Information for the Rest of Us.
What are we trying to accomplish with a transaction tax? Is it to generate revenue? Is it to punish the financial sector? Is it to make the financial sector smaller?
While the idea of a transaction tax is interesting we have to be cognizant of the purpose. If we are trying to generate revenue there are better ways of doing that - ie income tax code.
If we want to punish financial sector and/or make the financial sector smaller? There are better was to accomplish that - eliminate "too big to fail" concept and market transparency.
I agree with JV's points on regulation of markets but unfortunately that is not where we are heading with current bills.
I also believe that we need to decide if some of these derivatives really have value - particularly some social value or are they a means for some entity to derive more fees.
RebelCapitalist.com - Financial Information for the Rest of Us.
Fortunately it’s unconstitutional for regulators in this country to arbitrarily and capriciously interfere with commerce.
and unfortunately I've seen much of these and guess what, our Congress is busy making swiss cheese instead of regulatory reform, esp. on derivatives.
I think you saw the
45 major loopholes which exempt 50% from clearing, 100% from trading requirements.Supposedly this isn't enough and the lobbyists are gearing up for the Senate
But I especially like the scaled idea of a transaction tax. these absolutes Congress loves simply do not work in a real time dynamic economy.
On transaction taxes, they do have to be global or some sort of thing that stops a mass exodus. Sweden implemented a Tobin (transaction) tax and this is precisely what happened.
I don't have issue with "high frequency" trades but believe that technology itself, needs to be regulated. I said this on the mathematical models being used in derivatives as well. It's too easy to game the system with technology. (See GS Flash trading as an example, supposedly using fast routing algorithms).
I think different fees and scales for different types of trades is right on. I'm fairly certain one of the targets is that great gambling casino on critical commodities.
Oil is one you're talking about but another is Ag.
Food prices are set to skyrocket next year, so we know what that means in terms of "gambling casino" and on something like food, a bubble is really not a good idea for the globe.
When you say "hedgers" are you talking about the many companies that hedge or "hedge funds", because the later are getting away with murder, basically paying a 15% income tax de facto as base.
So, I wouldn't just labeled this completely neo-liberal BS...
I do believe it needs to be a. global b. finely tuned
We want GS to pay their share and esp. hedge funds, which currently enjoy a glorified 15% tax on their income, but also stop wild speculation which can create commodity futures bubbles and wreck havoc with the economy. We also want to get those derivatives.
But nailing daytraders who are pulling in personally say $500k or less and other individuals we sure don't.
But I am kind of sick of this focus on the markets instead of looking to invest in the "real economy"...ya know like say a VC fund or Angel investor fund to take those "big return" gambles, but they take a good 5 yrs to pop out.
Neo-liberal BS will, unfortunately, die hard. Sometimes I even dream that it were so.
Derivatives trading, hedge funds manipulating entire commodities futures....
I'm finding these claims so odious. I do not see such a campaign against broker transaction fees. They are much more than this tax will ever be.
Why not blast broker commissions claiming those are all "too high" and will "shut down markets".
Unfettered manipulation of markets causing destabilization and bubbles in nationally critical commodities is a very important topic to understand!
The author of this post does not understand how financial market work. A 1% tax on transactions wouldn't raise much revenue, it would simply eliminate nearly all financial transactions. Stocks, bonds, and futures trading would halt. Mortgage issuance, and therefore mortgage loans, would halt. Short term debt issuance would be impossible. Companies would no longer have access to capital. There would be a massive, massive cash crunch and massive bankruptcies.
A smaller tax, such as the proposed .25% tax, would probably eliminate 95-99% of all trading activity. Once again, the absurd revenue estimates based on current transactions levels would have to be reduce by a factor of 100.
Even the .01% tax would have a big impact. Look at financial markets. The spreads are incredibly small. This is a good thing. It promotes the efficient allocation of capital which in turn increases liquidity and access to capital. Companies need capital. The last thing any civilization should do is to act to impede it's inhabitants ability to transfer capital from unproductive enterprises to productive ones.
over at econompicdata.
Herd behavior too.....oh the profits are in EEs (emerging economies), run, invest there and fund it with dollars (come on everybody!) oops, Greece is collapsing, run away, run back to the dollar (come on everybody!) Yo-yo critical commodities. Real Economy on investments that are in the national interest and plan make sense....nowhere. Middle class? Squeezed as usual.
I should have said that dollar carry trade will collapse in the not too distant future. A lot of forecasters are looking for the Fed to increase their rate by August, 2010. Thereby, they see an unwind coming in the Spring of 2010, probably May.
OTH, there are numerous articles warning against the dangers of this extended ZIRP policy by the Fed. Here's one from Bloomberg today. The USD carry trade has encouraged excessive "investment" in emerging markets that are maintaining high interest rates. In other words, it is creating new investment bubbles in those countries.
I just get the feeling that everything the Fed and Treasury have been attempting for the past 14/15 months is tantamount to defying the laws of nature. And every schoolboy knows that you fon't duck with Mother Nature!
Tell ya what, I'll take a look at it and post in an Instapopulist. We stopped linking to bonddad because those guys have some serious issues not only with analysis but with some sort of need to insult/attack "economics blog/economist du jour" these days.
You see the details of the Federal Reserve Minutes?
I don't think so from their free money position, although the strengthening of the dollar is happening right now because of Greece imploding and major concern of a domino effect.
I got burnt by this the first time round. I had assumed with so much debt the dollar would deflate and didn't get "safe haven" still with dollars. i.e. my gold play didn't pan out (yes this little silly metaphor is intended).
Don't forget that the USD has been pummeled throughout the fall. Everything consumers buy that is imported and/or oil related is looking relatively more expensive. We are starting to see some global risk aversion due to Dubai/Greece/Spain/et al. The USD has strengthened dramatically just in the past 2/3 days. The USD carry trade will start to unwind fairly soon I would think, which will really send the USD rebounding. This could get messy in the not too distant future.
According to New Deal democrat initial jobless claims in November at 480,000 implies that “actual job growth is taking place in the economy this month.” This proposition gives new meaning to “Orwellian.”
This is not to criticize his analysis, which is consistent with other economist. Rather, to indicate what a ridicules discipline Economics is. The English language has no meaning in the mouth of economist.
Yes! Yes! I know. “Different Surveys!”
(What’s up is down and what’s down is up”, said “The Red Queen” in Alice’s Wonderland).
Next time round I'll look into weights for the index but yeah, one can do a "rocket slope" of medical costs, insurance premiums by itself. That's why I stopped monitoring health care "reform" because the minute they gave in to the insurance lobby I knew the real thing, which is costs, isn't going to come down. We are plain captured and getting ripped off and also the system is beyond inefficient.
Like I have to call to communicate with my Doctor. No email, no text (and these are for non-emergency type things).
So, I go on hold for 15 minutes through a huge obnoxious voice menu, then I have to talk to some intake person, who then takes forever to write down the message of what I'm talking to ask about, who then hands it to the physician's assistant, who then asks the Doctor about it, who them must interpret what I asked about through 2 different people's interpretation and then decide what to do or to call me...which is another 10 minutes of me explaining what I said earlier.
Just one minor example but it's so inefficient and these sorts of things which don't cost a dime....
not getting fixed. I have insurance which I can get "mental health treatment" acupuncture, chiropractic visits...
but when it comes to lab work, tests, oops, that's assigned to the deductible. It's insane, that's the #1 tool Doctors need for early detection and they have it set up so of course people will avoid diagnostic/maintenance tests because they are out of pocket....yet I can go waste thousands on nebulous treatments like a glorified back rub, which in many cases show no results and can even be caused by an underlying untreated medical condition.
i.e. at every turn in the U.S. system one can find gross inefficiencies and stupidity.
Now the Senate just gives a mega gift to the insurance industry which is going to cost the middle class like 20% of their net pay and they are just making it mandatory to pay these sharks. They need to kill the bill and start over and put together something that makes sense....
but D.C. won't kick out the lobbyists.
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