Crisis: Don't we care? - page 76
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
Yuri, can I get a link to that text? I will try to understand the logic behind such a strange move.
and this led to parasitic fluctuations of stock exchange indices.
So they decided to overload the data at the input of the exchange valuation system - now the balances for a certain period are publicly available(?), but not the current ones.
P.S. (i.e. in development of GDP supply)) clean the indices from the fast speculative component.
Fucking...
2 Yurixx 06.02.2009 01:25
The external accounts will now quite legitimately report "All is well! Business is good! Profits are rising like clockwork!
It's nothing like that... if you know anything about economics and don't take investors for fools. :)
2 Korey, at least don't "piss in the shitter" speculators. :)
The stock market crash of 1929 On the eve of the crisis, the Fed took measures to stabilise the market and during the period from January to July 1928 it raised the interest rate from 3.5 % to 5 %. However, the Fed could not maintain an adequate money supply. In 1926, M2 amounted to 43.7 billion dollars, in 1927 to 44.7 billion dollars (an increase of 2.2 %). (2.2 % growth), in 1928 - 46.42 (3.8 % growth), in 1929 the M2 aggregate was $46.6 billion (0.38 % growth). (growth of 0.38 %). At the same time, the volume of money surrogates, mainly bills of exchange, was increasing in the economy. In the spring of 1929, the Fed prohibited banks from lending to members. In March 1929 there was a slight fall in the market, but then quotations resumed rising. On 8 August, shortly before the crisis, the Fed once again raised the rate from 5 per cent to 6 per cent. Despite a number of warnings, almost everyone believed that the market would rise. At the same time, the most serious players, such as Bernard Baruch, John Raskob and others, had already closed their positions in advance by spring.
On September 3 the index reached its maximum of 381.17. On September 5, 1929 Roger W. Babson, a financial adviser, had suggested an impending catastrophe. However, the same I. Fisher immediately refuted this assessment: "A fall in stock prices is possible, but nothing resembling a crash is in our way. After a while he gave even more reassurance to investors: "Stock prices have reached a level that looks like an all-time high plateau." Nevertheless, the market began to gradually drift downwards.
The crash wasn't far off. Already on October 24 (Black Thursday), a stock market crash occurred at the NYSE. Already in an hour after opening of trading, share prices started falling, and by 12:00, panic broke out - almost everyone was trying to sell their shares. Panic spread all over the market, and everybody watched with fear as the share price fell. On the day, the Dow "sank" from 305.85 to 272.32, a low of 11%, closing at 299.47 after some support. Some 12.8 million shares were sold. Arthur Reynolds, head of Continental Illinois Bank of Chicago said, "This collapse will not have serious consequences for business.
In order to salvage the situation, a group of banks (headed by Thomas Lamont, J.P. Morgan's deputy) decided to support the market and raised around USD 25 million to come out as buyers. This delayed the downturn for a while, but then things went downhill. On Monday, October 28, Black Monday, the market continued to fall, dropping 13.47%, with sales of over 9 million shares.
The next day became better known - 29 October (so-called "Black Tuesday"), when a Guinness record was set at the New York Stock Exchange - sales volume reached 16.4 million shares. On this day, the Dow index fell to 240.07, a decline of 11.73 per cent. There were rumours that the Fed would cut interest rates. The market panicked again. It became clear that no group would be able to support the quotations. Impairment of shares demanded to replenish margin collateral, banks started to ask for return of loans from brokerage firms, the latter were forced to sell shares at any price. This process worked even harder for the bears.
Figure: Dynamics of Dow Jones index 1929-1930. Source: www.wikipedia.com
On November 1 the Fed cut the rate to 5.5% and on November 15 to 4.5%. However, in spite of these measures and small "bounces", the market went downhill. On November 13, the Dow was already down 199, having lost about 48% in about 2 months from its high. The losses of investors between October and November were about 25-30 billion dollars, i.e. about 30% of GDP. From September 1929 to 1932, the Dow index fell from 381.17 to 41.22, i.e., 9 times. The market managed to reach pre-crisis values only
in 1954. - The recovery period lasted for 25 years.
The decline spread to the European markets (London, Paris, Berlin). At first, the general population who did not speculate prevailed in the gloating mood - greed was punished. Then, however, companies and individuals in the US went bankrupt, and through a chain of defaults, the crisis engulfed the entire economy. In addition to stocks, real estate began to depreciate. The economic downturn, the signs of which were already present before the stock market crash, was rapidly accelerating. The crisis also spread to European countries.
As a result of the financial crisis, investments fell by 85 % between 1929 and 1933. In 1932, the economic indicators of the USA, in 1929 and 1933, respectively, showed a decline of 85 %.
Evolution of US economic indicators, 1929-1933
Year
GDP, billion dollars
Money supply,M2, billion dollars
Price level (1929-100%)
1929 103.6 46.60
1930 91.2 45.73
1931 76.5 42.69
1932 58.7 36.05
1933 56.4 32.55
The greatest danger is the emergence of monetary shortages capable of "collapsing" the market. In fact, the financial crisis is realised through the mechanism of money supply shock, when market subjects - customers, banks, overestimating the risks, sharply reduce the supply of money, as a consequence the speed of their circulation decreases. First of all, the interbank market stagnates, struck by a "crisis of confidence" and the depreciation of collateral instruments. Then the domino effect creates a chain reaction of defaults throughout the economy.
Is some remake of the Great Depression now possible in the US? Both the Paulson plan and the position of the RAF suggest that the US monetary authorities have learned the lessons of the Depression and are unlikely to let the financial system "free float". They are trying to run the crisis on an inflationary, not deflationary, model. The crisis will help the US economy recover. On the other hand, it will trigger property redistribution mechanisms. If the crisis gets any deeper, it will trigger them in our country too.
As to the current situation in Russia, the "fight against inflation" and "overheating" of the Russian economy has "borne fruit". Money supply growth - M2 aggregate as of 1.09.08 was only 9.5% of the 30-35% promised by the Central Bank this year, while inflation for the same period was 9.7%. For comparison - in 2007, M2 growth was 47.5% with inflation at 11.9%. Thus, the real money supply by 1.09.2008 practically did not increase. Under such conditions, economic and stock market growth is hardly possible. However, the government still has the means and the instruments to stabilise the situation and to return confidence to the markets. Let's hope that measures to implement Putin's promise to support the market will be effective. But if precious time is squandered, the consequences could be dire. It is hardly worthwhile to learn from the experience of a "deflationary crisis". For that, there is the experience of "other people's" mistakes.
The colateral may default. To prevent this (or rather to eliminate the risk of it), a default swap is bought - a pure derivative leaning on the CDO.
Can we discuss the multiplication table?
Here is a quote especially for you:
------------------------------------------------------------
Provide yourself with the following situation. You and I are two very respectable and respectable gentlemen who, to put it mildly, have run out of money. We don't have a lot of money and we have so much debt that we won't work it off in forever. So we come up with the next thing. We give each other a receipt that each of us owes the other, say, $10 million. After that, we split up and each go to a bank. At the bank, I say: "Here, I have a $10 million asset guaranteed by a very respectable and distinguished gentleman. Surely you know him? There's no doubt he'll pay me back, is there? Give me a loan against this asset for, say, $9 million. And you, my esteemed partner, do the same, and get the money against my "collateral". How do you like that scheme? Isn't it fun? Well, that's exactly how the CDO/CDS pairing worked, or more simply put, garbage/garbage insurance. And the point is that the money was created exactly double the number of participants under this scam.
------------------------------------------------------------
Yuri, can I have a link to that text? I'll try to understand the logic behind such a strange move.
That was a Reuters post I read yesterday at http://biz.yahoo.com/rb/090205/business_us_markets_stocks.html?.v=13
And today they have already significantly changed that text. Although it remains there about the change in accounting, they have removed the quote from Dodd. Why would they do that?
But here's this post for you on another website http://www.cnbc.com/id/29035284
The external ledger gave access to current changes in the collateral balance sheet of a quoted security maybe even every second...
and this led to parasitic fluctuations in the stock indices.
So they decided to overload the data at the input of the exchange valuation system - now the balances for a certain period are publicly available(?), but not the current ones.
P.S. (i.e. in development of GDP supply)) clean the indices from the fast speculative component.
Well, actually, balances in America are done once a quarter. How do you imagine that the balance sheet changes every second? It's not just external accounting, it's internal accounting that can't handle it. And stock indices have nothing to do with it. Only when corporations put out their balance sheets once a quarter, during the earnings season, does the market react to it.
Risk assessment is another matter when it comes to loans. But companies don't take out loans every second. :-)
Issuing derivatives like CDOs and CDSs also requires an assessment of these risks, for which mathematical models are used, which also use market data and, in addition to that, data from rating agencies, estimates of future profits. Therein lies the problem of the loss of credibility of these models' estimates.
And how do you imagine assessing credit risk if it is impossible to calculate the real balance sheet of the borrower at the time of the loan agreement?
The liquidity and credit crunch last year was in no small part due to the fact that lenders lost their risk assessment tool, stopped lending and the money froze in accounts, i.e. it was effectively withdrawn from circulation. And this happened after the bankruptcy of Lehman and the problems of similar first tier companies, whose debts were very low risk according to the relevant mathematical models.
Well, actually, balances in America are done once a quarter. How do you imagine that the balance sheet changes every second? It's not just external accounting, it's internal accounting that can't handle it. And stock indices have nothing to do with it. Only when corporations put out their balance sheets once a quarter during earnings season does the market react.
1. the entire balance sheet is posted once a quarter, and the main indicators (balance sheets) at the rate of the stock exchange.
1a
If they can't do a balance sheet every second.
either Am doesn't have computers or 1C hasn't come to them yet.
it's our internal accounting is slower than their external accounting.
reasons:
Am's cash transactions are reduced to zero so the LO is the same as the bank's,
+ the proprietor shines on M3 M4 aggregates for his benefit
which means that the whole balance sheet can be drawn on the bank,
...
e.g. at the stage when there are no securities yet
us someone needs something from someone and they
1. arranges a private meeting
2. brings balance sheets to the meeting
3. assures that these balance sheets have been checked by the tax authorities
4. offers to audit or has already paid for an audit
5. the solicited one benevolently examines his analysts to determine whether the balance sheet is fake.
6. And even after checking if the balance sheet is clean, the askee has the right to say "I don't believe it".
7. finally (and beforehand) stress the securitie or else we are out of luck.
them Someone needs something from someone, and he
1. he says go to my banker.
+ The banker gets convinced that the solicitor is a serious businessman because serious people are asking about his balance.
+ the solicited person makes sure everything is clean because the balance sheet is drawn up by the bank
+ his analysts don't care about detecting fakes
The fact is that Russia has a negative image in the minds of billions of A-verts (the media rules),
- a negative image so strong that if someone presses the red button on Russia
and these billions are ready to cross their eyes and say "by golly," they have finally got rid of these russians.