by Ellen Brown
Far from reducing risk, derivatives increase risk, often with catastrophic results.
—Derivatives expert Satyajit Das, Extreme Money (2011)
The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times. In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counterparties to pay on credit default swaps on Greek sovereign debt.
by Doug French
hat tip: Mises Daily
Monday, May 24, 2010
Anyone who follows financial markets has to wonder at times, “What are people thinking? How did they come to make those decisions?”
It’s hard to imagine that John Muth and Robert Lucas came up with what’s known as the “rational-expectations theory,” wherein, as explained in Wikipedia,
it is assumed that outcomes that are being forecast do not differ systematically from the market equilibrium results. That is, it assumes that people do not make systematic errors when predicting the future, and deviations from perfect foresight are only random.
Muth and Lucas should watch daily programs on the financial channels like Jim Cramer’s Mad Money, which is supposedly to help individual investors, or CNBC’s Fast Money, a show clearly geared toward speculators. No viewer can watch these shows and walk away believing, “people do not make systematic errors when predicting the future.”
So while financial markets have been a series of speculative bubbles as the Federal Reserve creates money ad infinitum, rational-expectations economists Robert Flood and Robert Hodrick daringly conclude, “The current empirical tests for bubbles do not successfully establish the case that bubbles exist in asset prices.”
By Dian L. Chu
hat tip: Economic Forecasts & Opinions
Sunday, March 14, 2010
According to a gauge derived from data compiled by The American Association of Individual Investors (AAII), bullishness on U.S. stocks is beginning to emerge after the market’s rally in the past year.
The latest AAII Sentiment Survey reading shows optimists outweighed pessimists for the first time since January 2008, three months after the previous bull market ended. (See Chart from Bloomberg)
A Disparity in Sentiment
In contrast to the cheery mood of the markets, the latest readings from consumers and small business owners indicate economic sentiment isn’t improving, despite signs of a factory rebound and less gloom on the labor front.
The National Federation of Independent Business said its optimism index for small business owners fell back in February to its December reading. The IBD/TIPP Economic Optimism Index dropped 3% in March, well below its average of the past year.
Meanwhile, The U.S. consumer sentiment also dipped in early March, according to the University of Michigan Consumer Sentiment Index.