I stopped reading at "toxic assets like financial derivatives." That sentence either suggests that the author has very little understanding of finance or has a sensationalist motive. Either way, there are much better articles and books to read about the financial crisis than this junk.
The comments on reddit and the article itself almost make me support the NSA's surveillance programs; people can be convinced of anything given the right emotional rhetoric. Literally the left wing equivalent of the tea party, and more terrifying.
While an entertaining, if not terrifying, read it offers up no supporting evidence to confirm that this memo exists and is authentic. Not saying I can't image this actually happening, I easily can and often do, yet some tangible evidence would be nice.
After reading the memo... The article, and even calling it the "end-game" memo seems rather sensationalist. I guess that's Vice's MO (not that they don't do some compelling stuff, but they do seem to have a particular flare for the theatrical), but the memo seems utterly banal and only ominous after Palast's shrill interpretations of context. I'm not saying necessarily that such shrillness is unwarranted, but Palast doesn't remotely give the reader the information to connect the dots independent of his interpretations, which on the whole don't come across as level-headed objective analysis.
Not sure how much if this is for real. I believe the fact Brazil happened to thrive during the financial crisis was due mainly to the China led resources boom and Brazil's plentiful supply of iron ore. Same reason Australia also thrived.
Reducing Brazil's success to external factors and natural resources would be doing a great disservice to many of the other internal factors that have greatly aided the economic success since the implementation of the Plano Real. What has happened in Brazil is far more complex than what you can see happening from outside.
In fact, Brazil is surprisingly well-insulated from the rest of the world economically. After many years of horrible financial crisis, it's adopted very conservative and heavily regulated banking practices. It's got an astronomically high risk-free rate making the cost of capital high enough to discourage reckless borrowing domestically. Even borrowing cheap money internationally was shown to be risky after the exchange rates changed sharply around 2000 causing the "órphãos do cambio". Most economic success has been captured by those with access to cheap money through family and friends. Our "Rockefellers" and "Mellons" got a lot richer because they had access to enough cheap capital to go after opportunities that few others could meaning that there was little to no competition in many major industries. The Bolsa Familiar did a lot to stimulate economic activity that more equitably spread across the society (it's an interesting analog to the notion of a universal livable wage and the rest of the World should take some time to study it's impact at both the macro and microeconomic level". We're also fairly well insulated trade wise from the rest of the world by our own incompetence at the governmental level. Brazil has been remarkably short-sized when it comes to essential infrastructure. Most big projects are poorly planned if at all. We lack decent shipping infrastructure internally and our ports and airports leave a lot to be desired. We could probably have done even better if we actually had the infrastructure internally to move more of our natural resources abroad.
All in all, Brazil in the last 20 years is a country capitalizing on a lot of its potential that it couldn't capitalize on prior to the Plano Real. All the external trade like iron ore and agriculture largely served as a buffers from instabilities as we developed lots of industries internally.
Refusal or no refusal. Many in Brazil's banking system didn't even care about the global derivatives markets. There was enough legitimate growth domestically from 2000 onwards that you probably wouldn't look beyond the country's borders except for arbitrage opportunities involving ADRs. Our main interest in global markets was basically limited to finding institutional investors abroad that were interested in purchasing Brazilian securities.
FWIW, I worked as a mid-level analyst at one of Brazil's largest broker dealers from 2007-2009 and have known people involved in Brazil's banking industry going back to the day I was born (my father). I was pretty much the only one in the São Paulo office following details of the crisis from before it started to well after because I was the only one who had grown up in the US and knew what was going on. Until the big crash in 2008 most Brazilians in banking had no idea what was going on with derivatives in the rest of the world. We simply missed that boat due to greater opportunities domestically.
I would describe the general impact of the global financial crisis in Brazil as "Look, it's raining outside. I'm glad I'm here inside where it is toasty and dry."
Completely mis-placed argument, although an interesting data point. Janet Yellen is fighting a massive PR battle to win the fed job. This article is clearly a PR plant, its obvious because there is no discussion or culpability attributed to Clinton or the Democratic party or other operatives (president directly is responsible for the WTO via the executive). The co-incidental exclusion of the predisent and the treasury secretary (presumably to protect Ms Clinton's 2016 political position) is the hallmark of a pro, not a reporter. What kind of PR uses vice.com to support a candidate for the FED?
>Second, the banks wanted the right to play a new high-risk game: “derivatives trading”. JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as “assets”.
1. Derivatives trading wasn't new; they've been traded for a long time. And derivatives aren't inherently risky or evil. There's nothing mystical about them.
2. $88 trillion in notional value. Derivatives deals should net to zero.
>payments have raised Summers’ net worth by $31 million since the “end-game” memo.
How much did "payments" increase Mark Pincus' net worth as he sold stock at inflated prices while his employees couldn't, and billions in wealth was destroyed by Zynga (as a familiar analogy)?
"1. Derivatives trading wasn't new; they've been traded for a long time. And derivatives aren't inherently risky or evil. There's nothing mystical about them.
2. $88 trillion in notional value. Derivatives deals should net to zero."
As long as a reasonable amount of derivatives are created for the purposes of "legitimate hedging activities" (whatever that means) then that may indeed be the case.
However, as you create more and more derivatives ... as the value and volume of the derivatives increases beyond the value and volume of the underlying securities, they begin to distort the value and prices of the underlying securities. In the real world, where they affect real people.
The more you distort those underlying values and prices, the more violent the snapback is.
You may indeed be able to tie up the derivatives ecosystem into a tidy little box in theory, but real people get hurt when derivatives distort underlying prices. AIG and credit default swaps is a perfect (and very recent) example.
>they begin to distort the value and prices of the underlying securities. In the real world
I disagree. I don't believe the problem was price distortion. Instead, it was caused by there being no means of seeing counter-parties to most of these transactions, and hence no way to measure (and hedge) the risk.
If I'm going into a deal with AIG, I have no way of knowing what other deals AIG had done, and hence no way to put an accurate price on their default risk.
If there was a "derivative" clearing house, most of the problems go away.
How something like a credit default swap net to zero? If I sell you one, I create a new instrument which has a stream of income (so it can be valued theoretically). But if the securitIes that are insured against are to opaque to be valued, there is now unknown potential liability.
As it happened with AIG, they had a situation where those liabilities became real, and to large to honor. It was as if they created this huge debt from thin air, with not enough collateral.
I guess in a sense since their loss was supposed to be Goldman Sachs gain, there is a netting to zero, but that seems semantic.
In would think of netting to zero as meaning something like a zero sum gameve where no participant can win or lose more money that existed.
Why is it that after uncovering regulatory capture, people think the answer is to hire someone else? Larry Summers isn't the problem... his position is.
I think of regulation as a constant negotiation between the regulators and the regulated industry. By putting measures in place to bar those with industry experience from working at the regulators you are decreasing the information available to the regulators.
The decrease in information directly decreases the regulators negotiating power, leading to greater regulatory capture.
Would this be more than regulatory capture caused by the revolving door? I don't know - but it does swing both ways.
Define 'the best'. I'd argue that if the revolving door between industry and the public sector was closed, the government really would get 'the best' - people who actually cared about serving the public interest.
Well intentioned people if incompetent at worst accomplish nothing and if competent do great things. However, ill-intentioned people if incompetent accomplish nothing and if competent can do massive amounts of irreversible damage.
