Citibank has created a derivative that pays out when there is a financial crisis. It appears as though the banking industry math nerds have taken their bonuses, bought a great deal of pot and decided to go back to cooking up insane ways to make SHORT TERM profit. This new derivative is essentially an insurance policy against a financial collapse. There are several problems with this, most of which the article points out. Mainly, if you purchase this derivative, you have to bet that the bank issuing it will have the money to pay you off in the event of a collapse. And the only way banks survived during the last collapse was with TARP.
This is nothing new. It is eerily resemblant of the infamous credit default swaps, which investors used to insure mortgage securities. The main insurer was AIG. Then when the housing market collapsed, investors began calling in their "insurance policies," but AIG had no reserves to back it up. The steady stream of income that the swaps provided was gone and taxpayers became the default insurer.
This is partly why banks should be taxed at high rates now...while they still have money. So at least next time the government decides to fund their idiocy, it can at least pay banks with their own money.
From: The Baseline Scenario
The most interesting response:
4. When you ask if “homosexuals” should be allowed to serve in the military (page 24), people are in favor 59-29. When you ask about “gay men and lesbians,” you get 70-19. (If you follow up by asking about serving “openly,” the margin falls to 44-41 and 58-28, respectively.) Words matter.
Could it be that 10-11% percent of individuals don't know the definition of homosexual?
From: Mike Konczal's blog: RortyBomb
A member of the Board of Governors of the Federal Reserve System has proposed that information for investors about financial institutions should be "understandable and readily comparable among peers." What Konzcal points out is that this is an idea that was abruptly removed from the financial reform bill... except the idea was to provide consumers with "vanilla options" for credit cards, insurance policies, and bank accounts.
The idea is that without understandable and comparable information, people make irrational choices. For example, "overdraft protection" is thrown into most checking accounts these days even though many people would be better off without it. I had a personal example of this with Chase, which was charging me $12 a month to monitor a $400 credit line for my "security." It took me an hour on the phone to explain to a representative why I didn't need this over-priced insurance policy. He didn't seem to understand exactly what it was he was selling. It is comparable to paying $750/month for the legal minimum of $25,000 in auto insurance.
A strategy that focused on promoting vanilla options would force banks to provide a basic checking, savings, or credit accounts. Then let consumers choose which of the add-ons they need.
4. Second Stupidest Thing I have Read Today: The academic quality of the Council of Economic Advisors
From: Super Economy Blog
Ok... I know its a bit odd that this is coming from a blog which provides a Kurdish-Sweedish perspective on the American economy, but that is not why this is one of the stupidest things I have read today. I ended up here because Greg Mankiw (the former CEA Chair under George W. Bush, and current professor at Harvard) was offended that the Obama Administration's current CEA Chair said that she has the best staff since the 1960s. This then began a data collection spree to determine whose staff had more citations in economic journals. And the winner is... neither of you. The lesson is that economics pissing contests between two of the smartest economists in the world is almost as useless as a Sean Hanity in-depth report.
No comments:
Post a Comment