MetaFilter posts tagged with debt and finance

Nails Goes to Wall Street

reenum — Tue, 27 Oct 2009 10:54:21 -0800

Lenny Dykstra was lauded for his heroics with the Mets and Philles. After his career, Dykstra became well-known as a post-career athlete success story. Then the truth started coming out... Dykstra's post career exploits included making stock picks and starting a high end magazine targeted towards athletes. Then, in April of this year, it all came crashing down. In separate articles from GQ and ESPN, Dykstra's financial empire was revealed to be a house of cards. Dykstra subsequently filed bankruptcy in July. For a copy of Lenny's petition, you can go here (Warning: This link is a PDF). Lenny only sees these events as a minor speedbump, and promises to be back on top in no time.

free as in beer money

kliuless — Fri, 25 Sep 2009 03:33:40 -0800

Illustrating the cause of, and solution to, too much debt: *ahem*

In a sleepy European holiday resort town in a depressed economy and therefore no visitors, there is great excitement when a wealthy Russian guest appears in the local hotel reception, announces that he intends to stay for an extended period and places a €100 note on the counter as surety while he demands to be shown the available rooms. While he is being shown the room, the hotelier takes the €100 note round to his butcher, who is pressing for payment. The butcher in turn pays his wholesaler who, in turn, pays his farmer supplier. The farmer takes the note round to his favourite “good time girl” to whom he owes €100 for services rendered. She, in turn, rushes round to the hotel to settle her bill for rooms provided on credit. In the meantime, the Russian returns to the lobby, announces that no rooms are satisfactory, takes back his €100 note and leaves, never to be seen again. No new money has been introduced into the local economy, but everyone’s debts have been settled.

which leads us to The Future of Global Finance by liaquat ahamed:

It has long been recognized that the global financial structure — built as it is around the dollar as the world’s reserve currency — has a fundamental design flaw that makes it inherently unstable. The problem was first identified back in the early 1960s by the Belgian-American economist Robert Triffin, in “Gold and the Dollar Crisis.” Writing about Europe’s accumulation of dollars, he argued that the system carried the seeds of its own destruction. Foreigners could acquire dollars only if the United States ran current account deficits — that is, spent more than it earned. But lending money to someone who lives beyond his means has obvious dangers, and the same is true of countries. Thus, the American deficits necessary to supply dollars to the world for international transactions simultaneously undermined confidence in the currency. It was only a matter of time, Triffin predicted, before the system would be hit by a crisis...

note this isn't about the crisis just past so much as it is the perpetuation of a system -- prone to boom and bust -- requiring ever greater ~~innovation~~ swathes of the world's population going into debt (servitude). as bsetser writes: "borrowing by U.S. households cannot be the main source of global demand growth in the future." it just so happens that it was borrowed in a currency that the federal reserve can print and that the rest of the world has bought into (predicated implicitly upon future productivity...) so i've been reading God and Gold by walter russell mead [a favourite of SDB] and was struck by the passages on the legacy of the bank of england:

Britain fought a series of wars with France for a century and a quarter. France was a far larger and wealthier foe - the strongest power on the continent. The conflicts repeatedly left France financially exhausted and bankrupt. Britain's debts mounted astronomically as we have seen, but Britain went from one peak of economic and financial strength to ever higher peaks after each conflict. The secret financial weapon was public credit and the Bank of England which managed the debt. A million pounds were borrowed in 1692 to fight the French. By the time Louis XIV died, the debt was over 50£ million. The War of the Austrian Succession pushed the debt to 140£ million. It was almost 250£ million by the end of the wars that included the American Revolution, and 800£ million by the time Napoleon was safely ensconced on St. Helena. These were HUGE sums. They have been calculated as 222% of GDP after the American Revolution, and 268% of GDP at their peak in 1822. Mead explains how the Bank helped finance these wars. It sold government bonds that became assets in private hands and facilitated the development of the financial system that aided commerce. Influential people came to rely on government bonds and Bank notes and Bank shares for income and liquid wealth. The nation's civil and business leaders thus quickly had a stake in the success of the new monarch, William III, who had recently chased James II from the throne. "Government debt, historically a source of weakness, had been transformed into an instrument of strength." Alexander Hamilton copied the English financial system, and the young United States enjoyed similar financial and economic success.

now, not everyone was happy, but it's worked more or less over the centuries and, depending on how you're counting, we're apparently on version 3.0 (BW2 edition) of central bank mediated finance. yet while obama seems unable to, as schama puts it, "make – as American history yearns for him to do – money moral again," perhaps mead is on to something when he concludes that...

Lula is right: the global crisis emerged from a system built, with all its many flaws, by blue-eyed palefaces. But if countries like Brazil can stick with their own versions of Dutch finance, the future of the system will increasingly be shaped by people who look more like Lula—and the palefaces are going to have to run hard to keep up.

afterall, as lula sez, "when my presidency ends, I will go back to my home industrial city town, 800 meters from my local trade union that projected me my political life. And if I fail, when I go back to my hometown, it's going to take another century for another worker, another member of the working class to reach the presidency, because they're going to say that the workers do not have the competency to run a country."

The bubble to end all bubbles?

up in the old hotel — Mon, 05 Jan 2009 16:29:40 -0800

The cover of a major financial publication warns: If you're holding U.S. Treasuries, GET OUT NOW! As has been noted previously, investors have headed for the financial equivalent of a bomb shelter -- U.S. Treasury bills and notes -- triggering an epic rise in prices and pushing yields (which move inversely to prices) to zero. Now, with a weakening dollar and gold prices holding steady, some see Treasuries as a bubble that's about to pop. Who will apply the pinprick?

Will it be Japan, which holds half a trillion of our debt? The president of a Japanese credit rating agency says the land of the rising sun should write off its holdings of U.S. Treasuries or start building U.S. roads and bridges in what he sees as Marshall Plan II.

Japan's holdings of U.S. debt is second only to China's, which has announced plans to build its way out of economic collapse. Analysts worry that it may dump its massive stockpile of U.S. debt to pay for it.

Another ominous sign: the price of an index funds that shorts (bets against) long-term Treasuries is on the way up.

If the bears are right and this bubble pops, it could be really bad:

Because foreign holdings represent a significant proportion of the stock of Treasuries outstanding, a collapse in Treasuries prices might soon be reflected in a collapse of the US dollar, with the accompanying threat of hyper-inflation in the USA and depression elsewhere. At that point, many investors might wish they still enjoyed the comparative calm of the ‘credit crunch’.

Via the FT's excellent Alphaville blog.

sovereign risk and the current economy

bystander — Mon, 03 Nov 2008 04:37:30 -0800

Another economic post. With the debt and equity markets in a comparative calm, a lot of people are asking what next? One area little examined is the idea of sovereign risk. Basically, those with the armies make to rules, and you don't want to be invested there when they change the rules,. The USA has been the power behind globalisation for over half a century, enforcing the rules of the marketplace we have grown to accept. Some are questioning whether it can maintain this position. Many countries have used their power to set the law to default on external debt, or in some cases, nationalise external investments. It is the last resort when your economy is in trouble, and a growing number of people see it on the cards for the USA (admittedly, with not much credibility). But who will be next?

Zeitgeist: Addendum

Baldons — Tue, 07 Oct 2008 16:40:49 -0800

We already talked (self-link, sorta) about Zeitgeist: The Movie. Its author, Peter Joseph, recently released Zeitgeist: Addendum. (beware: last two links are two hour movies) This time, it’s about money and debt, scarcity and resources. The first, financial part may look like an extended Ron Paul ad, but then there’s a sudden turn towards resource-based utopian techno-communalism, and an endorsement for The Venus project. It seems to me like "Kropotkinian anarchism meets The Matrix". In these rough times, is it time for a big leap? [Also announced: The Zeitgeist Movement, still not active]

It's the end of the world as we know it... lalala

blahblah — Sat, 16 Aug 2008 23:23:38 -0800

Upclose and personal on the man, Nouriel Roubini, who predicted the subprime crisis. Apparently we're in for a long long haul out of this mess. Oh, and it may be the end of America (reg req'd) as we know it. His blog.

But if the vaults are empty, what will Scrooge McDuck swim in?

Asparagirl — Tue, 29 Jan 2008 20:58:40 -0800

According to the latest biweekly numbers released last Thursday by the Federal Reserve, for the two weeks that ended January 16th American banks had negative $1.3 billion in non-borrowed reserves. This is, historically, extremely unusual; just two months ago they had $30 billion (positive, of course) in non-borrowed reserves. The only reason some banks haven't been shut due to insufficient -- negative! -- reserve requirements is that the Federal Reserve is currently loaning them enough money through the brand new TAF (Term Auction Facility) program (also running in Canada and Europe) to make up their shortfalls. Today's TAF press release says that 52 American banks or institutions are currently receiving loans totaling ~$40 billion -- but the Fed refuses to name who they are. The banks' collateral for these TAF loans are those same yucky hard-to-price CDO's that caused the banks' liquidity problems in the first place -- and the Fed is purposely using outdated prices for the collateral to prevent their being marked-to-market and thus collapsing CDO prices and freezing matters even further. Not surprisingly, some economists see the creation of the TAF as a backdoor bailout of banks in trouble. But how much longer can this go on? [via] Coincidentally (one hopes), the banking system in the virtual online world Second Life has just collapsed following a run on their banks due to inappropriate valuations and bad counterparty risk, wiping out many players' real-world investments...

Minsky Meltdown ahead?

umop-apisdn — Wed, 29 Aug 2007 08:56:28 -0800

Minsky Meltdown ahead? Named after Hyman Minsky, an economist who was known for his research concerning financial crises, specifically asset bubbles based on credit cycles. [much more inside]

New Twist on the Credit Card Game

storybored — Sun, 10 Dec 2006 19:20:25 -0800

How can a credit card company fool you? Let me count the ways. When Brad Kehn received his first credit card from Capital One Financial in 2004, it took him only three months to exceed its $300 credit limit and get socked with a $35 over-limit fee. But what surprised the Plankinton, S.D., resident more was that Cap One then offered him another card, even though he was over the limit -- and then another and another.

Peronal finances, or how I learned to stop worrying and invest in a 401k

knave — Tue, 01 Aug 2006 10:35:32 -0800

Get Rich Slowly, a personal finance web site (created by our jdroth), has been educational to someone who spent most of his life until now pretending financial matters don't exist. His blog is updated frequently, and contains insightful tips on living frugally, eliminating debt, saving and investing. Between his site, and another very educational site entitled I Will Teach You To Be Rich (start here), I've greatly expanded my knowledge about managing my money effectively. Perhaps most importantly, they're both consistently interesting and easy reads. [more inside]

IOU 2.0

runkelfinker — Mon, 23 Jan 2006 09:25:15 -0800

BillMonk is a new way of tracking informal debts with your friends. Web 2.0 nonsense or a viable solution to those awkward 13-way restaurant bills? Not to be confused with Zopa, another social money project...

Financial sensibility... in America? Wow!

zoogleplex — Mon, 25 Apr 2005 16:16:03 -0800

This is not science fiction. It's really happening. (Links to Slate article) Apparently contrary to expectations, Americans seem to be exercising financial sense and paying down their credit card debt. Well, how about that! :) Anyone else here doing this?

Export Credit Agencies--The Secret Engine of Globalization

faux ami — Fri, 26 Nov 2004 12:16:01 -0800

Worse Than the World Bank? Export Credit Agencies--The Secret Engine of Globalization The amount of investment that export credit agencies (ECA) support worldwide is significantly greater than the total amount of lending from the World Bank, IMF and all other multilateral institutions combined. ECA's account for the single biggest component of developing country debt and half of all new greenhouse gas-emitting industrial projects in developing countries have some sort of ECA support. Investments in places like Guatemala, South Africa, Pakistan, Chile [PDF], have had unacceptable social, environmental and economic consequences. Administered or backed by a g o v e r n m e n t, an ECA uses taxpayer money to make it cheaper and less risky for domestic corporations to export or invest overseas. ECAs privatize the profit and socialize the risk while negatively impacting indigenous cultures and enironments, all with little or no governmental oversight or public awareness of the matter. So what can we do about it? [PDF]

aaron — Thu, 01 Mar 2001 22:07:35 -0800

The House has passed the bankruptcy reform bill that Clinton vetoed at the end of the last session. I'm mildly optimistic that it won't pass the Senate, given that the Democratic vote in the House was split. But should we be worried at all? At first glance, it doesn't seem like a bad idea. But so many consumer groups are against it, and it seems to benefit credit card companies while hurting individuals, so I'm inclined to think we should leave things as-is. Especially since personal bankruptcies are down and credit card issuers' profits are up. Anyone know more about this?