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LegendKiller
 
Quote:
Originally Posted by Zangmonkey View Post
I'm not sure you know what you're talking about.

Monetary inflation decreases the value of dollar. Banks grant loans in dollars denominated at the time of the loan.
When the banks grant a loan at a particular interest rate, they are depending on on the inflation rate staying a certain amount less than their loan interest rate over the course of the loan.
The money is worth less when the banks get it back than when they first gave it up. The difference has to account for paying for their overhead and expenses.

So in part, our banking waviness is due to loans at low interest rates followed by high inflation thus not allowing banks to recoup all of their costs.
Add to this the mortgage problem and some poor leadership and we're almost all the way to where we are now.

I think what you're trying to say is that interest rates have a few components.

1. Inflation.

2. Risk free spread (Usually not much above inflation)

3. credit spread

The credit spread is composed of borrowing costs, cost of running the business, plus the return required by businesses for the risk taken. If the risk taken is high, then the credit spread will be higher.

Naturally, the credit spread also includes returns, overall, compensating for defaults (the risk). The problem isn't one of inflation, it is one of defaults. Higher defaults = lower money made. Even higher defaults = writedowns as your principal *AND* interest is reduced.

You're way too focused on inflation and don't know jack shit about bond math, or securitization, but pretend to, while espousing the wrong ideas.

Do the internet a favor, stop acting like an authority.
Old 09-17-2008, 05:33 PM LegendKiller is offline  
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Zangmonkey
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Quote:
Originally Posted by LegendKiller View Post
I think what you're trying to say is that interest rates have a few components.

1. Inflation.

2. Risk free spread (Usually not much above inflation)

3. credit spread

The credit spread is composed of borrowing costs, cost of running the business, plus the return required by businesses for the risk taken. If the risk taken is high, then the credit spread will be higher.

Naturally, the credit spread also includes returns, overall, compensating for defaults (the risk). The problem isn't one of inflation, it is one of defaults. Higher defaults = lower money made. Even higher defaults = writedowns as your principal *AND* interest is reduced.

You're way too focused on inflation and don't know jack shit about bond math, or securitization, but pretend to, while espousing the wrong ideas.

Do the internet a favor, stop acting like an authority.

Thanks for the extended detail. I didn't need to go into credit spread to make my point.
His claim was that inflation should be about equal to the interest rate. That simply isn't true.
But you're denying facts to claim that higher inflation during economic slowdowns isn't a significant problem to lenders.

EDIT: And the dropping discount rate is only a band-aid
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Old 09-17-2008, 06:50 PM Zangmonkey is offline  
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LegendKiller
 
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Originally Posted by Zangmonkey View Post
Thanks for the extended detail. I didn't need to go into credit spread to make my point.
His claim was that inflation should be about equal to the interest rate. That simply isn't true.
But you're denying facts to claim that higher inflation during economic slowdowns isn't a significant problem to lenders.

It may be a problem, as it erodes their interest rate, but it isn't the problem that's affecting them now.
Old 09-17-2008, 06:54 PM LegendKiller is offline  
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Zangmonkey
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Originally Posted by LegendKiller View Post
It may be a problem, as it erodes their interest rate, but it isn't the problem that's affecting them now.

Sure it is, it's a fair part of the problem. Espescially for firms with American holdings versus foreign investors.

I never said it was the entire problem, hence where I said:
"Add to this the mortgage problem and some poor leadership and we're almost all the way to where we are now."
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Old 09-17-2008, 06:56 PM Zangmonkey is offline  
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Malakai
 
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The government is not bailing out Lehman Brothers. Undoubtedly though, they will bail out AIG. The repercussions of letting AIG flounder and eventually fail would be enormous.

The reason Lehman Brothers did not receive financial support from the government while Bear Stearns did, is simply a matter of size. Bear Stearns was hugely ingrained in our financial system, while Lehman Brothers is a small(relatively) company.

Edit: http://online.wsj.com/article/SB122165238916347677.html AIG is being taken over. Similar to Freddie Mac and Fannie Mae.

I wonder what they are going to do about Washington Mutual. Can they take over a savings & loan? I wonder what kind of money FDIC would need to come up with to cover WaMu, there are like 8 of them just in my county =O

LK and Zang, what do you guys do? You seem to know more about the details of the system than most =)

Gold went up like 90 bucks an oz today. Dude I work for picked up some more with europac yesterday after me nagging about it. Pretty nice timing

Last edited by Malakai; 09-17-2008 at 09:22 PM..
Old 09-17-2008, 09:15 PM Malakai is offline  
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Zangmonkey
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Quote:
Originally Posted by Malakai View Post
I wonder what they are going to do about Washington Mutual. Can they take over a savings & loan? I wonder what kind of money FDIC would need to come up with to cover WaMu, there are like 8 of them just in my county =O

LK and Zang, what do you guys do? You seem to know more about the details of the system than most =)

Gold went up like 90 bucks an oz today. Dude I work for picked up some more with europac yesterday after me nagging about it. Pretty nice timing


I'm going to grad school for economics, but I've picked most things up from working on a small hedge fund.
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Old 09-18-2008, 12:45 AM Zangmonkey is offline  
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Doctor Octagon
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Yep, time to close up shop and get yourself bailed out (yes, you do get to keep your multi-million dollar pension Mr. CEO) before the next administration clamps down on this type of thing. Thank you, Mr. Taxpayer.

 lol big business conspiracy 
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Old 09-18-2008, 02:19 AM Doctor Octagon is offline  
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LegendKiller
 
Quote:
Originally Posted by Zangmonkey View Post
Sure it is, it's a fair part of the problem. Espescially for firms with American holdings versus foreign investors.

I never said it was the entire problem, hence where I said:
"Add to this the mortgage problem and some poor leadership and we're almost all the way to where we are now."

No, it isn't. Inflation could be 0% and this problem would happen. It could be 0% for the next 100 years and this problem would happen.

You can't clog the system up with shit mortgages, which will eventually default, and expect them to NOT default. The scheme had to end and the shit mortgages had to be flushed out.

Me? I work at an investment bank doing securitization conduit originating (nothing to do with mortgages). Prior to that I worked at a major credit card issuer, working to secure them billions in securitization financing. Prior to that I worked for a timeshare company doing securitization. I have my MBA and my CFA charter.
Old 09-18-2008, 04:24 AM LegendKiller is offline  
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Straw Man
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Quote:
Originally Posted by LegendKiller View Post
No, it isn't. Inflation could be 0% and this problem would happen. It could be 0% for the next 100 years and this problem would happen.

You can't clog the system up with shit mortgages, which will eventually default, and expect them to NOT default. The scheme had to end and the shit mortgages had to be flushed out.

Me? I work at an investment bank doing securitization conduit originating (nothing to do with mortgages). Prior to that I worked at a major credit card issuer, working to secure them billions in securitization financing. Prior to that I worked for a timeshare company doing securitization. I have my MBA and my CFA charter.

You're lying. Obviously such a talented individual would settle only for the best:

teh guld standards!!!111
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Old 09-18-2008, 05:14 AM Straw Man is offline  
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red|dragon
 
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You're lying. Obviously such a talented individual would settle only for the best:

teh guld standards!!!111

You are a complete moron.
Old 09-18-2008, 05:51 AM red|dragon is offline  
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Straw Man
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Quote:
Originally Posted by red|dragon View Post
I'm gay
lololol yess u r!!11 dur durrrr
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Old 09-18-2008, 06:09 AM Straw Man is offline  
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