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Old Jan 24th, 2012, 12:32 PM   #265
Martinghoul
 
 
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Quote from Ed Breen:
Mghoul, you get to the crux of it when you ask rhetorically if U.S. treasuries are worth anything. The point about assets is that they underpin all debt, which includes the currency we use. If we do not believe that the assets are valuable or that they will not remain valuable then we must reassess all of our assumptions about credit. Remember that both the credit and the collateral asset are 'assets' depending on which side of the loan you are standing at. If the collateral declines in value then the credit asset declines in value. This is not an argument that you cannot therefor lend...that is another straw man that you make up...out of fear that assset prices might decline. Instead it shows that we need to understand why and when asset values decline. Here we should go back and engage the question of why U.S. treasuries have value...why do you think they have value?
Well, I have some sympathy with this view... We should all understand the risks that are naturally found arnd us. However, my general principle in life is that everything is good in moderation. Being aware of risk and understanding what financial assets represent is a good thing. Total paralysis because no asset value is known with certainty in advance is a very bad thing. Uncertainty is a basic fact of life. If you're stupid, it will kill you. If you're not stupid, you can navigate. Therefore, let's not stop everything we're doing, just 'cause there's uncertainty. That's all I'm saying.

As to why treasuries have value, well, there's lots of theories. I have heard one novel theory that they have value, 'cause the US has 21 aircraft carriers. In seriousness, treasuries have value, because they're, in effect, indirect claims on a) US economic activity; b) world's economic activity, through the US global presence. Is that an answer that you're happy with?
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Old Jan 24th, 2012, 12:34 PM   #266
Martinghoul
 
 
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Quote from trefoil:
None of which is what brought down MF Global. Their business model was obsolete. Someone there decided, at the very end, to try what in American football is called a "Hail Mary pass" to try and save the poor thing. Didn't work.
In other words, this may (and it has yet to be proven) have contributed to the actual timing of their downfall. Maybe. But MF Global had big big problems that predated this, and predated Corzine.
I believe that is part of what martinghoul has been trying to point out. None of us really knows what actually happened there, but if the euro sovereign debt crisis was any part of it at all, it was only as a contributing factor at the end.
Kind of like burning a piece of rotten wood. If it hadn't been burned it might have just finished rotting and become a part of the topsoil. Burning it just speeds that up a bit.
Yes, this is pretty much my understanding as well... As I have mentioned on another thread, Corzine and MFG decided to, effectively, put it all on black in a variety of mkts. Problem was that the bets were correlated and, taken together, 100% lethal.
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Old Jan 24th, 2012, 01:06 PM   #267
trefoil
 
 
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Quote:
Quote from Martinghoul:



As to why treasuries have value, well, there's lots of theories. I have heard one novel theory that they have value, 'cause the US has 21 aircraft carriers. In seriousness, treasuries have value, because they're, in effect, indirect claims on a) US economic activity; b) world's economic activity, through the US global presence. Is that an answer that you're happy with?
The very simple answer is that the Fed's Flow of Funds data shows around 37.8 tril of credit outstanding against assets of around 100 tril.
The US is quite solvent; the only outstanding issue is, as it always has been, the politics of paying off the USG's portion of that 37.8 tril.
I would have put the answer to this idiotic question a lot less delicately, given that the answer to that question is a short Google away, but then that's why sane posters like you exist.
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Old Jan 24th, 2012, 01:15 PM   #268
Ed Breen
 
 
Join Date: Jan 2010
Location: Far Hills, NJ
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Mghoul, I don't think anyone was suggesting that uncertainty about asset value should or does cause markets or individual economic actors to 'freeze.' Myself, with apology to Alan Watts, I see 'The wisdom of insecurity.' I think a condition of uncertainty within certain standard deviations is the normal context in which we live and invest.

Having said that, I still think we need to look at the basis of present value in our collateral assets. I think I have written here before, that current value is entirely dependent upon future expectations....of course these expectations take place in a context of uncertainty, but it is the level of uncertainty about the future that we use to discount our expectations. In a route financial sense collateral assets are valued by their expected future income discounted to present based up a cap rate assumption that accounts for the risk that future income will in fact be realized. That discount of future uncertainty in the realization of profit has a tremendous impace on the present value of assets. We see this impact on equities every earning season...the current value of Apple shares will change tomorrow as we update our view of Apple's future prospects based on what they report tonight.

In a different asset class we appraise the purchase of house now based on its after tax cost today, the likelihood of mortgage rate increase in the future, property tax increase in the future and whether we think housing values will appreciate or continue to depreciate.

Right now we deeply discount future appreciation prospects in retail housing in most locations....so the collateral is not worth what it once was. In sovereign debt its the same thing...do you think Greek will pay even its written down debt in the future? Do you think the U.S. will pay its sovereign debt in the future? What assets and attributes that accrue to Greece go into your discount of whethere they will pay thier debts....what assets and attributes contrast in the U.S. or Germany make you discount their future differently?

I do like your answer about why we think U.S. treasuries have value. I just look at it at more in terms of the present is a result of what we think about the future.
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Old Jan 24th, 2012, 05:39 PM   #269
Martinghoul
 
 
Join Date: Jan 2009
Location: London
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Quote:
Quote from Ed Breen:
Mghoul, I don't think anyone was suggesting that uncertainty about asset value should or does cause markets or individual economic actors to 'freeze.' Myself, with apology to Alan Watts, I see 'The wisdom of insecurity.' I think a condition of uncertainty within certain standard deviations is the normal context in which we live and invest.

Having said that, I still think we need to look at the basis of present value in our collateral assets. I think I have written here before, that current value is entirely dependent upon future expectations....of course these expectations take place in a context of uncertainty, but it is the level of uncertainty about the future that we use to discount our expectations. In a route financial sense collateral assets are valued by their expected future income discounted to present based up a cap rate assumption that accounts for the risk that future income will in fact be realized. That discount of future uncertainty in the realization of profit has a tremendous impace on the present value of assets. We see this impact on equities every earning season...the current value of Apple shares will change tomorrow as we update our view of Apple's future prospects based on what they report tonight.

In a different asset class we appraise the purchase of house now based on its after tax cost today, the likelihood of mortgage rate increase in the future, property tax increase in the future and whether we think housing values will appreciate or continue to depreciate.

Right now we deeply discount future appreciation prospects in retail housing in most locations....so the collateral is not worth what it once was. In sovereign debt its the same thing...do you think Greek will pay even its written down debt in the future? Do you think the U.S. will pay its sovereign debt in the future? What assets and attributes that accrue to Greece go into your discount of whethere they will pay thier debts....what assets and attributes contrast in the U.S. or Germany make you discount their future differently?

I do like your answer about why we think U.S. treasuries have value. I just look at it at more in terms of the present is a result of what we think about the future.
Sure, I 100% agree with everything you have said above... In general, my view is that the markets (of all sorts) represent, currently and as of now, the best methodology we humans have to discover and establish value in a world of uncertainty. Sure, this methodology has a whole variety of flaws, but I would suggest that, over a medium- to long-term horizon, on balance, it's pretty good. IMHO, that is one of the main reasons why markets are useful.

As to your questions. Will the Greeks pay their debts, restructured or otherwise? I have no idea. I consciously choose not to participate in this particular mkt. Off the top of my head, I don't think it's a foregone conclusion that they don't. Will the US pay its sov debt in the future? I'd say it will, with a very high probability (which is what the mkt is pricing). The factors that matter in the comparison are many. One of the more important ones is the ability to print your own ccy and the current deficit/debt to GDP, as well as the overall resilience and competitiveness of the economy.
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Old Feb 22nd, 2012, 03:14 PM   #270
TGregg
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It's being called the "negative salary": Due to austerity measures in Greece, it's being reported that up to 64,000 Greeks will go without pay this month, and some will have to pay for having a job. Numbers in austerity reports have usually reflected figures in the millions, since they reflect industry-wide cuts (i.e. a 537-million euro cut to health and pension funds). And plans of cutting minimum wage by up to 32% is all but a given in the country. Today's "negative salary" deal—which could have government employees returning funds— reveals the real human impact of the austerity measures.
Quote:
Salary cutbacks (called "unified payroll") for contract workers at the public sector set to be finalized today. Cuts to be valid retroactively since november 2011. Expected result: Up to 64.000 people will work without salary this month, or even be asked to return money. Amongst them 21.000 teachers, 13.000 municipal employees and 30.000 civil servants.
http://news.yahoo.com/greeks-might-p...152039441.html
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