This is a discussion of the financial crisis and economics between Nassim Taleb and Daniel Kahneman on January 27 in Munich.
It is an important discussion for anyone looking beyond the surface into our current financial crisis.
There is a use of jargon and technical terms at some points but not overmuch. It is useful if you just listen, and obtain what you can, and do not fret over that for which you are not grounded by education or experience.
If what they say is valid, there are enormous implications for our financial system and economics as a profession.
The economists are sure to hate it, in particular the Americans who are enamored of equations and studies to a fault. There is a new school of Economics that will rise out of this financial crisis, as Keynesianism rose out of the 1930 and monetarism the 1970's.
If I had been there, I would have made a stronger point that people tend to use these equations, these irrelevant maps as it were, as 'excuses' or rationales for doing things which they know are wrong, but wish to do anyway because it is to their short term benefit.
Taleb is directionally correct about his prescription for the banking system and financial instruments. Banks, especially large ones, must be simple, transparent, stable to a fault. Hedge funds and speculation is another matter completely.
There was a wisdom in the limitations imposed by Glass-Steagall. More profound than most realize. And the bankers hated it because it limited their ability to game the system.
And this confirms that Bernanke and Geithner and Summers are taking us in entirely the wrong direction, and are going to make this crisis much worse.
You may wish to start this video about five minutes into this recording since it does not start with the show itself, but people being seated.
Taleb and Kahneman Video Discussion in Munich on January 27
03 March 2009
The Problem with the Banking System and the Failure of Economics
JP Morgan Made $5 Billion in Profit on $88 Trillion in Unregulated Derivatives Speculation
There is no justification for a commercial bank, with regulated depositors' funds insured by the government, should be speculating on a level this great.
One also has to wonder who actually 'lost' in those derivatives bets that JP Morgan made, who the counterparties were. How many losses were taken by AIG, Bear Stearns, and Lehman?
Who is really being bailed out here? Aren't we paying for JP Morgan's "winnings?"
If they speculate and lose, who pays for that? We do.
What is a bank doing gambling in unregulated over-the-counter derivatives involving commodities and financial instruments worth $89 Trillion?
Getting paid by the public whether they win or lose it appears.
When a single player with deep pockets and government guarantees is placing bets in markets on a scale that dwarfs the Gross Domestic Product of United States that is the very definition of moral hazard.
Until the Obama Administration takes strong steps to bring back Glass-Steagall, and put hard limits on the banks there will be no reform and no recovery.
We are 48 days into this Administration. We have see little or no systemic reform. Just a continuation of crony capitalism under Bernanke, Summers and Geithner.
Bloomberg
JPMorgan earns $5 billion derivatives profit
By Ratul Ray Chaudhuri in Bangalore
Tue Mar 3, 2009 2:56am EST
March 3 (Reuters) - JPMorgan Chase & Co generated $5 billion in profit during the worst year in Wall Street history by trading over-the-counter fixed-income derivatives, Bloomberg said, citing two people with knowledge of the results.
The bank, which reported $5.6 billion of total profit in 2008, has not disclosed earnings for its interest-rate swap, municipal bond and foreign exchange derivatives group, the agency said. The unit was among the most profitable at the New York-based company, it added.
The JPMorgan trading desk may have benefited as the collapse of Lehman Brothers Holdings Inc and JPMorgan's takeover of Bear Stearns Cos left companies and hedge funds with fewer trading partners in the private derivatives markets, the agency said.
Among commercial lenders, JP Morgan dominates OTC derivatives trading, the agency said, citing data compiled by the Office of the Comptroller of the Currency.
The bank held $87.7 trillion worth of outstanding OTC contracts as of Sept. 30, more than the next two banks, Bank of America Corp and Citigroup Inc, combined, the agency reported.
JPMorgan could not be immediately reached by Reuters for comment.
02 March 2009
SP Monthly Chart and Short Term Indicators
Big Support has been broken and the SP is dropping hard to the nearest support.
Market is becoming short term oversold again.
Non-farm payrolls coming out on Friday could provide a catalyst for a panic leg down. We may get a short covering squeeze before then.
Watch resistance and support on the daily and hourly charts.
Bullish Percent
McClellan Oscillator
Volatility Indicator (VIX)
