September 26, 2006
From the desk of Jane Galt:It's not all bad news, you know
Bryan Caplan says economists are too pessimistic. [Insert mandatory joke about economists predicting "9 of the last 5 recessions" here.] But Brad Delong's found at least one silver lining on the gathering clouds:
Just after New York Fed President Tim Geithner gives a speech about systemic risk and hedge funds, Amaranth blows up following a trading strategy that either had no method at all to it or was a failed attempt to corner next spring's natural gas market.Yet there is not a sign of disturbance to the markets. Amaranth's investors have lost what is now said to be $6 billion. Some other people have the $6 billion--if they can, in turn, unwind their positions. But the system cruises on with no worries about liquidity or solvency and no changes in risk premiums.
Reassuring, I think.
All together now!
"Just what makes that little old Ant
Thing he'll move that rubber tree plant?
Anyone knows an ant
Can't
Move a rubber-tree plant
But he's got HIIIIIIIIIIIIIIIIIGH hopes . . . "
Posted by Jane Galt at September 26, 2006 12:56 PM | TrackBack | Technorati inbound links"); ?>Remind me again why it is so urgent that the SEC regulates hedge funds? Because we're all screwed if a big one goes belly-up? Scratch that theory, apparently. Goes the pro-regulation forces are going to have to come up with another excuse for more regulation.
Posted by: Al on September 26, 2006 3:04 PM"Remind me again why it is so urgent that the SEC regulates hedge funds?"
My theory is that SEC regulation is not about making investing safer or more profitable. It's about increasing volume and liquidity by encouraging people to *feel* safer and like they have a chance to make more of a profit by investing.
SEC regulation doesn't benefit investors; it benefits those who want more people investing in more risky investments, by making said risky investments *seem* safer. It also persuades those market participants who get scared by things like Enron to stay in the market because things have "changed" since then.
Posted by: Phil on September 26, 2006 4:06 PM"SEC regulation doesn't benefit investors; it benefits those who want more people investing in more risky investments, by making said risky investments *seem* safer. It also persuades those market participants who get scared by things like Enron to stay in the market because things have "changed" since then."
As with FDIC, SPIC, PBGC, FHLBB, et al., etc. ad infinitum.
Good Point, Phil.
Posted by: Mark E Hoffer on September 26, 2006 8:20 PMIf they are unable to unwind these positions, does the $6 billion then cease to exist?
Posted by: triticale on September 26, 2006 8:30 PM
Mark E. Hoffer wrote:
As with FDIC, SPIC, PBGC, FHLBB, et al., etc., ad infinitum.
In one of Harry Browne's books over 20 years ago, he discussed the FDIC, that majestic bank "insurance" plan. Noting that most of the protection seemed to consist of the decal on the bank window and special drawing rights on the US Treasury, he asked his attorney how much he'd be likely to get if he set up his own version of the FDIC.
"About twenty years" was the reply IIRC...
Posted by: ellipsis on September 26, 2006 10:30 PMHas the FDIC ever had to draw upon general Treasury funds, as opposed to its "insurance" reserves, to support payouts to depositors for a failed bank?
Posted by: Tom T. on September 28, 2006 12:37 AMThere was the Savings and Loan bailout in the mid-1980s. Was that FDIC or FSLIC?
Posted by: Ann on September 28, 2006 8:56 AMellipsis,
What's your point?
btw, SPIC, should be SIPC..
Posted by: Mark E Hoffer on September 28, 2006 10:02 AMAnn and Tom T.
See the answers to your Q(s) in the sordid History of the RTC (keyword:Resolution Trust Corp.), for starters...http://insurance.cch.com/Rupps/resolution-trust-corporation.htm
RTC sucked up, what was then the FSLIC in '89...
Posted by: Mark E Hoffer on September 28, 2006 10:09 AMMark E. Hoffer asked:
ellipsis,
What's your point?
Gee, I thought it was obvious. The FDIC "insurance" program is something that, if done by a private individual, would lead to jail time. Just as people who run "airplane programs" that bear an astounding resemblance to Social Security also go to jail. That annoys me.
Posted by: ellipsis on October 2, 2006 10:18 PMComments are Closed.