a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

*karl marx joek, plz keep up

c&p yr puzzling concepts and claims and phrases below and together we can doubtless balance the books! all yr 🚀 are belong to us!!

how many yards is a coat going for these days

I'll start by addressing the pinefox's question from the other thread:

For instance, I don't really know in what way a mortgage is an item that can be bought or sold. In fact the very idea of a mortgage is an idea that I struggle to hold in my head.

A mortgage loan is an agreement between a lender and a borrower, in which the the borrower receives $$$$$ upfront to purchase an asset, then pays off the debt in installments of $ until either the entire debt is paid, or they fail to make the scheduled payments and the lender takes possession of the asset.

From the standpoint of a lender (e.g. a bank), holding a mortgage means having some reasonable expectation that I will continue to receive $ in mortgage payments from the borrower at regular intervals. If I, a mortgage-holder, am in need of quick cash, I can sell this mortgage to someone else (e.g. a second bank) for some agreed-upon value which is based on the number of outstanding payments which remain and the likelihood that the borrower will be able to keep up with them.

Because the continued flow of $ to a mortgage holder is dependent upon the continued income of a single household, mortgages have not generally been thought of as especially secure, in comparison to government issued bonds and the like. What happened during the lead-up to the 2007-08 crisis is that some financial innovators convinced regulatory agencies that a bunch of say 100 mortgages bundled together represented a less-risky investment, because even if one defaults, the other 99 are still making their payments, so holding a 1% share of that pool of mortgages means I will continue to receive (0.99 x $) at regular intervals.

The holders of the mortgages (in many but not all cases, the banks that originally issued them) then sold shares of these pooled mortgages (aka "mortgage-backed securities") to pension funds and other investors that are not typically interested in holding risky assets like mortgages, because the regulatory agencies had rated them AAA, the safest possible kind of investment.

Thanks, poster snowy.

I think I have a problem with the idea of someone buying debt from someone else. It sounds like buying illness.

think of it like this pinefox:

— you borrow £10 from me, tell me you'll pay me back in two weeks
— two days later i realise i very urgently need a box of quality street but right this minute have no cash
— i see piedie gimbel walking by and borrow £10 from him
— instead of owing him i tell him (and later you) that he'll get it back from you in two weeks
— i buy my quality street and then give piedie some for helping me out in a pinch

piedie has bought your debt (with interest: a fistful of brightly wrapped chocolates)

If Pinefox runs short of cash and demands his £10 is returned by mark s before 2 weeks, there's a potential liquidity crisis.

Derivatives (where debt is bundled up) and traded as 'futures' and options', along with mechamisms like 'hedging' and 'leverage', are where it starts to gets complicated. John Lanchester (who ilx seems to hate) wrote some good articles on this in the LRB post 2008.

it's called a "potential liquidity crisis" bcz pinefox has found himself in a pub unable to buy a pint

also i lent him £10, let's not obfuscate that!

this is where the muddle starts

I like Mark S's story and am touched by its detail, but it lost me very quickly.

How would one 'go short' on Quality Street?

poster luna schlosser has i think correctly identified the point where confusion arrives (and the anxious sense of any inability to process further)

it's when quite ordinary exchanges (street exchanges if you like) are not only formalised, but at the same time supplied with generalising jargons (such as leverage, hedging, derivatives, futures, options, bundling) which render them mysterious. can all these jargons be translated back into street language?

leverage can for example: it's simply when you borrow money to fund a project that will at some point earn you more than enough to pay back what you borrowed

i don't agree with luna s abt lanchester but that's a different argument: i will allow that he largely understands what he's claiming to explain, but his skill seems much more to be convincing ppl that they get something that they haven't actually internalised at all (my copy of whoops! is slathered with review quotes excaliming how marvellously clear it all now is; i am absolutely willing to bet that nearly none of these reviewers would get acceptable marks in a snap quiz on the subject matter)

suppose at the moment i realised i needed my quality street (shop price £7) you poster ward fowler were walking past with a full new tin of same and sold it to me for £6 there and then: this is shorting

i mean more technically shorting is a mass practice = lots of traders selling something for less than its then-price appears to be, bcz they're betting this price will go down further -- eg to £5

this wd be a bad bet if it's just ward with one tin outside one shop

Mark S's statement about Lanchester seems supported by the fact that I read, closely, all those LRB articles, and still know nothing about any of it.

more technically still (lol): ward's short selling of the quality street is only the first stage of the short selling of quality street

even excluding the likely collective nature of the technical process, "shorting" as a practice is only really completed as a trading triumph if and when he buys the tin of chocs back from me for less then he sold them to me for

which is the point at which the chocs have stopped being something of value as chocs and begun to be a traded commodity whose *price* is trumping their deliciousness at one level (bcz PROFIT matters more to poster ward than biting into the nut cluster)

however a good deal of shorting is speculative and not always completed to the profit stage (without being stripped of the term "shorting")

John Lanchester (who ilx seems to hate) wrote some good articles on this

this is nothing: my credit default swap explainer was by matt taibbi

of the genre i remember thinking nomi prins' it takes a pillage was good?

(i seem to recall one ilxor -- possibly poster lag∞n? -- who was extremely scornful of taibbi's writing long before MT's swerve to the right)

(also some of the UK fintwit commentators have long noted that MT's basic position seemed more libertarian than not economically)

Re John Lanchester - I wouldn't like to face a snap quiz on the subject after reading his articles. But I think his strength is showing the simple principles of debt and derivatives and how it speedily builds to a bewildering complexity that almost no-one can understand, outside of a few Nobel Prize winning economists (e.g the Black - Scholes model (the infamous 'financial instrument of mass destruction').

Disclaimer: your reading capital is at risk. The value of authors can go down as well as up. Always take independent advice from a registered literary critic.

i was v contemptuous of taibbi's style when i was in high school but had warmed a lil during the obama years. its later incentives have not been ideal

Lol Luna

I think the great pop-cultural example of shorting is Segar's J Wellington Wimpy: "I'll gladly pay you Tuesday for a hamburger today" - but only if he intends to sell the hamburger on now for say $10 on the assumption that the price he'll have to pay on Tuesday will be say $8, which is admittedly not often ever the angle.

unpredictable human behavior (e.g., pandemic spending and saving patterns)
https://press.princeton.edu/books/paperback/9780691145921/animal-spirits

xp it's a better pop-cultural example of "leverage" really -- at least if we consider JWW eating the hamburger as a kind of profit

in general these tricky terms achieve their arcane finance-ness when they're recognised as being (possibly misleading) snapshots of a vast flow of interlinked decisions and exchange

we can grasp the atomised exchange well enough -- but the fact of the use of the jargon is what reflects this huge pullulating half-visible landscape all around (and the fact that to a trader, awareness of dozens if not hundreds of such exchanges is what drives their decisions and shapes their perceptions)

A pullulating half-visible landscape once a week.

A thesis for traders as misunderstood artists of the floating empire of (financial) signs !

this is fredric jameson's (i think slightly different) argument

maybe worth coming back to mine and decoding it somewhat (but instead i have real paid rewrite work to finish this afternoon)

My definition of finance in one short sentence would be: finance is the business of buying and selling claims on future cash flows.

Reading the thread and I do wonder about the block many of us have in getting any sort of idea about economics.

When I read something by Lanchester I sorta fool myself into getting it but a week later it just goes. Concepts go in but don't stay.

It's like a muscle that needs constant attention and exercise.

Lots of subjects like that, it's unfortunate that economics has such an impact in our lives. Whereas as higher mathematics and inorganic chemistry, not so much.

Stuff like this. Why can't we just abolish high inflation? I'm sure someone will take me through the logic. I am mostly interested in how 'economics' can work for people.

I mean unironically yes https://t.co/BssQhI7306

— suzuki ingmar burgman (@xoayquanh) October 6, 2022

inflation has some good sides! like devaluing debt.

this thread is good because i really struggle with financial concepts. i can get to the point where i grasp them, just, but building on them, or 'chunking' them... beyond me apparently. it isn't at all intuitive for me, and i intrinsically sympathise and agree with pinefox in his exclamations, whether of disgust or bafflement.

i have tried to learn myself a bit, but not very successfully. in mark s' 'what have you *actually* learned from reading lanchester test' my only answer would be 'lol lanchester'.

i'll take two examples, which, through sufficient repetition to myself I am able to repeat back, but not really understand in my bones, viz: a deposit of money in a bank creates money.

The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent. Where something so important is involved, a deeper mystery seems only decent. The deposits of the Bank of Amsterdam just mentioned were, according to the instruction of the owner, subject to transfer to others in settlement of accounts. (This had long been a convenience provided by the Bank’s private precursors.) The coin on deposit served no less as money by being in a bank and being subject to transfer by the stroke of a primitive pen.

Inevitably it was discovered—as it was by the conservative burghers of Amsterdam as they reflected incestuously on their own needs as directors of the Dutch East India Company—that another stroke of the pen would give a borrower from the bank, as distinct from a creditor of the original depositor, a loan from the original and idle deposit. It was not a detail that the bank would have the interest on the loan so made. The original depositor could be told that his deposit was subject to such use—and perhaps be paid for it. The original deposit still stood to the credit of the original depositor. But there was now also a new deposit from the proceeds of the loan. Both deposits could be used to make payments, be used as money. Money had thus been created. The discovery that banks could so create money came very early in the development of banking. There was that interest to be earned. Where such reward is waiting, men have a natural instinct for innovation.

Galbraith, John Kenneth. Money (pp. 22-23). Princeton University Press. Kindle Edition (my secondhand paperback edition with a cariacature of JKG on its cover, is in disarray)

oh, a coda:

In the 1960s, Mr. George W. Ball, an eminently successful lawyer, politician and diplomat, left public office to become a partner of the great Wall Street house of Lehman Brothers. “Why,” he was heard to ask a little later, “didn’t someone tell me about banking before?”

I get it, but I still do not *get it*.

Second, the following principle: markets generate gains from trade.

Markets generate gains from trade; one of the most important observations in all of economics is that buying and selling creates value. The Rwandan refugees focused their labor. Some scavenged meat, others grew vegetables; some gathered firewood, others worked as tailors or cooks. Then they traded what they produced. In the prison camp, nonsmokers sold cigarettes to buy food, while vegetarian Indians exchanged canned beef for jam and margarine. The ability to trade meant the refugees and prisoners were better off than if, like Robinson Crusoe, they could consume only their own allocations.

McMillan, John. Reinventing the Bazaar: A Natural History of Markets (p. 16). W. W. Norton & Company. Kindle Edition.

Again, I get how fluid exchange, esp via money, generates value, but it doesn't sit intrinsically in my simple understanding of the world. a little bit like the way people think of national debt like household debt. i am those people.

i had more to write but it's too long already and potentially making diffuse a useful thread.

oh, just an xpost, inflation is a relatively new phenomena, and where you have low to no inflation it results in wealth staying very static and rentier capitalism - as per Piketty's v good analysis of Jane Austen iirc. (Again this is me being conceptual and totally justifying the response, 'tell me how that works in close detail please'.)

like devaluing debt

...which, because debtors tend to be less wealthy than lenders, often has the effect of improving their relative positions in favor of the less wealthy, but this only really happens if the inflation leads to higher wages/incomes.

Also inflation only tends to devalue older debts incurred before the inflation happened. Unfortunately, lenders are very quick to respond to inflation and charge higher interest rates, so debts incurred after inflation goes up aren't really helped by from the devaluation effect.

At the risk of further occulting the "economic principles" some folks struggle with, I heartily endorse historian Fernand Bradley Civilization and Capitalism, 15th-18th Century, vol. 2: The wheels of commerce. Having some knowledge of how bills of exchange functioned in the early modern period may help one to understand how and why banking today came to look the way it does.

*Fernand Braudel, damn you autocorrect

looool, it was as if you were reading my next post, which i deleted...

fuckit, I've just poured myself another glass of wine, so i'm going to carry on. where's my list. i should probably state outright that i find capitalism an extraordinary and great invention, with rentier captalism a filthy and degrading downside, and the doubtful likelihood of a strong and benevolent government a necessary requirement.

Braudel's treatment of the invention, development and definition of capitalism in The Wheels of Commerce, the second volume of his incredible Civilization and Capitalism, 15th-18th Century is brilliant.

i didn't because i feared 'further occulting'. i was going to cite his muleteer...

In Montaldeo, a certain Bettoldo, a *huomo nuovo*, drew down upon himself the wrather of the marquis Giorgio Doria. He was one of the muleteers who had made a small fortune (this was in 1782) transporting the village's wine to Genoa; no doubt he was known for the violent behaviour often attributed to muleteers. 'The insolence of the said Bettoldo much worries me,' the marquis wrote to his factor, 'as does the facility with which he blasphemes.... He must be punished, since he is incorrigible... In any case, he must be deprived of any employment from us; perhaps hunger will improve him.

a huomo nuovo such as Bettoldo upended feudalism and introduced the new age, with his foul manners and ability to defend himself and attack at a whim.

It's a very colorful history!

there are other 'capitalist types'

my next person or image, is a (more or less invented) Syrian merchant in Cádiz, standing on a typical Gaditana tower each morning, spying for news of the ships they'd invested in or insured.

https://www.espanaguide.com/images/cadiz/torre-tavira/torres-de-cadiz.jpg

The investment of capital is the investment of your capital in a risky enterprise. The higher the risk, the more likely you will lose your money, the higher the return should your ship come home. Insurance enabled the spreading of that risk, and provoked people to speculate and travel beyond their home. This ofc eventually led to colonialism, but I'm not clear the mechanism by which you refuse a person making a buck, other than by insulating your realm.

Break to cite a curiously oracular utterance by JM Keynes:

The premium we pay the insurance company is only one of many certain costs we incur in order to avoid the possibility of a larger, uncertain loss, and we go to great lengths to protect ourselves from the consequences of being wrong. Keynes once asked, “[Why] should anyone outside a lunatic asylum wish to hold money as a store of wealth?” His answer: “The possession of actual money lulls our disquietude; and the premium we require to make us part with money is the measure of our disquietude.”

Bernstein, Peter L.. Against the Gods (pp. 275-276). Wiley. Kindle Edition.

Maybe I'm skipping, because inherent in this is the notion of trust. A remarkable invention is the promissory note, an early version of the bank note, whereby its very existence assures the possessor that should it be required they will be paid the sum represented. The bedrock of trade and of banking is that you do not need to carry a sum in goods around with you in order to transfer wealth. The ability to carry out transactions but at a distance is, again, a remarkable invention. But at a distance doesn't just require trust in people or institutions you do not know, but also the fates - the storms on the sea, the barbary corsairs, the sunk with all hands and vanished without a trace.

However, without these structures of financial trust 'at a distance' you are left with the world represented in Diego Gambatta's The Codes of the Underworld, or also explored in Dan Davies' book on fraud, Lying for Money – if you don't have trust relationships at a distance, you are heavily reliant on familial and local relationships (such as the mafia). the extension of trust beyond personal relationships is a significant capability of that original capitalist urge. power and wealth remains tightly controlled in a circle of familiarity.

more wine.

the big problem is the management of externalities. what happens when the reward is available to one person, but the risk is carried by others? A simple example of externalities would be driving - the driver has the reward of getting from a to b at a speed and level of comfort that they enjoy. the pollution their car emits while doing so is borne by the people who they pass on their journey. They get the reward, but do not bear the risk.

in my examples of the 'exciting and speculative wonders of capitalism' the risk and the reward is borne by the same group of people.

2008 and the global financial crisis, followed by the bailout was this model on a huge scale. High risk taking bankers got the reward, society bore the risk to a massive degree.

so, if you can't stop capitalism with the muleteer, or the merchant, when does this all become so out-of-control that *someone or something* needs to draw a line? I think we're really talking about national governments here, and the birth of constitutional liberalism.

Governments, by one definition, are there to manage problems of co-ordination and externalities.

This is the capitalist, liberal, democratic mode.

But is it sufficient? I'm an instinctive social democrat - I don't like the trade-offs in freedom you get with communism - of the loss of 'spending on your balls what you earn by your pen' to quote byron, but 2008 has to tell us it's not at all clear that social democracy is capable of balancing the interests of the wealth and capital owning classes with those of the wage earning classes (which btw goes v high up the salary scale - as modern marxists like Erik Olin Wright have said, this very much includes middle classes.

none of this is helping this thread i know. and i hope a load of people come along and demolish my pub handwaving here.

reconsider communism

my basic mode is that all people deserve good quality of four things
housing
transport and other communications generally (ie including broadband)
healthcare
education

and work or sufficient welfare to lead civilised within whatever definition you like of civilised there.

i think countries are sufficiently wealthy to achieve that, so my preference is socialism over communism. but i think speculative capitalism has a place as long as the risk is borne by the risk takers.

n my examples of the 'exciting and speculative wonders of capitalism' the risk and the reward is borne by the same group of people.

Maybe I missed something, but what about all the sailors who died on those boats? I'm also wondering where transatlantic slavery and settler colonialism fit in to these stories.

sorry, this is a really unhelpful tangent, and it *really* wouldnt be helpful to go down a “preferences of economic distribution” route. but i am fascinated by capitalism as a mode of human being, and don’t think it’s easy or even desirable to prohibit, though the extent to which it should be regulated or canalised is definitely an urgent question.

transatlantic slavery, colonialism and sailors drowning are ofc all part of it - essentially they are again externalities, where other people bore the risk of indivual’s reward. that sounds morally dry. i’m not defending it. but i’m not sure what process or desirable form of regulation could have prevented it prior to democratic or popular institutions. and even then, there is no sign that democratic or popular institutions on the national level desire to prevent it.

im speaking in purely economic terms. morally many of the consequences are foul. the desire to trade over borders is not inherently evil tho.

god i’m posting waaaay beyond courtesy or utility here, apologies. i dislike corporatism and financialisation, public private partnerships and other forms of “high finance knowledge at the expense of everyday living” intensely. but the history and value of the market remains interesting.

I don't understand most of this thread because it's econ but capitalism isn't an inevitable natural phenomenon or transhistorical expression of human nature it has a specific history

my biggest problem with social democracy is the nationalism which in practice seems to preclude international solidarity due to demand for border controls and reliance on colonial/neocolonial extraction to fund welfare states (which always seem to end up being broken down by capital anyway)

i think i agree with both of those points.

my intention, if i had a clear intention in those rambling posts, was to suggest that the foundations of some of the opaque terminologies and transactional processes that exist around us now are fascinating, absolutely not inevitable, and are effectively technical *inventions* based on trust and risk, really coming back to mark s' box of quality street. they exist for a reason, and it's hard to consider how they might not exist, without significantly constraining a natural desire for exchange - that creation of value cited upthread.

I think Richard Murphy generally answers a lot of economic questions in an accessible way, if you can handle his insane volume of tweets and tendency to catastrophise.

He often explains things from a 'modern monetary theory' perspective, which I find interesting, though don't think it's come up on this thread.

i didn't know people were still into modern monetary theory. it kind of went away the last couple years

the charitable take on MMT is that it's vacuous, the uncharitable take is that it is a scam

flopson, any thoughts on biden's ability to mint a trillion dollar platinum coin

the coin thing is funny b/c if he minted the coin and they dropped it and couldn't find it and a janitor picked it up and brought it to the bank the president would probably say "the coin isn't real do not give the janitor a trillion dollars" thus giving the lie to the whole coin thing potentially

the trillion dollar coin, as well as premium bonds and other related ideas (perpetual consols, premium bonds, having the fed "donate" treasuries) are all risky. there's the short-term risk of freaking the market out, and also the long-term risk of undermining fed-treasury independence and the delicate balancing act of norms around these things. but they're all infinitely better than defaulting. if it weren't for the debt ceiling there would be no reason to do them, but one of them will be done before default is ever allowed to happen. i don't think the coin would be the one they pick though, it just sounds too silly. my guess is they would do perpetual consols (bonds with no maturity) because they have existed in the past (the last ones were issued in the 1930s) and are extremely boring sounding

But is the government also a consumer and to what extent do market prices affect its purchasing power?

For example, what if Lockheed Martin claims inflation? I suppose this might be unlikely.

What about foreign debt and trade imbalances during inflation? Does that work out okay? Could someone explain this to me in a way I can remember?

But is the government also a consumer and to what extent do market prices affect its purchasing power?

― youn, Friday, January 13, 2023 10:54 AM (yesterday) bookmarkflaglink

inflation is generally good for the government. prices go up which increases the cost of expenditures, but remember that governments get tax money for every sale in the economy. so tax revenues . typically these two channels cancel each other out and the effect is neutral. inflation is good for the government finances of debtor countries because it erodes the real value of nominally denominated debt

don't really follow your other 2 questions, sorry

Lockheed Martin could charge a lot more for weapons where the US government spends a lot of its budget? Or is this kind of pricing stable? But when people say the dollar is strong what does that mean in the context of inflation of currency and what effect does it have in different possible combinations for inflation in the US and other countries?

Strong dollar is usually a reference to exchange rates. There is some connection between exchange rates and inflation but they are separate.

I wonder about exchange rates and the USD as a standard in the context of an increasingly global economy and foreign debt carried by nations. Isn't this why an international tax rate matters?

cf. the currency for interest on debt

seems to me you worry about a lot of things

turtle: what you are saying sounds like I shouldn't worry about a lot of things (because they are beyond me? I would probably agree/)

Before inflation took hold perhaps, I thought the dollar was strong, but inflation means it is weak at least in the US, but then central banks changed their interest rates perhaps in response to the Federal Reserve and not necessarily dependent upon whether or not inflation was happening internally, perhaps it was. Recent discussion around federal debt limit increases in the US and also memories of 2008 make me wonder whether the currency system as a system is too fragile.

(I was hoping to buy lots of nice jumpers from Margaret Howell)

fiat currency seems much less fragile than specie, the 19th century was full of currency crunches!

the whole silicon valley bank thing unfolding right now is a pretty good opportunity to learn in real-time about the perils of fractional reserve banking!

WSJ says it's the second biggest bank collapse in history, "rattling investors"

Good, let 'em rattle

However, this is my current favorite WSJ headline:

Led Zeppelin’s Jimmy Page Battles Neighbor Robbie Williams Over a Basement Man Cave

that battle's been going on for years iirc

i assume there's been a new development

a thread in which ilx interprets jimmy page's battle with neighbor robbie williams over a basement man cave, sometimes linen by linen

given that i have a hard time understanding how bond markets work i’m not sure why i think i would be able to understand this but it’s annoying to me that i don’t

The real unrecognized problem of the financial system is the mistaken belief that “atomic settlement” can somehow make things safer and more efficient without generating different types of risks. But instant “real time” settlement is a bit of a false friend. Why? Because it does… https://t.co/0opJbL3MzU

— Izabella Kaminska (@izakaminska) March 18, 2023

I tried reading that and I don’t understand it either. It seems to be about some kind of government mandated clearing system between large banks. These kinds of topics are notoriously technical and dry, though no doubt important, especially if you’re a bank regulator or run a bank.

I will take that bet.
You buy 1 BTC.
I will send $1M USD.
This is ~40:1 odds as 1 BTC is worth ~$26k.
The term is 90 days.
All we need is a mutually agreed custodian who will still be there to settle this in the event of digital dollar devaluation.
If someone knows how to do this… https://t.co/tcuBNd679T pic.twitter.com/6Aav9KeJpe

— Balaji (@balajis) March 17, 2023

lmfao

a magical story. this was me this weekend talking to my wife about it.

SO MEDLOCK WAS JUST MAKING A SHITPOST ABOUT A SELF-HEDGING BET BUT BALAJI HAS BEEN DOOMPOSTING ABOUT HYPERINFLATION FOR MONTHS SO HE TOOK HIM UP AT WILDLY UNFAVORABLE TERMS BUT MEDLOCK DIDNT HAVE A BITCOIN ON HAND SO THIS PRO POKER PLAYER CAME IN TO BANKROLL THE BET AND pic.twitter.com/7DrLBIKzgp

— Colin Fraser (@colin_fraser) March 18, 2023

Every time I refresh the FT front page, it's another billion. https://t.co/SOE0hcGd2t

— Daniela Gabor (@DanielaGabor) March 19, 2023

given that i have a hard time understanding how bond markets work i’m not sure why i think i would be able to understand this but it’s annoying to me that i don’t

― Tracer Hand, Saturday, March 18, 2023 7:18 PM (two days ago)

for a variety of reasons the plumbing behind finance means that most trades settle two business days after the order is executed. think of it as buying on credit, or a check that takes a couple of days to clear

as a result, a lot can happen during those two days, which i don't pretend to understand on an aggregate, net-net basis like the tweet author apparently does but which i can easily picture in an individual basis (securities not being delivered, money not being delivered due to the buyer having gone full tilt, etc.)

love commodities

JPMORGAN CHASE OWNED BAGS OF MATERIAL KEPT IN A DUTCH WAREHOUSE THAT WERE SUPPOSED TO CONTAIN NICKEL BUT TURNED OUT TO BE FULL OF STONES - WSJ

— *Walter Bloomberg (@DeItaone) March 20, 2023

the goldman aluminum warehouses scam was good, just forklifts shuffling the same pallet of aluminum between two warehouses so goldman could make millions.

https://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html

jpmorgan's electricity scam was really good too: https://dealbreaker.com/2013/07/electricity-market-rules-were-not-a-worthy-opponent-for-jpmorgans-brainpower

just forklifts shuffling the same pallet of aluminum between two warehouses so goldman could make millions.

back in the 1980s (before Gramm-Rudman did a lot to fix loopholes in the US tax code), there was a very lucrative Investment Tax Credit that was used for many illegitimate purposes. The CPA I worked for for a few years in my home town had had a client back then who was a doctor. I'll call him Doctor Franz, and he had a buddy who owned some land, and we'll call him Rancher Hans. And there was a flock of sheep that were on Rancher Hans' land that Rancher Hans and Doctor Franz would sell back and forth to each other every other year to claim this tax credit.

LOL. I once had a boss who brought eggs from his hens to work and, shall we say, gently encouraged employees to buy a few at a nominal price, so he could claim a tax break for his farm as a working farm.

I know this probably makes me an unserious person but I find it endlessly amusing that the AT1 bondholders got zeroed in this CS debacle.

what's great is that every effort was made to tell the bondholders they could get zero'd when they bought the bonds, and they still made a surprised pikachu face when they did in fact get zero'd

I mean, it was not exactly unknown that CS was swirling in the toilet. if I owned AT1 bonds, I might at some point read the docs and make a decision as to whether I still wanted to be holding onto this paper?

LOL. I once had a boss who brought eggs from his hens to work and, shall we say, gently encouraged employees to buy a few at a nominal price, so he could claim a tax break for his farm as a working farm.

― o. nate, Friday, March 24, 2023 12:47 PM (one week ago)

hahahahah! recently there was a study published about IRS enforcement & audits being racist, which generally just reflected the inequity in the US, and how it's easier to program an automated system to flag certain types of discrepancies and fraud, which largely are tax credits for poor people, as opposed to flagging the types of fraud committed by rich people, who tend to be white.

I have clients that ask me about the benefits of having an S-Corporation, and pretty much, in the cases of those who ask, there is no benefit (only extra bureaucracy and fees), so I tell them that the only benefit is that it's easier to commit fraud through an S-Corp vs. as a Schedule C sole proprietor.

amazing

I can finally say it: I settled the bet early with @balajis! Took some time to work out the details but he proceeded in good faith and you can see the receipt of funds on chain in the next tweet. $500k to me (so I get 30% post tax as planned) and 500k to @GiveDirectly

— James Medlock (@jdcmedlock) May 2, 2023

xp so you’re saying I should be looking into a s-corp

I’d forgotten about that ridiculous hyperinflation thing, and lol

https://www.newyorker.com/news/persons-of-interest/what-if-were-thinking-about-inflation-all-wrong

I'm going to read that in a second, but in the meantime can someone (flopson?) explain to me why you would raise interest rates to "fight inflation" in this context: https://www150.statcan.gc.ca/n1/daily-quotidien/230516/t005a-eng.htm

just a weird quirk in how inflation is measured in canada. including mortgage payments in CPI means rate rises mechanically increase inflation. most (all?) other countries don’t do this, and instead measure some concept like owners equivalent rent, where they try to impute what homeowners would be paying in rent would they be renting their house. a general consequence of this is that canadian inflation is somewhat overstated in international comparisons

thank you!

I'm uncertain what to think about Argentina's plan to potentially dollarize the economy. I understand the rationale but not whether it would work or not, or why a currency peg would be a more manageable approach

Ecuador dollarized their economy, but would Greece or Italy be better comparisons? Argentina always seems confusing though, for a country with such high economic potential to be in this kind of position

I guess the problem with a currency peg is that no one would believe that Argentina would stick to it. Even Switzerland, a country with a much better track record for fiscal prudence, broke their peg to the euro when it became inconvenient. Not sure if dollarization would really work for a country of the size of Argentina. Seems logistically tricky.

i don’t think argentina will dollarize. to dollarize you need to back pesos with dollars and they don’t have dollars. so the only way they can do it is to sharply devalue the peso. but the only dollars argentina has are in deposits as bank reserve requirements which can’t be used for any other purpose. china has given them a “swap line” which lets them make payments in yuan but they could pull back on that at any moment. i think it’s more likely we see peso depreciation and some default but no dollarization. the extent of default precipitated by real dollarization would be extreme

I guess if Argentina did dollarize it would be similar to the scenario of countries joining the eurozone. This has happened a few times since the introduction of the euro, but all smaller economies: mostly the Baltics and small countries like Slovenia, Slovakia and Malta. Usually the conversion to the euro happened at a rate at which the converting currency had been pegged for some preliminary period.

Why similar to the countries you mention and not Italy or Greece? Italy's economy being bigger than Argentina's

I guess it is similar to that too. I was thinking of the difference between joining an existing currency and forming a new one. But I guess they are basically the same.