UBS report: what if Euro cracks up?

[dZeus]

Bingo, which is why people here would go nuts if the Fed does anything that even resembles a QE3. There is zero trust that the money would be spent wisely.

That's because the sheeple keep voting for the same crooks/idiots that brought them into this mess (in both the Democrat and Republican camps). Which in turn is encouraged by the majority of media which are part of the whole circus called 'free elections'.

I tend to agree with de la Boétie who loosely says that a population deserves the type of governance they get.

[Umfriend]

"- Without the industry, how would firms find the capital needed to finance operations?"

The same way as they did before the financial institutions themselves became a parasitic mega-industry. Essentially between an investor and an investee, literally over a cup of coffee in one of London's coffee houses. This was not always convenient, so the stockbroker was invented. Then the stockbrokers invented a monopolistic cartel called a stock exchange to siphon off megabucks with the motto, "To the rich shall it be given; to the poor shall it be taken away!"

Good luck with that now that capital required easily runs into millions even for small firms, let alone billions in some cases. That'll be a laugh. Economic enterprise has become so much more capital intensive since the 16th century as oposed to labor. Transaction costs rings a bell?

And then, there may have not been to big to fail but there has always been fraud, misrepresentation and bubbles (Tulips anyone?).

[Umfriend]

Actually I find it even more amazing that you claim otherwise.

There's a huge gap between what the financial industry should do and what it does, and there has been for at least 20 years (with the problem gradually growing bigger and bigger).

Certainly mistakes have been made and not in the last 20 years alone. By that standard we can abolish politics and states alltogether. Good luck.

I see an industry that is bent on giving themselves ludicrous compensation, even when their institutions are on the brink of failure. I don't buy the 'but the shareholders approve so it's ok' argument, as it doesn't change the fact that they get ridiculous compensation (regardless of their enablers).

I won't argue this point but want to nore that most people working in the financial industry do not make silly amounts of money and that the aggregate of silly compensation is a small fraction of the total value added of the industry. Does not make it right but perspective and proportion are sensible.

Now my questions is, does the financial industry add anything to society when it skims off margin in stock trading (High Frequency Trading)? Or when it securitized crappy debt to mask its issues, get it labelled as AAA and resell it to unsuspecting clients? When it gives loans to people who cannot pay it back, in order to charge higher interest rates (also called usury),

So, mistakes are made, let's kill 'm all? You have, I believe, no sense of the benefit society has from the finance industry. Without parties who take the function of transformation of maturity, liquidity, currency and risk you can say goodbye to any sizeable capital investment.

leaning on their too big to fail status to have the government/fed save them if their bet goes wrong? What about all the regulators that themselves are part of the financial industry, or have been and will be after they did 'good work' for certain firms (revolving door)? What about all the campaign donations to the political parties by the financial industry, buying their interest which has been manifested by nearly all the administrations, republican or democrat, going for deregulation of the financial industry since Reagan (regulatory capture)?

Corporate influence is indeed a huge problem. I can't help it that money is speech. But this goes for so many industries, killing off the finance industry will just cause the next big thing to surface. Symptoms, not causes.

Regarding liquidity vs. solvency: why are mark to market FASB rules suspended for most stuff on balance sheets of banks since 2008? Why is the US government backstopping the FHFA up to the tune of hundred of billion dollars, to prevent real price discovery of the mortgages they buy/hold? To me that sounds like a solvency issue.

First of, MTM of all of a balance sheet has been a silly idea from the start, quite a bit catered for by the finance industry itself. And this is why the rules are suspended. MTM requires a market for the assets (and liabilities) but the market is simply illiquid at times and with many asset type. Force regular corporations to MTM their capital stock and they all go bancrupt. MTM for illiquid assets simply covers expected cash flow insufficiently and so can make it appear a company is insolvent while plotting expected cash flow against liabilities would show a solvent company.

Where did the money of QE and QE2 go? Financial industry worker compensation

huh?

filling gaps in the balance sheets of financial institutions (by backstopping the FHFA),

So the banks don't fail which causes them not to intermediate between investing and saving parties anymore. Are you aware that some bank draw huge amounts under central banks programs while other banks put huge amounts on deposit at the same central banks? Far less money is injected than one would think, it's just that banks don't regulate cash amongst themselves anymore due to a lack of trust. That'll return although it'll take a while. Far as I can see, most banks are showing healthy profits.

chasing higher returns in assets that won't depreciate as fast as the USD$ (oil, gold, equity, bonds, etc.).

But here is the thing: If a bank used funds from QE/QE2 to purchase gold than the seller ends up with the money. What is the seller going to do with it? It can not just "dissappear" into commodities. But I'll grant you, QE/QE2 have the risk of increaing asset inflation which is (a) not what we shoiuld want (next bubble comming up) and (b) one of the main causes of the current crisis in any case.

[Brian Ellis]

I had some Government Bonds, I think something like 3% with a maturing date about 5 years later, that I wanted to sell some 5 or 6 years ago. I contacted the issuing national bank and they told me that I had to sell it through a named agent. I contacted the latter who informed me that they did not deal directly with bondholders and I had to go through a stockbroker. That meant there were two parasites skimming the value between the bank and me. No doubt, if someone bought these same bonds, the same parasites would skim them again. For what? Electronic transactions that cost virtually nothing. In actual fact, I inherited these bonds from my late godfather and they were skimmed just to have the name and address changed. This institutional monopoly is evil.

[Umfriend]

I had some Government Bonds, I think something like 3% with a maturing date about 5 years later, that I wanted to sell some 5 or 6 years ago. I contacted the issuing national bank and they told me that I had to sell it through a named agent. I contacted the latter who informed me that they did not deal directly with bondholders and I had to go through a stockbroker. That meant there were two parasites skimming the value between the bank and me. No doubt, if someone bought these same bonds, the same parasites would skim them again. For what? Electronic transactions that cost virtually nothing. In actual fact, I inherited these bonds from my late godfather and they were skimmed just to have the name and address changed. This institutional monopoly is evil.

This is weird. You wanted to sell the bonds to the issuer?
In any case, there is a reason why you must sell via an exchange: price transparancy. It ensures you get the best execution price for you order. Electronic transactions do not cost virtually nothing, it's just the marginal cost that is low but the infrastructure itself is costly. It sounds like you had registered bearer bonds (actual papers)? Those can not even be traded electronically.

In any case, if stockbrokers charge to much, new brokers can come into the market (this happens). Same with exchanges themselves. There is no monopoly and in fact prices for order execution have gone down huge compared to 15 years ago.

[dZeus]

Certainly mistakes have been made and not in the last 20 years alone. By that standard we can abolish politics and states alltogether. Good luck.

I won't argue this point but want to nore that most people working in the financial industry do not make silly amounts of money and that the aggregate of silly compensation is a small fraction of the total value added of the industry. Does not make it right but perspective and proportion are sensible.
So, mistakes are made, let's kill 'm all? You have, I believe, no sense of the benefit society has from the finance industry. Without parties who take the function of transformation of maturity, liquidity, currency and risk you can say goodbye to any sizeable capital investment.
Corporate influence is indeed a huge problem. I can't help it that money is speech. But this goes for so many industries, killing off the finance industry will just cause the next big thing to surface. Symptoms, not causes.
First of, MTM of all of a balance sheet has been a silly idea from the start, quite a bit catered for by the finance industry itself. And this is why the rules are suspended. MTM requires a market for the assets (and liabilities) but the market is simply illiquid at times and with many asset type. Force regular corporations to MTM their capital stock and they all go bancrupt. MTM for illiquid assets simply covers expected cash flow insufficiently and so can make it appear a company is insolvent while plotting expected cash flow against liabilities would show a solvent company.

huh?
So the banks don't fail which causes them not to intermediate between investing and saving parties anymore. Are you aware that some bank draw huge amounts under central banks programs while other banks put huge amounts on deposit at the same central banks? Far less money is injected than one would think, it's just that banks don't regulate cash amongst themselves anymore due to a lack of trust. That'll return although it'll take a while. Far as I can see, most banks are showing healthy profits.
But here is the thing: If a bank used funds from QE/QE2 to purchase gold than the seller ends up with the money. What is the seller going to do with it? It can not just "dissappear" into commodities. But I'll grant you, QE/QE2 have the risk of increaing asset inflation which is (a) not what we shoiuld want (next bubble comming up) and (b) one of the main causes of the current crisis in any case.

removing mark to market also allows for insolvent institutions to pretend to be solvent. The 'mistakes' and 'fraud' you have talked about, are systematic and of massive and global scale right now. They haven't been investigated in full earnestly, contrary to for example during the Savings and Loan crisis. Investigators that try to start proper investigations are pressured by all sides, including the Obama administration, such as the New York Attorney General.

Many people are reporting on the size of the corruption. Names to people who give interesting insights on this are for example William Black and Matt Taibi.

Without cleaning the financial sector of the massive and rampant fraud, they'll keep to their antics of holding the world financial system hostage by the mere size of their institutions and the effect on counter parties would they go bankrupt. Bailing out the sector by transferring private debt onto the public balance sheet without splitting these institutions, persecuting those responsible for their failing is in my opinion criminal (think of Ireland, and what the UK/Netherlands tried to pressure Iceland into).

[Brian Ellis]

They were not bearer but nominative. Yes I had them on hard copy, but the paper was worthless because the issuer had transferred the whole caboodle into a database some months earlier. The whole affair was electronic and it cost me about 2% of a considerable sum for the two parasites to suck my blood when all that was done was the issuer deleted my name and address off their database, pending new ones to an eventual purchaser who no doubt paid over a thousand more than I received!

I have a similar problem pending on some shares my wife holds, where the issuer was taken over by another firm on a one-to-one share deal. The parasites seem to be getting their teeth into the business, as she is trying to sell her holding, still in the old name.

It is for this reason of parasites that most of my savings are now in UBS mutual funds where there is transparency without go-betweens. I grant you that they may be less efficient, but that is more than compensated for by direct dealing with the UBS without any third party parasites.

[Evildead666]

Good luck with that now that capital required easily runs into millions even for small firms, let alone billions in some cases. That'll be a laugh. Economic enterprise has become so much more capital intensive since the 16th century as oposed to labor. Transaction costs rings a bell?

And then, there may have not been to big to fail but there has always been fraud, misrepresentation and bubbles (Tulips anyone?).

Not all companies need to start with billions of backing.
Maybe after a period of growth, said companies would acquire more backing naturally, due to good results.

A good company, more often starts from small roots and grows big.
A bad company will start big and bullish, and shed money until it either succeeds and maybe breaks even, or fails taking the investments with them.

[Umfriend]

removing mark to market also allows for insolvent institutions to pretend to be solvent.

That is definately true. However, for this in an amortised-cost reporting environment you have 'provisions' or 'value adjustments'. These should be determined based on expected cash flow against book value (taking the lower of the two). The auditors and if regulated, regulators should query policies and procedures on this.

The 'mistakes' and 'fraud' you have talked about, are systematic and of massive and global scale right now.

True. So investigate! Regulate where neccessary. That's not the same as saying that the financial industry generates no benefit to society and should be abolished.
[quote]They haven't been investigated in full earnestly, contrary to for example during the Savings and Loan crisis. Investigators that try to start proper investigations are pressured by all sides, including the Obama administration, such as the New York Attorney General.Have you read the Washington post article and editorial? I don't see the smear. Not that I think Schneiderman is wrong, I don't have a position on everything but I am leaning towards agreeing that immunity should be limited to what the settlement is about. Then again, $20bln for a case where there are hardly any victims to be found is a hefty fine.

Many people are reporting on the size of the corruption. Names to people who give interesting insights on this are for example William Black and Matt Taibi.

Without cleaning the financial sector of the massive and rampant fraud, they'll keep to their antics of holding the world financial system hostage by the mere size of their institutions and the effect on counter parties would they go bankrupt. Bailing out the sector by transferring private debt onto the public balance sheet without splitting these institutions, persecuting those responsible for their failing is in my opinion criminal (think of Ireland, and what the UK/Netherlands tried to pressure Iceland into).

Sure. And if you want to battle the fraud and corruption then just make sure that those people can not employ the huge amounts of money they control (not "own"!) towards influencing policy and politics, i.e. agree that money is not speech.

Will save you loads of corruption in every industry in the US.

OT: Funny this. The nakedcapitalism site has ads. Guess which three ads I get: One for mortgage loans, one for savings accounts and one tellign me I should invest in gold.

[Umfriend]

They were not bearer but nominative. Yes I had them on hard copy, but the paper was worthless because the issuer had transferred the whole caboodle into a database some months earlier. The whole affair was electronic and it cost me about 2% of a considerable sum for the two parasites to suck my blood when all that was done was the issuer deleted my name and address off their database, pending new ones to an eventual purchaser who no doubt paid over a thousand more than I received!

I have a similar problem pending on some shares my wife holds, where the issuer was taken over by another firm on a one-to-one share deal. The parasites seem to be getting their teeth into the business, as she is trying to sell her holding, still in the old name.

It is for this reason of parasites that most of my savings are now in UBS mutual funds where there is transparency without go-betweens. I grant you that they may be less efficient, but that is more than compensated for by direct dealing with the UBS without any third party parasites.

Bad luck indeed. Seems to me you have so somewhat peculiar investments.

How do you purchase your mutual funds participations and what is the management fee on those?

[Umfriend]

Not all companies need to start with billions of backing.
Maybe after a period of growth, said companies would acquire more backing naturally, due to good results.

A good company, more often starts from small roots and grows big.
A bad company will start big and bullish, and shed money until it either succeeds and maybe breaks even, or fails taking the investments with them.

I never said they did. Try to get just 1 mln for investments at a local bar. Good luck with that. 100k even.

It is simply silly to assume that many firms can finance their operations out of generated revenue. Look at any balance sheet of a manufacturing or trading company and see that the assets it holds alone are far larger then the profits it has made since it started (well, this will hold most of time in any case).

[Brian Ellis]

How do you purchase your mutual funds participations and what is the management fee on those?

Directly to/from the UBS in Switzerland. The fees are very variable according to which of the 11,245 funds, according to size, country, type (mainly equity-, bond-, commodity- or currency-based), whether mainly on growth, yield or mixed, whether with dividends or reinvested. Some of them have buy/sell commissions, others have annual management fees without commissions etc, My investments are split between 6 different funds: one of these I looked at had a fixed annual fee of 1.38% but others have no fee but a commission. There are so many types, it is really difficult to follow them all. Have a look at www,ubs.com if you want to know more.

[Evildead666]

I never said they did. Try to get just 1 mln for investments at a local bar. Good luck with that. 100k even.

It is simply silly to assume that many firms can finance their operations out of generated revenue. Look at any balance sheet of a manufacturing or trading company and see that the assets it holds alone are far larger then the profits it has made since it started (well, this will hold most of time in any case).

The way I understand this is that many companies don't actually make a profit, since to be sole owners they would have to repay the initial investment concerning their assets.
Companies need billions to be created and work, but only generate millions of non-profits ?

I don't see how any company can function like that ?

[Umfriend]

Directly to/from the UBS in Switzerland. The fees are very variable according to which of the 11,245 funds, according to size, country, type (mainly equity-, bond-, commodity- or currency-based), whether mainly on growth, yield or mixed, whether with dividends or reinvested. Some of them have buy/sell commissions, others have annual management fees without commissions etc, My investments are split between 6 different funds: one of these I looked at had a fixed annual fee of 1.38% but others have no fee but a commission. There are so many types, it is really difficult to follow them all. Have a look at www,ubs.com if you want to know more.

My point is, that 1.38% annual fee quickly far exceeds a 2% single commision (even though that may be a bit high for such a transaction).

No management fee at all for others? That is weird, I'd love to know just one name of such fund. Even the iShares trackers have annual fees between 0.3% and 0.55% or so and you'd pay fees for buy and sell transactions there.

[Umfriend]

The way I understand this is that many companies don't actually make a profit, since to be sole owners they would have to repay the initial investment concerning their assets.
Companies need billions to be created and work, but only generate millions of non-profits ?

I don't see how any company can function like that ?

I am confused. Do you believe that companies should be sole owners in order to have made a profit?

Maybe this example clarifies. Assume a new firm investing 1bln in capital stock (land, machinery etc). They borrow 900 mln, 100 mln is "equity". The stock will last for 10 years only and then be worth nothing. No other investments. Each year it:
- Buys 100 mln in raw materials, wages etc.
- Sells 210 mln in product
After 10 years, they have 1,100 mln in cash. They repay debt, 900 mln, repay equity, 100 mln and pay a dividend of 100 mln.

Yeah, they needed 1 bln in funds just to make 0.1 bln profit in 10 years.