Ideas 2.3 (stubborn old men)

  By Mystic | October 26, 2012 - 05:42 | , ,

Central Bankers are normally respected old economists.
They will move slowly to maintain / regain the `good old days`.
11:59 min.

This is two hours long, but please try and listen to Warren’s first 10 minutes.
Note that most people know how the system works …. it is only the respected old economists who don’t~!

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Written by: Mystic on October 26, 2012.
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  • John_by_the_creek

    Dear Mr. Mystic:
     
    Regarding your closing comments on creditors accepting the idea they will not get all their money back, there is a truly bizarre aspect of our legal/ financial system that is seldom discussed (but should be a hot topic).  I’m referring to contract law and the creation negotiable instruments. 
     
    Probably the most widely recognized example of this phenomenon is derivatives.
     
    Here’s a nice overview about derivatives: 
     
    http://www.youtube.com/watch?v=XtznP6DFo-U&feature=related  &  http://www.youtube.com/watch?v=m8Ky3CFqsbU&feature=relmfu
     
    The concept is that two private parties can (by means of contract law) create a negotiable instrument.  This instrument, at some point in time, and under the conditions specified in the contract agreement, could ultimately become very valuable in terms of units of “money”.
     
    This “private” agreement can be bought and sold to third parties, carries the weight of law, and is enforceable in a court of law.
     
    Now here’s the mind bending part of the story.  Very little actually “money” need be in existence, even as the “system” allows parties to create massive, legally enforceable debt obligations (that COULD require large sums of actual “money” to settle).
     
    So, even though the actual “money” need not exist, our system allows private parties to “contract” as if it does. 
     
    It’s easy to see why “write-downs” pucker so many arses.

    • http://overthepeak.com/wordpress/ Mystic

      Strange.  I was only listening to the history of  `negotiable instruments` this week….. (are we on the same program~?).
      Strange also how derivatives are the first things to be paid out in bankruptcy now as well.

      I’ll get to the videos tomorrow.
      Thank ye kind sir.

      • otp4996

        I don’t really know, but I’m speculating that the reason derivatives enjoy priority in bankruptcy, is because someone actually thought-through the systemic consequences of allowing chaining failures to occur.  I’m sure the conspiracy crowd has their own explanation as to why.   But I’m hoping the “smart kids in the room”, while doing a poor job at spotting the overall macro risks, maybe at least had enough foresight to put a few firewalls in place.  But again, this is pure speculation on my part.

        • John_by_the_creek

          Oops!  Sorry, but somehow I managed to post a comment with otp4996!  This computer stuff is tricky sometimes!! :)

        • http://overthepeak.com/wordpress/ Mystic

           It was slipped in via the `bankruptcy act of about 2005`.
          Bankers ….. Lobbyists ….. bought Congress.

          Forward thinking certainly.
          (worked a treat during the Lehman carve-up~!)

    • http://overthepeak.com/wordpress/ Mystic

       I have now perfected recording audio from the computer output.
      (linking microphone in to headphones out …. and recording via Audacity)

    • CSArichardo

      A derivative is an insurance policy not covered, except maybe by the taxpayer !  Who would ever go for that ? Obviously the dergulated banking system !  I think someone said a sucker is born every minute !  Even Warren Buffet said those derivatives are weapons of mass destruction !!??  Who said that the best way to rob a bank is to own one ?

  • snedmeister1

    Evening Nick.

    I listened to the Warren Mosler clip, as requested…

    He actually gave an answer ( although you probably know that :) ) to the question of why banks hold so many Bonds etc…
    ( You remember our discussion some days ago..?? )

    Warren suggests it is because the system is set up that way…
    That Laws, rules and regulation dictate a certain behaviour, and people / institutions follow it…

    It seems people are easily influenced to behave a certain way…??

    • http://overthepeak.com/wordpress/ Mystic

       I think Warren’s comment was a bit `American-centric`; referring to the primary dealers, but yes.

      Sunday …. time to make an OTP post.