tag:blogger.com,1999:blog-18156735.post2546105064954837651..comments2023-10-29T17:43:27.054+07:00Comments on café salemba: Down with the BearUnknownnoreply@blogger.comBlogger7125tag:blogger.com,1999:blog-18156735.post-88137735888228869402008-07-07T16:36:00.000+07:002008-07-07T16:36:00.000+07:00rizal, sorry for the lame comment but that sounds ...rizal, sorry for the lame comment but that sounds like a financial gossip column to me... but of course... it's vanity fair. one should never undermine the source of information... in fact, at any information... <BR/><BR/>dHaniAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-18156735.post-12087308684816954932008-07-03T14:59:00.000+07:002008-07-03T14:59:00.000+07:00fyi, last year i had 3 posts related to credit der...fyi, last year i had 3 posts related to credit derivatives, when i was really curious on that topic.<BR/><BR/><A HREF="http://anymatters.blogspot.com/2007/05/credit-derivatives.html" REL="nofollow">Credit derivatives</A><BR/><BR/><A HREF="http://anymatters.blogspot.com/2007/05/hypothetical-simulation-of-credit.html" REL="nofollow">Hypothetical simlations of credit derivatives</A><BR/><BR/><A HREF="http://anymatters.blogspot.com/2007/05/credit-derivatives-played-by-hedge.html" REL="nofollow">Credit derivatives played by hedge funds</A><BR/><BR/>please comment if something's wrong or needs update.Anymattershttps://www.blogger.com/profile/15417170603768510851noreply@blogger.comtag:blogger.com,1999:blog-18156735.post-46980125498985215822008-07-03T06:57:00.000+07:002008-07-03T06:57:00.000+07:00Thanks for the numbers, Rizal. Making me sure how ...Thanks for the numbers, Rizal. Making me sure how big is the magnitude of credit derivatives. However we need to respect those who have made that kind of market works (although failed).<BR/><BR/>Again, I play with imagination. There are 10 economically and academically average students taking study loans from Bank A (scholarship is for the academically above average, right?). The total loans + interest value is say 1100. Then Bank A buy insurance costing 500 from Salemba's Fund covering some student who may have a miserable life can't find a job and paying back the loan on time.<BR/><BR/>Salemba here bets on that all students have a good life and paying back the loans, and may walk with 500. It's all good.<BR/><BR/>Even failed, Salemba has bought another insurance from Depok's Fund costing 400, and may walk with 100. Depok is now taking the bets. It's all good.<BR/><BR/>Apparently Depok has done something (coaching, outsourcing, recruiting etc) to the students so that all of them can have a good job, happy life and paying the loans.<BR/><BR/>Would government help Depok? Every man in this story is a good man.Anymattershttps://www.blogger.com/profile/15417170603768510851noreply@blogger.comtag:blogger.com,1999:blog-18156735.post-20090887706299013772008-07-03T05:01:00.000+07:002008-07-03T05:01:00.000+07:00Anymatters, let's get down with some numbers. The ...<B>Anymatters</B>, let's get down with some numbers. <BR/><BR/>The Bear played heavily in a derivatives market called credit default swap (CDS). The size of CDS market in 2007 is 45.5 tn US dollar.<BR/><BR/>The US stock market size is 21.9 tn USD, mortgage 7.1 tn USD and US Treasury Market 4.4 tn USD. The US GDP is 14 tn USD. Indonesian GDP at purchasing power parity in 2007 is just 0.85 tn USD.<BR/><BR/>The Bear itself was a counter-party of 10 tn USD over the counter swaps. Small wonder that the Fed shuddered on the idea of falling Bear. <BR/><BR/>The real question is, of course, how big too big to be failed is --that allows the government to bypass the cost of moral hazard?<BR/><BR/><B>Roby</B> and <B>Sonny</B>, points are taken. I know next nothing to the theory of expectation making. Even I find it empirically problematic to accept Lucas' rational expectation theory. <BR/><BR/>Yet I still think that somehow that seemingly irrational exuberance should have been able to be explained by the standard agent maximization approach --the way Stiglitz elegantly described credit rationing under asymmetric information, Akerlof Lemon, or Rudi Dornbusch exchange rate overshooting model.Rizalhttps://www.blogger.com/profile/00173988218021291027noreply@blogger.comtag:blogger.com,1999:blog-18156735.post-6178762436441767302008-07-02T22:27:00.000+07:002008-07-02T22:27:00.000+07:00Roby has some points. If only market is self-corre...<B>Roby</B> has some points. If only market is self-correcting, why market is full of institutions? Why central bank is on earth? Even capitalism is an institution. That being said, deducing capitalism only to the mechanics of supply and demand is rather banal.<BR/><BR/>Rizal has a good taste of narrative. I am a fan of his postings :) One might also consult Galbraith's <I>The great crash 1929</I> for a mixture of narratives and smart jokes. <BR/><BR/>A small story: When that crash hit my <I>kampung</I> in Minahasa, agriculture production in 1930s was even on the rise - against the "law" of supply and demand. Copra-producing for <I>tengkulak</I> (recall, institution!) was apparently one of the many causes.<BR/><BR/>- Sonny<BR/><I><B>nomordelapan</B>.blogspot.com</I>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-18156735.post-45610767964333335682008-07-02T18:22:00.000+07:002008-07-02T18:22:00.000+07:00A lot of people say that markets are self-correcti...A lot of people say that markets are self-correcting if left by themselves. However, the histories show again and again that markets are not left to themselves at the moments of their crisis.<BR/><BR/>Supply and demand is a powerful analysis. But after reading a lot about financial crises, I suspect there are more to that. Narrative, language, institutions, power, networks, routines, culture are all intertwined.<BR/><BR/>Even the bastion of capitalism needs more than just supply and demand.Robyhttps://www.blogger.com/profile/17313212532955108268noreply@blogger.comtag:blogger.com,1999:blog-18156735.post-40733214593207508722008-07-02T14:37:00.000+07:002008-07-02T14:37:00.000+07:00A name tells everything actually...Anyway, it's go...A name tells everything actually...<BR/><BR/>Anyway, it's gonna be too long for me to comment.<BR/><BR/>The relationship between Bearn's hedge funds, credit derivatives and the Fed is symbiotic in the context of financial market and economic development; as one is the user of the other for a mutual benefit. <BR/><BR/>Bearn's hedge funds with their channelling and leveraging capacity are able to trade and play with credit derivatives as accessing credit markets sold by US banks in which Bearns doesn't have the capability of originating the credits. <BR/><BR/>In fact, credit market for loans or bonds is the biggest available market in capital market in terms of volume, outweighing equity market. Bearns may then see an opportunity to take a big profit in credit market via credit derivatives as they can speculatively bet on default probability and interest rate movement. (if succeed)<BR/><BR/>On the other hand, credit derivatives can provide lenders a broader and liquid market for transferring credit risks in order to capture wealthy investors via hedge funds. <BR/><BR/>Imagine Bank Mandiri originates a huge credit facility to some national corporations or to nearly wealthy households. Then, one player, say Salemba's Fund, turns it into credit derivatives and catches the markets (foreign/domestic) as betting on the loans for/from a bunch of already wealthy investors. It's obvious if BI bails out Salemba because the root is Mandiri. (In some cases of the fail of Mandiri's loan team in assessing the loans)<BR/><BR/>Any failure? Damn! why don't just they arrest BI or Mandiri's people?<BR/><BR/><I>If Salemba fails, if Salemba succeeds, at least Salemba'll live as Salemba believes. No matter what they take from Salemba. They can't take away Salemba's dignity.</I>Anymattershttps://www.blogger.com/profile/15417170603768510851noreply@blogger.com