Some contributions on the Normal vs Levy thread suggest that wider musings on modelling issues may be fruitful.
By the standards set by one poster as the minimum “to understand financial modelling”, my score looks to be 1/5, so readers need not expect breakthroughs on particular questions in this field.
While not disputing that Levy is likely to be more correct than Normal (in the modelling contexts cited) I wonder how much of the problem with the model can be attributed to this choice.
Doesn’t this issue segue into deeper issues concerning the complex systems that drive the processes whose outputs are finally observed as univariate distributions?
I plan a couple of exploratory posts.
87 comments
21 July, 2009 at 02:33
Andrew
Welcome back, Clive.
21 July, 2009 at 11:48
ABOM
Just to get this important discussion started:
http://blog.mises.org/archives/010129.asp
Please also make the effort to read the comments section underneath.
This article is a cheat’s way of getting an introduction to Misean analysis of probability theory in Mises’ Human Action. It’s obviously better to read the whole thing, but Human Action is very hard going for most people without a pre-existing, solid background in Austrian School economics.
Reading this and understanding it will get you to 2/5, which is a start.
22 July, 2009 at 00:23
Clive
Thank you for the pointer to the article and attendant comments.
I’m a Bayesian statistician and thought there was some overlap with the half-century-odd of debate on “frequentist” vs “Bayesian” paradigms. (Some discussants also made this point.) Besides the authors they mention, I always liked D. V. Lindley’s writings for clarity.
Despite having lectured this subject in my youth – following James O Berger’s text “Statistical Decision Theory and Bayesian Analysis” – I wouldn’t claim authority.
Practicing stats in the commercial world teaches that a Bayesian outlook is the sensible and coherent one that allows correspondingly sensible communication with the client, who is not a philosopher but is a time-poor officer who needs to make a decision.
Semantics won’t be their main concern, so whether one describes items as “probabilities”, “degrees of belief”, “proportion expected to default”, or just “numbers in the model”, won’t matter much.
After all, whence did the marketing dept pull the other key numbers..
So I’m planning to adopt a plain English & practical approach on the blog and leave the harder philosophical points to those forums that already well serve that purpose.
Incidentally, a blast from the past for me personally was to see Georges Matheron referenced by one of the discussants. I worked many years in Geostatistics and met several of his school. Interesting that he also published this:
http://www.amazon.com/Estimating-Choosing-Essay-Probability-Practice/dp/0387500871/ref=sid_dp_dp
Now *there’s* a field (Geostatistics) with many a billion-dollar consequence. Practical as anything. But also segues into fractal stuff – with respect to dimensions of space (rather than time).
BTW ‘fraid this leaves me on 1/5 as this was the one I thought I knew :-P
21 July, 2009 at 14:17
Andrew
ABOM,
Were you the annoyingly ill-informed “Anonymous” on that thread?
21 July, 2009 at 14:24
ABOM
No. I have no idea who that person was/is.
21 July, 2009 at 14:32
Andrew
Fair enough.
21 July, 2009 at 17:22
ABOM
Andrew,
Put very simply, probabilistic financial modelling simply involves approximating (as best we can) our imperfect “guesses” regarding what “God has planned” (for want of a better term).
God “cheats”. If He exists, He has perfect knowledge of causation and therefore for him (at least in the financial markets) there is no “probability”. He would simply know.
Probability in financial markets is not an “objective” “verifiable” science, studying perfectly replicable events in laboratory conditions. It is a matter of mathematically representing or approximating our LACK of knowledge (our LACK of certainty about a non-perfectly replicable, unique outcome).
Assume a horse trainer drugs a horse (the odds-on favourite) to slow the horse to a crawl. His subjective belief of the horse’s odds differ from the mug punter (who stupidly thinks the race is not fixed). But assume “God” knows all the other horses will break their legs in a freak accident.
The trainer has more “accurate” information and therefore probably (excuse the pun) has a narrower range of probabilities in his head (between 0 and 0.05 probability) of the horse winning. The mug punter probably thinks in the range 0.4 – 0.8 (wider and higher).
Ironically the most dangerous person to be is the corrupt trainer – you’re too overconfident and your probability analysis is too narrow. If you’re overconfident you tend to go bust – particularly if you don’t understand probability analysis at this intimate, non-replicable subjective level.
What about God in this horse race?
God doesn’t “guess” at all. He puts all his money down confidently, without ANY distribution in his head (be it normal, Levy or Makian).
He KNOWS the odds are 100% that the horse will win.
Probability, for non-replicable events, represents degrees of subjective ignorance.
You cannot accurately model degrees of subjective ignorance. It’s laughable to try. And that’s what 40 years of financial analysis has tried to do with the normal distribution. That’s what makes financial analysis garbage.
That’s the simplest way I can state it. The Levy distribution works OK in the long run. The M-shaped Makian distribution (in my subjective, ignorant mind) works best in “visualising” the probability distribution during periods of high leverage or high stress in financial markets.
There’s a lot to this short entry. 20 years worth.
I hope you enjoy the article.
And I do recommend buy silver. I am 80%-95% confident the human race will run out silver before they run out of uses for the metal.
No, I’m not God (to prove it I used probabilities for my prediction!) but I do understand supply and demand.
21 July, 2009 at 19:26
Andrew
ABOM,
It may be “laughable to try”, but for any form of finance to work you need to use probability models of the future. All of them, even the ones put together on a seat of the pants estimate such as your ideas on silver and gold, either implicitly or explicitly incorporate probability estimates.
Personally, I prefer those estimates to be explicit where they can be analysed and criticised along with the final output of the model rather than implicitly included. Provided that it is clear what the assumptions and limitationsof the model are then it is a useful thing, in and of itself. All too often, though, the human element with its strengths and weaknesses is missed. I have often seen a VaR number presented as a “maximum possible” loss when it is clearly nothing of the sort.
I see probablistic models as very good tools – but exceptionally poor masters.
21 July, 2009 at 20:18
ABOM
OK, Andrew.
I just hope you realise you will always be trying to peer, squinty-eyed, into the future through a murky rear-view mirror of historical data that will (at best) form a very imperfect (and ultimately subjective) understanding of probability distributions in financial markets.
I myself prefer to look straight at the markets in front of me and ask “What do the monied banking idiots believe when they look at their rear-view mirrors, and how can I profit from their obvious stupidity?”
The short positions in silver tell me something. I care not that silver has gone nowhere for 40 years. It will go somewhere eventually. So will gold. So will arable land. So will fish farming. So will phosphate. So will beautiful blonde women. It’s all about supply and demand.
I care not for probabilistic “rational” mathematical models built on shaky bell curve foundations, or even historical data. They are merely the detritus of dead men with dead ideas.
Good luck with your mathematical modelling and risk valuations in the next 18 months.
You’ll need it.
21 July, 2009 at 22:15
Andrew
…whereas you will be taking seat of the pants guesses and railing against the unjust world when and if your silver play fails. Perhaps also blaming bankers for your own mistakes into the bargain.
Thanks, but I prefer my way. Decide on which risks you are happy to take and what your tolerances are for those risks and then see how to mitigate the rest.
22 July, 2009 at 09:14
ABOM
Andrew,
Your moral and intellectual blindness amazes me after the laughable stupidity of Q4, 2008, which few if any financial analysts predicted. I look forward to you providing a link to your clear warnings of excessive leverage in 2006, screaming that a financial crisis is about to erupt.
Your attitude is a perfect illustration why we are all doomed. A disaster happens that the financial “establishment” (read: in-bred embezzlers) is completely shocked by.
After the disaster, they still behave like they are financial geniuses, whilst in the shadows, at night, desperately begging and pleading and wimpering like children at the central bank begging bowl.
It’s like watching a blind man hit a wall, blaming the wall for being in the “wrong” position, and ask that, in future, no walls appear in front of him again, in case they unexpectedly hit HIM.
Hilarious.
When the models hit reality and they don’t work, it’s the model that needs adjusting, not the reality.
22 July, 2009 at 10:07
ABOM
How timely! How fortuitous!
http://www.newyorker.com/reporting/2009/07/27/090727fa_fact_gladwell?currentPage=all
The Gods (God?) must be smiling on me today…
22 July, 2009 at 11:03
Andrew
Absolutely, ABOM – th emodels need to be adjusted to fit reality. This is done all the time. It is no reason to abandon them as they have proven very useful in the past and will do in the future. As I have said repeatedly, though, they are a great tool but a poor master.
22 July, 2009 at 12:15
ABOM
Agreed, but what if the fundamental, philosophical foundations of the whole concept of financial modelling are flawed? What do you do then?
“Proved very useful in the past”??? Come on, let’s get serious. The models contributed to Q4, 2008. And still “contribute” the impending disaster that is CDS and a quadrillion in derivative losses (give or take a trillion or two).
Please also provide the link to your 2006 warning. I’d love to read it, and see how it’s based on your probabilistic (bell curve based) financial models.
25 July, 2009 at 19:41
ABOM
Andrew,
Perhaps this will eventually become a Harvard MBA case study in myopic forecasting, management hubris, and inappropriate financial modelling:
http://www.lewrockwell.com/spl/genius-advising-obama.html
Ha Ha Ha!
12 August, 2009 at 10:01
ABOM
“I myself prefer to look straight at the markets in front of me and ask “What do the monied banking idiots believe when they look at their rear-view mirrors, and how can I profit from their obvious stupidity?”
The short positions in silver tell me something. I care not that silver has gone nowhere for 40 years. It will go somewhere eventually. So will gold. So will arable land. So will fish farming. So will phosphate… I care not for probabilistic “rational” mathematical models built on shaky bell curve foundations, or even historical data. They are merely the detritus of dead men with dead ideas.”
Come to momma….
F*ck I’m brilliant.
12 August, 2009 at 10:35
Alice
ABOM – you are brilliant…!!!….fancy the Chinese Govt spruiking silver….imagine millions of Chinese buying silver…hmm
12 August, 2009 at 10:40
Andrew
ABOM,
You may want to keep this sort of stuff off Clive’s thread. He may not be as tolerant as I am.
12 August, 2009 at 10:48
ABOM
Showing how unbelievably undervalued silver is at the moment is a subject that Cilve would CENSOR?
So your logic is that providing a clear undeniable reference proving the quality of silver as a long term investment is the equivalent of mentioning child abuse???? Is that your logic?????
What planet have you come from? Honestly….please tell me. It’s not planet earth, is it?
12 August, 2009 at 10:50
Alice
Abom
I have something for you…..
12 August, 2009 at 10:51
Alice
oops – how did that happen?
12 August, 2009 at 10:51
ABOM
Yeah, I linked this on the GS thread, but Andy took no notice and blindly marched on like a zombie, or a British soldier in WWI on the front line…to his death…(nothing new in that…)
12 August, 2009 at 11:42
Alice
ABOM – tell me Im not wrong – that sort of lending is one massive massive prop for the US dollar – a big fake prop.
Tell me how it comes about that the rest of the world who has been lending to the bubble blasted US economy for years….fuelled by the low interest rates of fed bankers with their eyes glazed from too much star gazing….and now, ABOM, now…the fed turns around and lends millions to other countries so their financial systems dont collapse due to a crappy investment in bubble land they never knew they were carrying???
Is that not flushing the worlds financial systems…with the blood, sweat and tears of US taxpayers ABOM and the printing presses must have exploded (or they will…they will..ABOM).
12 August, 2009 at 12:35
ABOM
The whole thing’s a scam run by corrupt central bankers trying to keep a Ponzi scheme alive. No Ponzi scheme has ever survived as long as this one. And the bigger the scheme, the bigger the bust.
Get out of debt, buy gold and silver and canned food (and arable land if you have the $$$s) and hunker down. This thing’s gonna blow and when it does, it will not leave any of us unscathed. I just want to survive long enough to look Andy in the face and say “I told you so, idiot.”
12 August, 2009 at 13:39
Alice
You bet ABOM – Andy might just get his perfect de-regulation by bankrupting governments and millions of people….just watch him come crying then. “Help! We need law and order and regulation…this has to stop…the banks have robbed us all…there is nothing but madness and chaos now.”
12 August, 2009 at 13:57
ABOM
Well, I’m a free banker at heart, so would prefer “anarchy” (I prefer the term “order without law”) to the current govt-enforced monopoly paper system.
No purely fiat system has survived longer than 30 years. This one has been going since August 15, 1971, so a bust is well overdue.
Please don’t think govt is the answer. Although I agree than nationalisation of the banking system would be preferable to the corrupt system we have now (heads the bankers win, tails the taxpayer loses), free banking is the ideal we should be striving for.
This would NOT result in chaos or anarchy. It would result in cautious bankers who would be subject to the same insolvency and bankruptcy laws as everyone else.
It’s the centralisation of the banking system through the creation of socialist-style central banks that have brought the financial system to its knees. Further centralisation is unlikely to be the long-term solution.
I know it’s difficult to believe that TRUE free markets regulate and innovate themselves. Give the market the ability to trade in gold and silver as money, and I guarantee you things would turn out to be much more stable (and just) than they are now.
Govt simply attracts parasites who don’t want to work for a living. Creating bigger govt creates bigger parasites. And there is no bigger parasite at the current moment than the central banks of the world.
That’s why I know the normal distribution is rubbish – central banking is getting close to the end of its lifecycle and in the end it’s all fat tail. As any cancer patient could tell you.
12 August, 2009 at 15:25
Andrew
Heard it all before. Yammer yammer Ponzi. Yammer yammer conspiracy. Yammer yammer fractional reserve. Yammer yammer full reserve is the salvation. Yammer yammer more links to silly sites. Yammer yammer Yammer yammer Yammer yammer *cluck as head hits desk*.
ABOM,
If you are claiming that banking is all a Ponzi scheme then you clearly have no idea of what a Ponzi scheme is. Madoff ran a Ponzi scheme – all of the money coming in the door and back out again was purely depositors’ funds. Banks have that most inconvenient thing for your airy prognostications (I will not dignify it with “theory”) “interest income”. You know – when you take out a loan or get a credit card you pay interest.
Calling a bank a Ponzi scheme just shows total and utter ignorance.
.
As for the bits about Bernanke – go and find someone who supports what they are doing. I do not. Simple as that. I ignored what you said for a good reason – it was wrong, mostly incoherent and mis-stated my views in any case.
12 August, 2009 at 15:46
ABOM
What? You’re losing it Andy. Settle down and read the entries again. I’ve dealt with the Ponzi issue, and respectfully disagree with your position (well, OK, disrespectfully, but you get the idea). You ignore most of my threads and links because you seem to think they are linkspam or “obscene”. Perhaps the truth about bankers is “obscene”. It certainly makes me SICK.
12 August, 2009 at 15:51
Alice
GOLMAN was running a ponzi scheme, JP Morgan was running a ponzi scheme, Bear Sterns has been running a ponzi scheme. AIG has been running ponzi schemes – they were even mixing up clients money with bank funds to gamble with….
yammer yammer Bankiponzi schemes are a version of ponzi schemes run by the banks!
Strange that it sounds a bit like…kamikaze
12 August, 2009 at 16:07
Andrew
Alice,
They are only Ponzis if you ignore the fact that banks earn interest and fee income. If you can find a bank that will lend you money without charging you any interest or other costs (such as, under Shari’s lending, and equity style return) and will charge you no fees on either deposits or lending then I would agree with you.
As all of them do that then you are simply wrong.
.
No amount of links will prove otherwise. A Ponzi simply has no income. Banks do – ergo, banks are not Ponzis – QED.
12 August, 2009 at 16:08
ABOM
Whatever. Meanwhile, Alice, if you need a reason to buy arable land and canned food, look no further.
http://www.examiner.com/x-17373-Phoenix-Signs-of-the-Times-Examiner~y2009m8d11-Honey-bees-disappearing-may-be-a-greater-threat-than-global-warming
My comments may seem casual and I may look as if I’m ranting, but I’m nothing if not well-researched.
I’m deadly serious.
We. Are. Doomed.
12 August, 2009 at 16:11
Andrew
So – ABOM. They are well-researched errors, then. Whatever – you are still wrong. A Ponzi simply has no income. Banks do – ergo, banks are not Ponzis – QED.
12 August, 2009 at 16:30
Alice
ABOM
Imagine that – while we twist and deny that banks are out of control and engaging in financial self destruct with financial weapons of mass disaster – propped up by incompetent immoral klutzs in central banks who no longer know who they work for
and while we deny climate change and invent reasons to stop climate change intiatives
the humble little bumble bee drops out the sky and no one notices…they are so busy arguing and denying the bleeding obvious
canned food ABOM. You are so right.
We ARE doomed.
12 August, 2009 at 16:40
Andrew
So, Alice – no attempt to support the Ponzi argument but no admission of error. Does that mean you concede you were wrong or are you just trying to avoid that admission?
12 August, 2009 at 17:07
ABOM
Alice, you now understand my nihilism. I’ve argued for years with these zombies who cannot see. Their myopia and lack of moral compass is frightening. We are doomed with these power-crazed, money-crazed idiots in charge. They would prefer to see the environment destroyed before they will admit their little pathetic mathematical models are wrong.
Where’s that impulsive, gorgeous coke-snorting Sarah? I think I’m going to blow all my fiat toilet paper on Louis Vuitton just to have one more night of hedonistic fun with her and her legs. Why not, when people like “zealot-zombie” Andy, “my way or the highway” Wong, “robot” Rudd, and “mad Mal” are all in charge?
I GUARANTEE this is not going to work out “alright”. I guarantee it. Either the population will have to consume less or we will need another planet to abuse. The latter is not an option for non-Reptilians. The former does not look likely (particularly seeing Sarah’s friends throw their cash around like there is no tomorrow). Ironically, they are right. There really is no tomorrow.
12 August, 2009 at 17:45
Andrew
ABOM,
What I see is someone who cannot even be bothered to pick up a bank’s financial statements and see that a bank has income, otherwise the use of “Ponzi” in this context would be used only to say that banks are not Ponzis as to maintain otherwise shows only ignorance.
As Alice has previously said she understands accounting, yet she also has not bothered to revise her position I must assume she is one of lazy, stupid or lying – well let’s be a little more charitable and just say “trolling”.
12 August, 2009 at 17:49
ABOM
One more time fool.
“In stark contrast to conventional economic analysis, some commentators focus on the combined use of fiat currency, fractional reserve banking and central banking as a negative feature of modern monetary systems. These commentators use the term “debt-based monetary system” to refer to an economic system where money is created primarily through fractional reserve banking techniques, using the banking system.[4] This form of money is called “debt-based” because as a condition of its creation it must be paid back plus interest at some time in the future.
To some commentators, this implies that as the money supply and the economy grows, the general populace becomes increasingly indebted at the same time as debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.[21][26][34]
Some argue that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process. For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that debt must grow exponentially in order for the monetary system to remain solvent.[21][26]
Others argue that there is in fact no mathematical necessity for the money supply in a debt-based system to grow, since the interest portion of loan payments is not taken out of circulation, but goes into the lender’s account, where it can be spent back into circulation and eventually be used to pay off some loan principal. The “exponential” growth of debt need not be a concern because if GDP growth is positive, GDP is also growing exponentially and the ratio of debt to GDP may improve.”
http://en.wikipedia.org/wiki/Criticism_of_fractional-reserve_banking
You are only proving your inability to adapt and learn. Like any zombie you are incapable of reversing or changing direction. “Brains……brains….I need more brains…..”
12 August, 2009 at 18:28
Alice
ABOM – live it up baby! What else can we do!!
and ANDY – even financial statements can be “shammed”. Im enough of an accountant to know that – some accountants specialise in “shamming” – does your business want offshore advice to avoid taxes?? WE WILL ASSIST YOU.
Accounting is a freaking “how to cheat tax” sheet in most large financial institutions and you know it Andy!
Yeah well – you get a stripped govt and you get a bullying financial sector…with lots of power that laughs at a puny pathetic government legislature…
Whats real here? The large financial institutions are running the world. Accounting doesnt matter a bit. Accounting can be used to prop up a share price, hide the ugly mess in inventories. shift the debt so the debt ratio isnt breached and the lender doesnt come knocking, or shift profits away from the wife in a divorce, or shift profits to tax free countries…
How much do you want to save,? What do you want to hide? How much can you afford to pay for our expertise?
Thats what accountants are for…
You know it and I know and there is no-one to stop it…
13 August, 2009 at 01:49
Andrew
Alice, Alice Alice. Of course financial statements can be “shammed” – just ask Bernie. However, that is like saying all governments can be mass murderers, and therefore we should have no governments – i.e a ridiculous argument.
If you are seriously trying to maintain that every single major accounting firm on the planet is signing off on “shammed” accounts then that just shows how silly and desperate your attempts at an argument have become.
Try yet again – but if this is a demonstration as to where you have gone I would suggest that we can put your whole argument into the “too silly” rubbish bin.
.
ABOM,
Perhaps you do need more brains – that may be the problem. The zombies have got to yours. As usual with anti-FRB arguments, you are trying to have your cake, eat it and then eat it again. On another thread you acted all offended when I said you believe in full reserve banking, yet here you come back yet again with more nonsense selectively culled from Wikipedia. At least that is a better source than the Rolling Stone or Vanity Fair – or, OTOH, perhaps not. It may well sit with the blood sucking vampire piece that you seemed to be attempting to pass off as a serious journal article and then got all offended when you claimed (incorrectly again) that I had not read it.
Make up your mind though – are you in favour of free banking as you pretend in some places, full reserve banking as you seem to be here or the heavy regulation that you seem to be defending or seeking to advance elsewhere?
As for the rest – *yawn*. Any more rubbish that you have not yet linked to? The banking conspiracy must have lots more – perhaps you yourself have written some of it. It seems sufficiently incoherent.
13 August, 2009 at 08:09
Alice
Andy,
You say to me
“If you are seriously trying to maintain that every single major accounting firm on the planet is signing off on “shammed” accounts then that just shows how silly and desperate your attempts at an argument have become.Try yet again – but if this is a demonstration as to where you have gone I would suggest that we can put your whole argument into the “too silly” rubbish bin.”
Now that just shows how desperate your argument has become Andy. Name me the place where I suggested EVERY single major…or minor…(for that matter) accounting firm signs off on “shammed accounts”.
This is a clear demonstration of as to where you have gone, Andy! (not me)
Dont put words in my mouth you know were never there Andy.
Andy, you will have to be craftier than that…to get this sort of an argument past me. Your bucket is leaking and not holding water…
splooosh..
13 August, 2009 at 09:19
ABOM
Andrew, you really have an issue with strawmen. I will only continue this thread if you solemnly resolve to stop abusing them so brutally.
Why is there an inconsistency between supporting (theoretically) FullRB and yet also supporting (as a realistic second-best goal) free banking? There is NO INCONSISTENCY in these positions. Rothbard had them. So do it.
There IS an inconsistency in believing in the power of markets and then tolerating a collusive price fixing cartel run by a criminal central bank for the benefit of the banks and the govt, in DIRECT contradiction to every principle of free market economics and enforced via a monopolistic fiat (socialist) currency.
You are a shallow fool, thinking the current arrangement “sort of” reflects free market dynamics. You have either been brainwashed by Keynesian Marxists into thinking this is a “mainstream” position (it John Law socialism that is doomed to fail) or you are part of the Gay Cambridge Apostle conspiracy to take over the world through the govt-enforced banking cartel. Which is it?
13 August, 2009 at 09:22
ABOM
“So do I” and “it’s John Law socialism”. I’m hitting the bottle early after Sarah rejected my offer for a second night of fun. Apparently another suitor has (1) more ready cash to spend on Louis Vuitton handbags (2) is less depressing to talk to over dinner (3) has a sports car (4) works in banking.
13 August, 2009 at 09:58
ABOM
Andrew,
This is the best one so far! It combines accounting analysis with PROOF that current US banking practices amount to a classic, undeniable Ponzi scheme.
http://news.goldseek.com/GoldSeek/1250086941.php
Punked again. Ha Ha Ha!
13 August, 2009 at 10:21
Alice
ABOM –
Im so sorry to hear about Sarah…
Those Vuitton handbag lovers ABOM – …I told you cant trust em. Theyll have your wallet sized up in two seconds flat and when a fatter one walks past they can smell it from 50 paces ABOM…
13 August, 2009 at 11:22
Andrew
Alice,
Read your own comment. For that to be even close to an adequate answer to my statement about bank’s income statements you must be implying that all banks “sham” their accounts. If not, you have no leg whatsoever to stand on in regards to trying to say that
They are all audited by large, respectable audit firms. If they were running Ponzis, then those firm were guilty of signing off on accounts that were outright wrong in that they claimed to be earning income when (as you must maintain if you are right) they were in fact earning none.
That is the desperation that your argument has got to. Sad at best.
.
ABOM,
It is highly amusing that you link to that one – it shows not what you (or, for that matter the author) claim is the case, but your own ignorance. If I had any confidence whatsoever that you were interested in learning I would explain it to you, but I will not bother. You have not taken on anything I have said before, so I doubt you will now.
More yawns.
13 August, 2009 at 11:31
ABOM
Great riposte again, loser. Dismiss the reference without reading it. That’s real analysis, after weeks of denying the banking system was a Ponzi scheme.
Yeah right. Am I’m the crazy narrow-minded zealot…
13 August, 2009 at 11:33
ABOM
One last cut…..
http://news.goldseek.com/GoldSeek/1250143740.php
Do you bleed?
13 August, 2009 at 11:34
Andrew
BTW Alice and ABOM. If you think you will win this by wearing me down, think again. And again. There were some more threads on Catallaxy and all of them were over 3,000 comments and went for months. Unfortunately they were lost when the server collapsed. I know this argument well. I have been abused on it by people that use much worse tactics than you (although that diversion of your was unusually strident) and none of them have yet convinced me that fractional reserve banking is anything other than desirable – if slightly risky – element of a free society.
You are welcome to try – I would be the first to concede that there is still a chance I am wrong – but you are going to have to come up with much, much better arguments than more polemic, lots of abuse and bags of links.
13 August, 2009 at 11:34
Andrew
I read it, ABOM. Did you? Do you understand how reserve requirements are actually calculated in a bank?
I thought not.
13 August, 2009 at 11:47
ABOM
From the link I have made the effort to provide you, narrow-minded zealot:
“The U.S. banking system is using a sneaky accounting trick listed the fine print of checking account agreements to escape the gravity pull of reserve requirements. The system likely already crashed last year, but the FED pumped in liquidity last year at the same time as the Banker Bailout to avoid the collapse of this PONZI SCHEME.
This brings me to an interesting conclusion – at this point in history, our monetary system is really no more than paper ticket printing and excited electrons…
Although our central bank, the FED, can technically NEVER go bankrupt since it has the power to create as many paper tickets as needed, risks over the long-term include psychological events like hyperinflation where the demand to store money goes to zero, and the purchasing power of the currency approaches zero as well. However, the true responsibility lies with U.S. Congress, which “delegated” its control over the currency to the FED in 1913.
As F.A. Hayek wrote in The Road to Serfdom, delegated autonomy from the legislative body of a socialist state is usually done to escape blame and responsibility for the inevitable mistakes of central planning. Understand that the next time you see your Congressman or -woman, unless he happens to be Dr. Ron Paul, they ARE responsible for quite literally stealing purchasing power from your pocket…
The solution? The money power must be returned to We the People. The FED must be abolished, by populating the U.S. House with representatives who will end the FED.”
END THE FED. Kill the central bankers. Die central banker, die.
13 August, 2009 at 11:50
ABOM
Direct quote from the other link, again carefully researched by me, ignored by zealot-zombie you:
“Banks come first and savers are far down on the list.
Why does the system work this way?
Well, most people haven’t got a clue what the Federal Reserve is or what it does (though, understandably, there is growing interest in this topic, ever since the wheels fell off of the global economy last fall), but the crucial bit of information that the now-slightly-more-curious public should learn quickly is that the central bank was not set up to help the people or the government, but, rather, to help the big banks.
In fact, according to G. Edward Griffin, who happened to write a whole book on the subject, the very reason that the Federal Reserve was formed back in 1913 was so that big banks could wrest back control of the banking system from the many small, fledgling, independent banks all around the country that were taking away their business.
Look around you today. You might see lots of little banks failing, but only a few large ones ever go under and none of the country’s biggest banks ever fail.
The Fed was created by the big banks, for the big banks, and its unwritten “mission statement” is to do whatever it takes to ensure the survival and profitability of those big banks, getting the government to step in with public money when necessary for “the greater good”, effectively socializing the losses while keeping the gains in private hands.
That’s why what we have today – a wholly unsustainable system of ever-expanding credit and debt dominated by a handful of “too big to fail” banks – keeps getting propped up.
The masses are led to believe that credit is the “lifeblood of the economy” when, in fact, credit is the lifeblood of a banking system that has, over time, sucked the life out of the economy.
It’s hard to imagine anything that is more immoral than the Federal Reserve’s role in this process, now almost a hundred years in the making.”
Fed as immoral, blood-sucking cancer. Hmmmmmm…… and I’m the crazy sociopath.
13 August, 2009 at 12:07
Andrew
Um – no, ABOM. Simply wrong (yet) again. If you really want to understand reserve requirements, go and have a look at the Fed website. It may be educational to get away from the conspiracy and misstatement sites you seem to be inhabiting on a regular basis.
BTW – I am not saying the current system is ideal, so do not act as if I am defending it, but compared to the fruit loops you seem to be reading the Fed is positively brilliant.
At least they know roughly what they are talking about.
13 August, 2009 at 12:11
ABOM
One of us is completely crazy. Insane. A “fruitloop”. And one of us has absolutely crap sources they are relying on to understand modern financial markets.
At least that we can agree on.
13 August, 2009 at 12:13
Andrew
ABOM,
As for the comment at 11.50 – where have I ever supported the retention of the Fed as an institution? This is just another straw man argument. You are just getting monotonous – but I am happy to entertain you. You seem to be needing to work some issues out.
Perhaps some psychoanalysis would help too.
13 August, 2009 at 12:15
ABOM
Do you support the ending of the Fed and the ending of the RBA? Right now? No questions asked. No matter what “short term” chaos may ensue?
13 August, 2009 at 12:23
Andrew
ABOM,
I will answer that if you first say whether you are a full reserve, free banker or a reregulation person first.
You seem to be playing all of them as it suits you.
13 August, 2009 at 12:40
ABOM
Andrew,
I am fundamentally a free banker. Full stop. That’s it. No equivocation. I’d combine it with a repeal of all legal tender laws. That would solve so many banking and economic problems it’s not funny, but I recognize that the transition would be traumatic. But I’m willing to accept the trauma to get from here to there, because the trauma is going to happen sooner or later anyway. The only question is when and how big the bust is going to be.
I see distinct benefits in FullRB combined with Rowbotham/Lincoln/Ellen Hodgson Brown/Zarlenga fiat currency issuance, but recognize the fascist implications of the policy, and the fact that it hasn’t worked well in the past (hyperinflation generally being the end result). Then again, no one seems to recognize the fascist implications of the CURRENT monetary regime, so I’m relaxed about Brown’s proposals if they could ever get up (which they couldn’t).
I will say it one more time to get it through your head:
EITHER free banking or nationalisation of the banking system would be preferable to the current system. I’d prefer free banking but I’m OK with nationalisation.
So the order is:
1. Free banking and deregulation of legal tender laws.
2. Nationalisation. Immediate. Then break up of the big banks into little ittzy bittzy banks.
3. FullRB + a short period of Brown-style fiat.
4. The current insane corrupt unsustainable private-public Ponzi scheme, with central banks helping out when the Ponzi scheme goes bust, but the general populace increasingly becoming indebted and/or taxed to death.
13 August, 2009 at 12:55
Andrew
ABOM,
Leaving aside the OTT language:
1. I agree.
2. Highly undesirable and I would regard this action as economic suicide. Government directed credit would be even less desirable than government directed taxation.
3. I regard this option as impossible in a free society.
4. Your hyperbolic and error-filled language aside, by default I would see this as merely a starting point to move back to a free banking system.
Being by nature a Burkean conservative (not a big “C” Conservative) I would move a little more gradually than you seem to envisage.
BTW – I have also said that many times before.
13 August, 2009 at 13:06
ABOM
On option 2, it’s seems to be well down your list (perhaps last). This is the real difference of opinion. You cannot see the destructiveness inherent in the current inherently FASCIST monetary system, so tolerate it compared to nationalisation. That is wrong.
I fail to see how it would be a disaster to nationalise when the CBA is by far the best performing bank and has its history and its foundation as a govt-owned entity. I predict it will eventually succumb to the same stupid Ponzi-schemes as every other private bank, but its history as a govt-owned entity cannot be denied or ignored.
1950s Australia wasn’t so bad Andrew. Really it wasn’t.
13 August, 2009 at 13:14
Andrew
ABOM,
No, attempts to produce option 3 are at the bottom. The impossible is always less desirable than the merely silly.
A couple of other points: The current banking system is no more fascist than it is a Ponzi scheme. Mussolini would have come closer to agreeing with your point two than with your point four.
The CBA may be the safest bank, but it is far from the best performing.
You really should calm down, ABOM. The use of such fantastic (in the old sense) hyperbole really just makes you look more like an idiot than someone that is capable of convincing others that you are right. Reasoned argument, rather than ridiculous hyperbole, is (IMHO) more likely to convince many people.
Just a quick note on your last sentence – the Banking Act was passed in 1959.
13 August, 2009 at 14:26
ABOM
Q4, 2008 was “hyperbole” gone “real”. I should have been screaming earlier.
The next disaster will be worse. People like you will deny it is likely to occur, will deny it’s happening when it’s happening, and will deny its devastating effects when unemployment climbs beyond 15% in the US again (as it is now, if counted correctly).
It frankly amazes me that someone in financial risk management who did NOT predict or warn about the likelihood of Q4, 2008 continues to call someone who did “an idiot” and someone engaging in “hyperbole” when his clients probably lost their shirts underestimating volatility in the markets.
There’s an old market saying, “If you don’t know who the idiot is in the room, it’s probably you.” To which I would add “If you think you are the ‘financial expert’ and someone who actually predicted Q4, 2008 is ‘an idiot’, you may have the labels the wrong way around. And you might want to look at other fields of work.”
13 August, 2009 at 20:08
Alice
Freaking hell…ABOM..
Ive got two of them now.
There is some fool called Jarrah ..same deal…a robit who doesnt think in JQs blog.
For everyone idiot who cannot seen what is going on, as soom as the light turns on ABOM, another one crawls out of the darkness.
Why do we waste our intelligence ABOM. Its like beating ones’s head againsta brick wall (reinforced concrete brick wall).
I guess some can see and others cant or wont ever, and they never question ABOM. Intelligence is a curse…
Grow up, find a girl, get married…dont think, etc
13 August, 2009 at 20:17
ABOM
Let’s get the Hell out of here and escape. You’re the only sane one in this Hell hole…
13 August, 2009 at 20:37
Alice
Dear dear (very dear) ABOM,
Lets…Ive had enough of people I find only too willing not to think at all….(how do so called normal people lobotomise themselves ABOM – how can they be so in denial?)
Ive had enough…they cant see the woods for the trees..they just cant see at all ABOM and if they can (which I secretly suspect they can…they have some vested interest in denying the truth….it is like living with zombies.
BUT the truth takes longer to get there ABOM but in the end it does and it trumps lies every time….it wins ABOM, it wins.
Its a form of madness ABOM. They arent even honest with themselves…
Lets run away ABOM…. lets just run away!!
Im with you. 100%.
13 August, 2009 at 20:41
Alice
Andy
In case you didnt hear me the first time (which you didnt or you CHOSE to deny it)….Ill say it again, and again and again……
“GOLMAN was running a ponzi scheme, JP Morgan was running a ponzi scheme, Bear Sterns has been running a ponzi scheme. AIG has been running ponzi schemes…”
and again
“GOLMAN was running a ponzi scheme, JP Morgan was running a ponzi scheme, Bear Sterns has been running a ponzi scheme. AIG has been running ponzi schemes…”
What they have been doing ISNT respectable banking Andy. Doh.
13 August, 2009 at 22:21
Andrew
Alice,
So – they were not earning income at all. Can you prove this? Do you want to contact the authorities?
Start saying it enough and even you may start believing it.
14 August, 2009 at 10:02
ABOM
If Bernanke is NOT appointed for a second term, we will know this story is true and the US is spiralling out of control:
http://www.marketoracle.co.uk/Article12721.html
14 August, 2009 at 11:39
Andrew
…and if he is reappointed we know this guy is at least as much of an idiot as he appears to be. More links?
14 August, 2009 at 11:55
ABOM
How ’bout this one? Do you want to laugh at this too?
http://www.marketoracle.co.uk/Article12723.html
14 August, 2009 at 12:19
Andrew
Looks like he is just as careful about sourcing his quotes as you are, ABOM. No wonder you get along.
Pity it is another strawman argument. You still seem to think I defend the Fed. *yawn*
14 August, 2009 at 12:23
ABOM
And I’ve just received more silver in the mail. I’m fondling it in my hands now.
Another day, another hundred ounces of the shiny stuff…*yawn*…
http://www.marketoracle.co.uk/Article12688.html
14 August, 2009 at 12:31
Andrew
Good luck on the bet. Is it race courses next? I have a good tip for the fifth at Ascot.
14 August, 2009 at 15:43
ABOM
Hmmm… STABLE money AND low TAXES….
http://www.dailyreckoning.com.au/the-magic-formula-of-economic-success/2009/08/14/
Stable money….stable money….doesn’t that mean gold and silver?
25 August, 2009 at 23:37
Andrew
Oops ABOM – Bernanke was reappointed.
7 September, 2009 at 18:11
ABOM
Yeah, I know. But gold is up in response, so I win either way…
21 October, 2009 at 10:35
ABOM
With my sophisticated mathematical modelling, I estimate the probability of fiat paper turning worthless is 99.999%.
http://news.goldseek.com/GoldSeek/1256046982.php
21 October, 2009 at 13:17
Andrew
ABOM,
I predict that the chances of all of us dying with the next century is about the same. Relevance?
21 October, 2009 at 13:34
ABOM
Agent K: “Did he say anything to you?”
Officer Edwards: “Yeah, he said the world was coming to an end.”
Agent K: “Did he say when?”
Men in Black (2001)
Good point. Someone screaming that fiat paper is starting to turn fetid and stink like counterfeit in the 1970s would have been considered mad (and they turned out to be).
However, I think Armageddon is a little closer today.
http://www.financialarmageddon.com/
Perhaps only a year or two away. 2011 could be particularly interesting…
http://www.goldensextant.com/SavingtheSystem.html
22 October, 2009 at 09:16
ABOM
Tsunami Early Warning System Alert. Bankers – pack your bags, get your gold and jewellery and start heading to Zurich. Monetary chaos is about to ensue, a depression is never a good look when combined with $140 billion in corrupt bonus confetti and now is as good a time as any to cash in the chips, swap the counterfeit paper crap with gold and get the Hell outta here, with the pretty young girlfriend (or boyfriend?), the wife, the diamonds and the gold. When is the next plane to Zurich?
http://news.goldseek.com/GoldSeek/1256132086.php
22 October, 2009 at 11:04
ABOM
“Who is steering this fear and global paranoia about the G.M. cotton and all these G.M. crops?” said Hans P. Binswanger-Mkhize, a South African agriculture consultant. “Show us where the corpses are — the corpses of earthworms, the corpses of bees, the corpses of antelopes and the corpses of humans. Nobody has yet ever shown us a corpse.”
I can show you the massive loss of bees, you idiot. GM will actually hasten Armageddon, not prevent it.
You can’t securitise a perishable. When food prices spike, the bankers are going down.
22 October, 2009 at 11:06
ABOM
Quote is taken from article below…
http://www.nytimes.com/2009/10/22/world/22food.html?hp
Who can model worldwide starvation? Andrew?
23 October, 2009 at 08:30
ABOM
20 years later, people start talking about this stuff. A little late, don’t you think? We’ll die of starvation before the stupid mainstream economics profession gets its act together.
http://www.marketoracle.co.uk/Article14429.html
23 October, 2009 at 09:31
ABOM
With these few words, Martin Wolf pours scorn on the whole financial risk management industry:
“The limited liability businesses at the heart of our credit-based monetary system have a tendency to mismanage risk (and uncertainty), with devastating results.”
What a devastating article! This is one of those rare occasions when reserved British understatement is most effective. I scream “Disaster ahead!” – no one listens (like the homeless guy screaming “re. Martin Wolf whispers it. People will probably (!) listen to Martin Wolf because he whispers “This credit-based system looks a little bit like a cancer which is killing the patient.”
http://www.ft.com/cms/s/0/0a8a6362-bf3d-11de-a696-00144feab49a.html
23 October, 2009 at 09:37
ABOM
(like the homeless guy screaming “repent!”).
No one ever does.
It’s coming close to the time when the counterfeiting bankers will need to repent. Will they?
23 October, 2009 at 10:04
ABOM
“Mr King raises the right issue. He is justified in doing so, even if it makes politicians uncomfortable. Indeed, he is justified, because it makes politicians uncomfortable. I agree with him, too, that the two alternatives are either to make institutions that are “too important to fail” too good to do so or to be able to fail any institution, even in a crisis. If we do not achieve one of these, further crises are inevitable.”
Well said.
30 October, 2009 at 12:17
ABOM
And just on silver and the US$…
http://www.marketoracle.co.uk/Article14633.html
7 November, 2009 at 14:05
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