Let me think this through in simple terms, fitting for a simple guy like me.
I have a credit card that has a $6,000 credit limit. I go along happily spending for awhile until one day I find that I've hit the limit, and stores/bars/vending machines are spitting my card back out at me.
So I scrape together $1,000, pay it, and now I'm below the limit again. I can go back to using my plastic and (bonus), the credit card company, happy to have received the $1,000 payment, increases my limit to $10,000.
Something like that has been the history of the US legislatively imposed Treasury debt limit, and various increases thereof.
What do I do for a living? I sell widgets, let us suppose. I work on commission, so the more widgets I sell, the more money I get. [Okay, this part doesn't seem at first blush to fit the analogy, but it will in time. Work with me here.] The problem is, how to raise that $1,000 quick so I can (a) render my card limit immediately irrelevant and (b) likely get it raised into the bargain?
Along comes someone named Lancelot Giggler who tells me that I could sell a lot more widgets if I charged less as a commission. Perhaps I could offer some portion of my commission as a rebate to buyers. Enough new buyers will mean a higher total income, means I pay the credit card company.
Now, let's imagine that there are a variety of different opinions about the social value of Faille and the widgets he sells. There is a faction who believes that if I died, or (let's be less bloodthirsty here) if I lost a lot of weight because of a starvation diet, and wasn't able to sell widgets any more, then the world would be better off, because the social net value of widget salesmen, or of chubby ones anyway, is negative.
So we have Lancelot Giggler on the one hand and we have the Faille Starvers on the other.
This is where I get confused. Aren't Giggler and the Starvers taking up quite contrary positions? If Giggler is telling the truth about the effects of commissions cuts on my sales, then he is describing a way in which I can make more sales and remain chubby and prosperous. If the Starvers believe him, they'll want to dissuade or prevent me from doing that.
Right?
Showing posts with label credit markets. Show all posts
Showing posts with label credit markets. Show all posts
24 July 2011
24 April 2008
Bankruptcy
Dysfunction of the corporate bankruptcy system in the US is, I feel certain, a good part of what ails us inboth micro and macro terms.
In a recent reveiw of Alan Greenspan's memoir, which I contributed to The Federal Lawyer, I said that debtor/creditor relations are a central theme in US history. That was the issue behind the fights over the first and second national banks. Regional disputes over debt and credit helped ignite a civil war, and the subsequent west-versus-east character of American populism. This was the issue behind the Bretton Woods negotiations of 1944, the subsequent unravelling of the system created there, and Greenspan's own present notoriety.
I didn't reference bankruptcy law in that review, but it is a branch on the same conceptual tree.
The kerfuffle over Bear Stearns last month renewed my interest in the whole subject. I suspect that the reason Bear melted down as quickly and unexpectedly as it did has a lot to do with contemporary bankruptcy laws, and the fact that Bear's counter-parties had to act in anticipation of the very possibility, even the mere rumor, that Bear might make such a filing.
I discussed related points in a blog entry here last August, and for today I'll just link you to that.
On a personal note: I'm going to be doing some travelling. You probably won't see another entry here for a week. I hope to see lots of comments when I return.
In a recent reveiw of Alan Greenspan's memoir, which I contributed to The Federal Lawyer, I said that debtor/creditor relations are a central theme in US history. That was the issue behind the fights over the first and second national banks. Regional disputes over debt and credit helped ignite a civil war, and the subsequent west-versus-east character of American populism. This was the issue behind the Bretton Woods negotiations of 1944, the subsequent unravelling of the system created there, and Greenspan's own present notoriety.
I didn't reference bankruptcy law in that review, but it is a branch on the same conceptual tree.
The kerfuffle over Bear Stearns last month renewed my interest in the whole subject. I suspect that the reason Bear melted down as quickly and unexpectedly as it did has a lot to do with contemporary bankruptcy laws, and the fact that Bear's counter-parties had to act in anticipation of the very possibility, even the mere rumor, that Bear might make such a filing.
I discussed related points in a blog entry here last August, and for today I'll just link you to that.
On a personal note: I'm going to be doing some travelling. You probably won't see another entry here for a week. I hope to see lots of comments when I return.
13 March 2008
Thinking about Thailand
A week ago now I said something here about Thaksin Shinawatra, the prime minister of Thailand ousted in a coup in 2006 who has recently returned to face corruption charges.
Today I'll just briefly record the new developments there. Thaksin has pleaded "not guilty." Also, his request for a month-long trip to the UK has been granted.
Instead of covering the same ground I did last week about Thaksin's career, let's try to put it into a bit of context. In my day job at HedgeWorld we ran a story recently of a survey, released in November, by the consulting firm Oliver Wyman.
Wyman's study said that among hedge funds in Asia's debt markets, China and India are the two most popular destinations for their cash, despite the infamous illiquidity they can encounter in either place.
It found that Thailand was waaay down the list of desirable locales for such investors.
In fact, the list is this (name of country followed by the percentage of surveyed funds putting their money there).
China: 78
India: 76
Japan: 71
Taiwan: 59
South Korea: 45
Philippines: 44
Australia: 39
Thailand: 33
Indonesia: 30
Hong Kong: 29.
The significance of the list is perhaps not immediately apparent.
My take on it is this: such hedge funds make a profit only on inefficiencies. If a debt market is too well developed already, they'll turn away. Because in such a case, the assets are already priced at their value, and there won't be arbitrage plays.
On the other hand, the kind of inefficiency that makes a country attractive is of a specific sort. Hedge funds that are playing the credit markets aren't making their money off political chaos or inadequate infrastructure. They want stability, functioning courts, passable roads and reliable bridges etc. China and India possess both of these requirements. They've got the infrastructure that allows for the normal conduct of business, and they've got markets still inefficient enough for wily speculators to find profit opportunities.
A low place on that list, then, can be either good news for a country or bad. It's good news for Australia and Hong Kong, which both had efficient enough markets to scare off such funds. But its bad news for Thailand and Indonesia, where the basics aren't yet considered trustworthy.
The 2006 coup itself was presumably a large part of the reason for that in Thailand's case. I of course wish the people of the country well and hope that the routine resolution of the charges against Thaksin will prove something of a showcase for the routine functioning of a well-honed legal system.
Today I'll just briefly record the new developments there. Thaksin has pleaded "not guilty." Also, his request for a month-long trip to the UK has been granted.
Instead of covering the same ground I did last week about Thaksin's career, let's try to put it into a bit of context. In my day job at HedgeWorld we ran a story recently of a survey, released in November, by the consulting firm Oliver Wyman.
Wyman's study said that among hedge funds in Asia's debt markets, China and India are the two most popular destinations for their cash, despite the infamous illiquidity they can encounter in either place.
It found that Thailand was waaay down the list of desirable locales for such investors.
In fact, the list is this (name of country followed by the percentage of surveyed funds putting their money there).
China: 78
India: 76
Japan: 71
Taiwan: 59
South Korea: 45
Philippines: 44
Australia: 39
Thailand: 33
Indonesia: 30
Hong Kong: 29.
The significance of the list is perhaps not immediately apparent.
My take on it is this: such hedge funds make a profit only on inefficiencies. If a debt market is too well developed already, they'll turn away. Because in such a case, the assets are already priced at their value, and there won't be arbitrage plays.
On the other hand, the kind of inefficiency that makes a country attractive is of a specific sort. Hedge funds that are playing the credit markets aren't making their money off political chaos or inadequate infrastructure. They want stability, functioning courts, passable roads and reliable bridges etc. China and India possess both of these requirements. They've got the infrastructure that allows for the normal conduct of business, and they've got markets still inefficient enough for wily speculators to find profit opportunities.
A low place on that list, then, can be either good news for a country or bad. It's good news for Australia and Hong Kong, which both had efficient enough markets to scare off such funds. But its bad news for Thailand and Indonesia, where the basics aren't yet considered trustworthy.
The 2006 coup itself was presumably a large part of the reason for that in Thailand's case. I of course wish the people of the country well and hope that the routine resolution of the charges against Thaksin will prove something of a showcase for the routine functioning of a well-honed legal system.
Subscribe to:
Posts (Atom)
