The Phaserl


Double or Nothing: How Wall Street is Destroying Itself

from Azizonomics:

There’s nothing controversial about the claim— reported on by Slate, Bloomberg and Harvard Magazine — that in the last 20 years Wall Street has moved away from an investment-led model, to a gambling-led model.

This was exemplified by the failure of LTCM which blew up unsuccessfully making huge interest rate bets for tiny profits, or “picking up nickels in front of a streamroller”, and by Jon Corzine’s MF Global doing practically the same thing with European debt (while at the same time stealing from clients).

As Nassim Taleb described in The Black Swan these kinds of trades — betting large amounts for small frequent profits — is extremely fragile because eventually (and probably sooner in the real world than in a model) losses will happen (and of course if you are betting big, losses will be big). If you are running your business on the basis of leverage, this is especially dangerous, because facing a margin call or a downgrade you may be left in a fire sale to raise collateral.

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1 comment to Double or Nothing: How Wall Street is Destroying Itself

  • dishesdealer417

    Okay, so why WOULD someone pick up a nickel in front of a steamroller? If you rule out that they are insane, then they must think that it is the better choice than NOT picking it up.

    This system is dead. It is dead and being propped up with increasingly desperate measures every day. It finally died in late 2007 and everything since then has been some kind of humourless “weekend at Bernie’s” joke so that the party can keep going on at dead bernie’s house. All the usual party guests are there propping it up, both political parties, all the banks & big corporations and the elite frome most fields.

    Why would they do this? Watch CDuane’s latest video. They have to do it or they have nothing in the new paradigm. They have made the committment, they are all in balls to the wall intent on destroying anything including the U.S. Constitution and your life to keep up the power elite base that has handed them everything. You can fight or you can opt out. We may be forced to do both if the martial law jackboots come to your town and physically threatens your family. I’d rather opt out. But we have to be mentally prepared & physically prepped for both.

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