An interesting connection....back in the mythical magical '50's - that time that the Republicans and all nostalgics seem to pine for - Americans were gainfully employed making decent, middle-class wages, women could stay home and take care of the kids, and things were booming. Oh, and the highest tax rate was 91%!
Nowadays, the top tax rate is much much lower, millions of Americans have been thrown out of work in favor of dirt-cheap labor overseas, both husband and wife have to work just to try to make ends meet, and corporations are revealing mega-profits.
Hmmm....
...then, higher middle-class wages, good jobs, high tax rates, reasonable corporate profits and stability....
...now, low middle-class wages, maybe a job, low tax rates, low corporate tax rates, huge gaps between "rich" and "poor" and seemingly endless turmoil and instability.
The current economic system does not appear to be very healthy.
Sidetracked again ... this anonymously authored column was recently published on the HITC (Here Is The City) website. (London city, that is)
Regulators Don't Look Much Like Idiots Now
'Given the JP Morgan news, the recent derivatives Trader: 'The Trouble Is, Regulators Are Idiots article appears to be the victim of unfortunate timing.
Having been a derivatives trader for over 10 years, I can, however, sympathize with many of the comments in the article. The point about derivatives is that they are synthetic and are extremely vulnerable to liquidity problems when things get tight. The more structured the derivative product is, the more vulnerable it is. Also the more structured it is, the harder it is to analyse, measure and control risk-wise. Besides, a lot of senior managers have little clue as what derivatives are and the language associated them, much less manage them.
The fundamental problem is that in the 1990s the derivatives market moved away from real markets of bonds, currencies, equities and commodities into the artificial world of mathematics and black boxes. What does a 22-year old coming out of University with a first class math or physics degree know about the dynamics of the market and market behavior ? Nothing, that's what.
Let's face the facts - over that last ten years things spiraled out of control. The black boxes got us all into a mess - but, trouble is, there are no black boxes to get us out of it!.
Yet banks still entrust billion dollar portfolios to young traders, and rewarded them excessively. Madness! Much the same criticism can be directed at the regulators. They tended to be a group of box-ticking bureaucratic accountants, who are more concerned about completing returns on time than understanding and determining risk.
Overall derivatives do actually have tremendous power and can be a force for good. The problem is that in the hands of technocrats, derivatives have drifted too far from their roots and have become ends in themselves. They have become toys for the 'rocket scientists', and the synthetic products they construct are built on shaky foundations.
And this is where we started - JP Morgan loses $2bn on a failed synthetic credit product and a flawed risk management system! It may not be too late to bring back Glass Stiegel. It maybe just the right time to break up the banks into more sensible sizes, and have reasonable capital adequacy requirements (whatever they maybe!).
'Big' in banking is turning out to be a very bad and a very dangerous thing'.
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