Comments on: Where did all the stimulus go? http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/ Incisive and topical campaigns and commentary on today's issues and tomorrow's problems Thu, 09 Feb 2012 20:05:58 +0000 hourly 1 By: James http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23748 James Thu, 11 Feb 2010 10:47:31 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23748 Please keep me informed of any updates to your blog. I would really like to continue to read your writings. Thanks Please keep me informed of any updates to your blog. I would really like to continue to read your writings. Thanks

]]> By: Mark http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23747 Mark Sat, 30 Jan 2010 20:07:11 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23747 I think I said above "Individual mortgages are not large enough to justify syndication, but they are small enough to make it far too difficult for a secondary investor to evaluate them efficiently – hence why CDOs remain illiquid markets" which precisely captures your sentiment about why CDOs remain toxic. I leave as a matter for future judgement as to whether CDOs have been adequately written down as yet, but I have evidence that people re-mortgaging on the expiry of a fixed deal in the UK tended to increase debt in line with the increase in house prices since their previous fix - i.e. MEWing - between 2001 and mid 2008, according to BoE data. Certainly banks have a long way to go to meet Roubini's estimates of how much they will need ultimately to write down. Probably the largest financial markets of all are forex and interest rate swaps. The bulk of the trades in both these are bilateral OTC deals. Anyone with access to page FXFX on a Reuters screen can watch the names of the institutions and the prices bid and offered on foreign exchange in the principal currencies. However, there is no central counterparty - merely well established deep liquid markets and pricing formulae, combined with netting and collateral agreements usually under ISDA rules. Forex trade on futures markets is very limited, and interest rate futures trade is confined to a tiny handful of contracts that have any liquidity. CDOs are highly diverse, and not well suited to exchange trading, which only prospers with highly liquid contracts with specifications that are precise and uniform. I made some further comments about relying on central counterparties in response to your comment <a href="http://www.johnredwoodsdiary.com/2010/01/27/0-1-boom-boom/#comment-54666" rel="nofollow">http://www.johnredwoodsdiary.com/2010/01/27/0-1-b...</a> but because the comment was made sometime after that thread was initiated it remains awaiting moderation. I think I said above "Individual mortgages are not large enough to justify syndication, but they are small enough to make it far too difficult for a secondary investor to evaluate them efficiently – hence why CDOs remain illiquid markets" which precisely captures your sentiment about why CDOs remain toxic. I leave as a matter for future judgement as to whether CDOs have been adequately written down as yet, but I have evidence that people re-mortgaging on the expiry of a fixed deal in the UK tended to increase debt in line with the increase in house prices since their previous fix – i.e. MEWing – between 2001 and mid 2008, according to BoE data. Certainly banks have a long way to go to meet Roubini's estimates of how much they will need ultimately to write down.

Probably the largest financial markets of all are forex and interest rate swaps. The bulk of the trades in both these are bilateral OTC deals. Anyone with access to page FXFX on a Reuters screen can watch the names of the institutions and the prices bid and offered on foreign exchange in the principal currencies. However, there is no central counterparty – merely well established deep liquid markets and pricing formulae, combined with netting and collateral agreements usually under ISDA rules. Forex trade on futures markets is very limited, and interest rate futures trade is confined to a tiny handful of contracts that have any liquidity.

CDOs are highly diverse, and not well suited to exchange trading, which only prospers with highly liquid contracts with specifications that are precise and uniform. I made some further comments about relying on central counterparties in response to your comment
http://www.johnredwoodsdiary.com/2010/01/27/0-1-b…

but because the comment was made sometime after that thread was initiated it remains awaiting moderation.

]]> By: Cedric Talbot http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23746 Cedric Talbot Sat, 30 Jan 2010 12:57:02 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23746 I agree with Rose. I left the UK 32 years ago to get away from the last Labour government and have lived in Japan ever since. The Japanese still have a tremendous work ethic and there is no wasteful culture of mollycoddling welfare. People work as a matter of pride rather than necessity and there is great respect for craftsmanship, technology and professionalism at all levels. Everything works well because of proper maintenance of the infrastructure and there is a genuine ethos of willing customer service which simply does not seem to exist in the UK. Public transport is efficient and cheap and the Shinkansen bullet train system has been on time since it started in 1964. Japan has a vibrant manufacturing industry, is a world leader in nanotechnology, robotics, flat screen TV, solar panels, etc, etc and intends to remain so. What Britain needs is an end to politically correct leftie bullshit and a good kick up the backside to make the country competitive in the 21st century. It has the brains and skills to rebuild high tech industries such as nuclear power so criminally neglected by our almost entirely technically ignorant political classes. It requires very strong leadership to get us out of the losers' mentality created by Labour and I do wonder whether Cameron has the understanding or determination to take on such a task. I agree with Rose.
I left the UK 32 years ago to get away from the last Labour government and have lived in Japan ever since. The Japanese still have a tremendous work ethic and there is no wasteful culture of mollycoddling welfare. People work as a matter of pride rather than necessity and there is great respect for craftsmanship, technology and professionalism at all levels.
Everything works well because of proper maintenance of the infrastructure and there is a genuine ethos of willing customer service which simply does not seem to exist in the UK. Public transport is efficient and cheap and the Shinkansen bullet train system has been on time since it started in 1964. Japan has a vibrant manufacturing industry, is a world leader in nanotechnology, robotics, flat screen TV, solar panels, etc, etc and intends to remain so.
What Britain needs is an end to politically correct leftie bullshit and a good kick up the backside to make the country competitive in the 21st century. It has the brains and skills to rebuild high tech industries such as nuclear power so criminally neglected by our almost entirely technically ignorant political classes.
It requires very strong leadership to get us out of the losers' mentality created by Labour and I do wonder whether Cameron has the understanding or determination to take on such a task.

]]> By: Neil http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23745 Neil Fri, 29 Jan 2010 18:42:49 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23745 Oh, printing money definitely affects the economy - every pound printed slightly diminishes the purchasing power of the pounds you have in your wallet and bank account. When the government uses the printing press it is transferring wealth from you to itself - exactly the same as if they had raised taxes, but without all the fuss and publicity. It's a stealth tax. Nothing more to it. Oh, printing money definitely affects the economy – every pound printed slightly diminishes the purchasing power of the pounds you have in your wallet and bank account. When the government uses the printing press it is transferring wealth from you to itself – exactly the same as if they had raised taxes, but without all the fuss and publicity.

It's a stealth tax. Nothing more to it.

]]> By: rose http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23744 rose Fri, 29 Jan 2010 17:44:38 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23744 I wish everyone would stop knocking Japan. If we had their stability we would be fortunate indeed. Instead we live in very obvious and frightening decline, brought about by many other bad policies than just economic mismanagement. I wish everyone would stop knocking Japan. If we had their stability we would be fortunate indeed. Instead we live in very obvious and frightening decline, brought about by many other bad policies than just economic mismanagement.

]]> By: ikh http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23743 ikh Thu, 28 Jan 2010 23:03:07 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23743 CDSs are Credit Default Swaps i.e. a default insurance and yes, they have had an $80 billion bail out from the Fed for AIG. Half of that will benefit London branches of US and UK banks. However, you completely ms-understand toxicity with regard to CDOs. CDOs are toxic not because of default rates, but because the default rates are not known. A particular CDO could be worth 95%, 75%, or 55% of face value but no one knows. They need to have reporting requirements forced on them so that they can be valued. Before they were taken over Bear Sterns had a fire sale of CDOs to raise money. As a result, every other bank with the same types of CDOs was forced by the 'Mark to Market' rules to down value their holdings to the price Bear Sterns got. This made them seriously under value these CDOs and therefore unnecessarily weaken their balance sheets. OTC trading is usually reserved for small niche markets that are inherently illiquid. There smal size means it does not represent a risk to participants. The credit derivatives market is reckoned to be an approx 60 trillion dollar market. It is lunacy that this should be traded OTC. by forcing it to be traded on an exchange. the listing rules can force the transparency that is necessary for pricing. And public pricing is a huge aid to liquidity. /ikh By CDSs are Credit Default Swaps i.e. a default insurance and yes, they have had an $80 billion bail out from the Fed for AIG. Half of that will benefit London branches of US and UK banks.

However, you completely ms-understand toxicity with regard to CDOs. CDOs are toxic not because of default rates, but because the default rates are not known. A particular CDO could be worth 95%, 75%, or 55% of face value but no one knows. They need to have reporting requirements forced on them so that they can be valued.

Before they were taken over Bear Sterns had a fire sale of CDOs to raise money. As a result, every other bank with the same types of CDOs was forced by the 'Mark to Market' rules to down value their holdings to the price Bear Sterns got. This made them seriously under value these CDOs and therefore unnecessarily weaken their balance sheets.

OTC trading is usually reserved for small niche markets that are inherently illiquid. There smal size means it does not represent a risk to participants. The credit derivatives market is reckoned to be an approx 60 trillion dollar market. It is lunacy that this should be traded OTC. by forcing it to be traded on an exchange. the listing rules can force the transparency that is necessary for pricing. And public pricing is a huge aid to liquidity.

/ikh

By

]]> By: THE ESSEX BOYS http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23742 THE ESSEX BOYS Thu, 28 Jan 2010 19:51:51 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23742 Absolutely APL! In fact, despite the artificial boosters you mention, +0.1% is statistically zero meaning that the UK is still at its lowest ebb as the comparison is with the previous quarter rather than the same period a year ago which would be more meaningful in our view. Did anybody read the tale today of the quango costing us £9.4m pa with plush Bristol offices, an army of staff, a 4-day a week/ £184k pa chairman - and nothing to do! Doesn't it make your blood boil when you listen to Labour's tosh that we can't start cutting for fear of harming the recovery! Absolutely APL!

In fact, despite the artificial boosters you mention, +0.1% is statistically zero meaning that the UK is still at its lowest ebb as the comparison is with the previous quarter rather than the same period a year ago which would be more meaningful in our view.

Did anybody read the tale today of the quango costing us £9.4m pa with plush Bristol offices, an army of staff, a 4-day a week/ £184k pa chairman – and nothing to do!

Doesn't it make your blood boil when you listen to Labour's tosh that we can't start cutting for fear of harming the recovery!

]]> By: andy dan http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23741 andy dan Thu, 28 Jan 2010 19:22:39 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23741 Shut up Anonemouse! Some of us have been quietly brewing our own for years, and can make beer of a high quality for about 30p a pint. When gordo realises this, he'll slap a huge tax on malt extract and spoil the party! Shut up Anonemouse! Some of us have been quietly brewing our own for years, and can make beer of a high quality for about 30p a pint. When gordo realises this, he'll slap a huge tax on malt extract and spoil the party!

]]> By: Marcellus http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23740 Marcellus Thu, 28 Jan 2010 17:30:53 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23740 Everyone is warning that an immediate recovery is unlikely, possibly for years. However, Labour and their BBC robots are currently saying that it is vital not to cut spending now as that would harm the recovery. This is merely a typically deceitful Labour trap to catch the Tories. They are planning ahead. It is to give Labour a bullet proof attack narrative against an incoming Tory government If the spending cuts that everyone says are essential are indeed made by the Tories and the economy does not surge ahead immediately - the Labour-BBC machine will say that the economy is not growing BECAUSE of "Tory cuts". Their attack along these lines will go on for years and years. I hope the Tories are aware of what Labour are doing, and prepare NOW to counter it. John Redwood's argument in this excellent post is the basis of the defence against that deceitful argument. Everyone is warning that an immediate recovery is unlikely, possibly for years.

However, Labour and their BBC robots are currently saying that it is vital not to cut spending now as that would harm the recovery.

This is merely a typically deceitful Labour trap to catch the Tories. They are planning ahead. It is to give Labour a bullet proof attack narrative against an incoming Tory government

If the spending cuts that everyone says are essential are indeed made by the Tories and the economy does not surge ahead immediately – the Labour-BBC machine will say that the economy is not growing BECAUSE of "Tory cuts".

Their attack along these lines will go on for years and years.

I hope the Tories are aware of what Labour are doing, and prepare NOW to counter it.

John Redwood's argument in this excellent post is the basis of the defence against that deceitful argument.

]]> By: Lindsay McDougall http://johnredwoodsdiary.com/2010/01/27/where-did-all-the-stimulus-go/#comment-23738 Lindsay McDougall Thu, 28 Jan 2010 17:08:14 +0000 http://www.johnredwoodsdiary.com/?p=5499#comment-23738 Fiscal stimulus and monetary laxity do not generate medium or long term economic growth and never have done. At best, you get one year of growth followed by several years of stagnation. So why is anybody surprised at what is happening? Fiscal stimulus and monetary laxity do not generate medium or long term economic growth and never have done. At best, you get one year of growth followed by several years of stagnation.

So why is anybody surprised at what is happening?

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