"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen


"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister


"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont


"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister


"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Tuesday, October 01, 2013

debt ceiling clown show work around - different from 2008

 
The Debt Ceiling Intelligence Test for the Wall Street Boys by Dean Baker
This is an interesting scenario. On the other hand, it is interesting to look at the fundamentals here. The vast majority of bonds that might be used as collateral will not have defaulted. Even the ones that are technically in default will have only lost a small fraction of their value. Think it through. You have a government bond that was supposed to have a coupon payment on October 17th which was not made because of the debt ceiling standoff. How much less are you willing to sell this bond for on October 18th? (If you say 3 percent or more, send me a note.)

While this set of events could possibly undermine the system as it functions today, if the bankers could not develop a workaround pretty quickly, they are a lot dumber than people give them credit for. Remember, this situation is fundamentally different than what we saw in 2008. In 2008 there was trillions of dollars worth of genuinely bad collateral tied to defaulting mortgages, which were in turned tied to houses that had lost much of their value. This was a case where the music stopped and the money really wasn't there. In the current situation, does anyone really doubt that at some point the government will make the interest and principle payments on its debt?

None of this is to dispute that Lowrey's scenario of a financial crisis may not be right. The Wall Street boys really don't seem to be very good with numbers. Put to the test, they may well fail.

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