Angry Bear comments on Duffie on speculative trading. Its a good attack, but I think that Angry Bear throws the baby out with the bath water. Nor do I really understand any policy proscriptions that Angry Bear would have us make. It is very easy to discount "speculation" because family's can't get loans and ignore that most all international trade would cease to exist without the ability to hedge currency risk, something a speculator will gladly do, because of the mismatch in time frame of investment. I suspect that any valuation of the net benefit or loss from speculation would end up on the positive, if only because people only really mean "bad things that cause losses" when they think of speculation, and ignore the ways in which being able to hedge reduces prices for all sorts of things just outside our sight until we buy them at the grocery store.
Capital can’t be measured. Interfluidity. versus Don't believe what they say. Bronte Capital. We should quote Waldman at length:
Capital does not exist in the world. It is not accessible to the senses. When we claim a bank or any other firm has so much “capital” we are modeling its assets and liabilities and contingent positions and coming up with a number. Unfortunately, there is not one uniquely “true” model of bank capital. Even hewing to GAAP and all regulatory requirements, thousands of estimates and arbitrary choices must be made to compute the capital position of a modern bank.
There is an easy position to take to say that "banker's lied" or "finance depends too much on models" or "economics is rotten because of their assumptions". It pretends that there is some better way to, say, build a bank, that is just a bit of willpower away. I am hesitant to endorse the "boring banking" of Krugman, et all, if only because we exist in a world that is anything but boring, and with the multinational linkages and saver's desire for low risk, long dated assets, we're going to have to inject a bit of complexity, and that requires making a few assumptions.
US gov't fetches 8.5 pct return from bailouts. While that probably beats my trading account, the S&P is up 34.67% since 10.28.2010
Krugman’s Chinese renminbi fallacy. VoxEU.
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