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Post 13 Jul 2011, 1:46 pm

danivon wrote:Is this an admission that you can't tell perception from reality, Mach?


Yes. Do you have some way of determining what's "real" other than by perceiving it?
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Post 13 Jul 2011, 3:06 pm

No, they didn't. But this surely doesn't absolve GS
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Post 13 Jul 2011, 4:51 pm

Archduke Russell John wrote:
danivon wrote:For example, Goldman Sachs. They didn't just invest in Greece or do so on behalf of their clients, or issue reports on the economy, or provide advice. They conspired with the Greek government to hide the extent to which Greece was in deficit!.


But doesn't the Greek Government hold a greater liability for actually doing it? I mean Goldman Sachs may have come up with the plan to mask the Greek deficit but the Greeks didn't actually have to follow it did they?


Exactly, the Greek Government walked into the Casino, put their credit card into the ATM, made crazy bets, and all the while their population cheered them on. And now they want to blame the house.
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Post 13 Jul 2011, 7:54 pm

danivon wrote:No, they didn't. But this surely doesn't absolve GS


Yeah actually it does. It's called the Greeks taking responsibility for their actions. GS was hired by a client to manage its debt. The client asked GS for options. GS gave the client the legal options. The client choose which option to take.
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Post 13 Jul 2011, 11:29 pm

It wasn't 'legal' under the terms of Euro membership rules
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Post 13 Jul 2011, 11:54 pm

Machiavelli wrote:
danivon wrote:Is this an admission that you can't tell perception from reality, Mach?


Yes. Do you have some way of determining what's "real" other than by perceiving it?
We call it 'science' nowadays. Perception tells us that the Sun orbits the earth.
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Post 14 Jul 2011, 7:25 am

danivon wrote:It wasn't 'legal' under the terms of Euro membership rules


Well then I would say the Greeks are even more at fault for deciding to go with that option. Because the Greeks willfully chose to take illegal actions.
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Post 14 Jul 2011, 10:18 am

Archduke Russell John wrote:Well then I would say the Greeks are even more at fault for deciding to go with that option. Because the Greeks willfully chose to take illegal actions.
I'm not saying that the Greeks are not at fault.

I'm saying that Goldman Sachs is also to blame. We can argue about relative weights, but GS are not innocent.

Similarly, a fence is not innocent juts because they didn't commit the original theft. If they know (or would have reasonable grounds to believe that) the goods are stolen, they are culpable. If they solicited, advised or assisted the theft, then they are more culpable. The thief is also still guilty, regardless.

The other thing I note is that the ratings agencies now deciding to downgrade the likes of Ireland and Portugal are the same ones who (albeit in a different 'department', apparently) failed to notice that the CDS instruments they were rating were not kosher.

Also, that when a ratings agency alters their position they are saying that the country/company/person is a higher or lower risk than before. But the act of changing the rating also affects the level of risk - If you downgrade a rating, it often leads to higher interest on future loans, making loans harder to obtain and harder to repay, making you more of a risk.

I'm not 100% convinced that there isn't an element of self-fulfilling prophesy going on.
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Post 14 Jul 2011, 12:08 pm

danivon wrote:Similarly, a fence is not innocent juts because they didn't commit the original theft. If they know (or would have reasonable grounds to believe that) the goods are stolen, they are culpable. If they solicited, advised or assisted the theft, then they are more culpable. The thief is also still guilty, regardless.


Sorry Dan it is a bad analogy. The Fence is not guilty of the theft and has no liability in the original theft.

The better analogy would be attorney/client. Let's take your thief. He gets arrested and put on trial. Said thief admits to the attorney that he stole the items. The attorney tells the thief he could deny stealing the items while being cross examined. The thief does so.

While the attorney may have some degree fault and will suffer the consequences for the suborned perjury, the overwhelming guilt it with the party that actually carried it out.
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Post 14 Jul 2011, 4:01 pm

I'm not sure you guys know what GS did
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Post 15 Jul 2011, 2:44 pm

danivon wrote:We call it 'science' nowadays. Perception tells us that the Sun orbits the earth.


Alas, even "science" relies on measurement of perceived phenomena. We perceive the light from the sun and the fact that it appears to originate from various angles, and we perceive what appears to be the motion of various objects that lead us to conclude that the earth orbits the sun. Alas, all depends on the accuracy of our perceptions. If our perceptions are somehow deceiving (think "The Matrix"), then reality is otherwise than it seems.

Of course, for most practical purposes (actually, for all but the most esoteric philosophical purposes) it doesn't matter whether our perceptions are accurate or not--just that they are consistent. To say it another way, Cartesian doubt doesn't get you very far. We may actually be like Neo in his coccoon, but what difference does it make if we have no way of telling? Accordingly, perception is essentially identical to reality.

To step away from the metaphysical and back to the economic (and to address your earlier point), it matters not one whit whether there is a "real" problem in the market or only a perception of a problem if the two have the same impact (and the very fact that you asked the question suggests that they do).
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Post 15 Jul 2011, 2:47 pm

danivon wrote:I'm not sure you guys know what GS did


I work on multi-billion dollar financial transactions with GS all the time and I'm morally certain that you don't either. Indeed, I often speculate that GS doesn't have a very good handle on what it does.
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Post 15 Jul 2011, 2:55 pm

It's also worth talking a bit about rating agencies. Despite what seems to be popularly believed, they do not have a crystal ball. Rather, they look at various deals and securities and--largely based on how similarly structured prior deals have performed--make a best guess as to how a new one will perform. In a sense, they're like movie reviewers--a good review may help a movie and a bad one may hurt it, but at the end of the day there will always be plenty of hits that the reviewers hated and plenty of dogs that the reviewers loved. In this instance, though, buyers tend to base what they're willing to pay for their tickets on what the reviewers say. The extent to which buyers will continue to do so will--to a large extent--be a function of how often the reviewers make correct guesses (and where buyers really don't trust the reviewers, they're apt to stop buying altogether, which is what happened when the credit markets seized up back in the ugly summer of 2008). There's much to be said about helping the rating agencies get better at what they do, but blaming them for missing their guesses when there's a large discontinuity in the market--unless you've got a better crystal ball--is just stoopid.
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Post 15 Jul 2011, 10:37 pm

Machiavelli wrote: There's much to be said about helping the rating agencies get better at what they do, but blaming them for missing their guesses when there's a large discontinuity in the market--unless you've got a better crystal ball--is just stoopid.


The problem is that their buisness is risk analysis and they are about as competent at it as someone who slaughters birds and reads the future out of it's entrails.
It's damn hard to project future developments and in my opinion it's better to face that reality than to let charlatans of all sort blind you with their claims of clairvoyance and then shrug epic fails of as "well no one saw that one coming", or "everyone was wrong this time".
I say the business model is flawed and as long as they don't face some kind of liability they'll continue to wreck whole countries with their "opinions" based on arbitrary factors.
First step would be for politicans to alter laws that force companies to adhere to the ratings of these private corporations if they want to invest or get licensed.
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Post 16 Jul 2011, 4:53 am

Heh. Liability for their incompetence, Fax? So far as I know, none of the major rating agencies requires anyone to pay the slightest attention to their prognostications. They simply say "pay us our fee and we'll give you our best guess." They even go to a fair amount of effort to explain what their guess is based on and provide the underlying data so folks can check their work. Are you ready to start sticking people with liability simply on the basis that they publicly voiced an opinion that later turned out to be wrong? If so, I reckon their are a fair number of folks in these forums (myself included) who had better break out the checkbook!

If there's a flaw, it's with folks who are investing money without doing their own diligence or even understanding the first thing about what they're investing in. Note that those are the same people who--if things go wrong--later claim that something (what they can rarely say) is wrong with the system. Note also, though, that if by some miracle they profit from their idiocy, they've got no compunction about realizing their gains.

The beauty of the market lies in the fact that it is entirely voluntary. If you haven't the stomach for risk, simply don't invest. Bury your money in a coffee can in your backyard and you can be 100% certain that you'll suffer no losses in the market.
Last edited by Machiavelli on 01 Nov 2011, 8:21 pm, edited 1 time in total.