These firms are simple: There are multiple trading desks — dealing in everything from Pakistani Rupee to crude oil and bio-diesel — that have to be able to buy from customers below the bid in the traded markets, or sell above the traded-markets offer. This is how the banks make their money: they retain the margin between where they take a position vs their customers, and where they can immediately unwind it. It does not matter if we’re talking about FX or CDO or MBS — the basic idea is to know at all times where the traded market actually clears, then find customers who don’t have that immediate information and arbitrage the difference.

Of course, there will be residual positions (you can’t always unwind immediately), which is why the banks create “risk-management” functions. These are the folks that create the models that allow the banks to tell their regulators what their exposures are. They also, btw, are the functions that allowed the former investment banks to tell their regulator (the SEC) what the value of their assets are.

That’s where it starts to get complicated: The banks have demonstrated they have no idea of how the residual risk behaves. Not to worry: It still doesn’t prevent them from loading up on more and more risk, based on the “risk-management” models they’ve developed. Wait a sec … I see myself creating an absurd universe in which nothing is understood, but I’m still allowing the absurdity to proceed unabated. It’s crazy. Pretty soon I’ll need to create a “sink” where all the mistakes can be dumped — maybe I’ll call that sink taxpayers … oh, I’m becoming too obvious. G2G

The rich can protect themselves from inflation by purchasing things like real estate, jewelry, art, and commodities. They do not need liquid investments.

The combination of stagnate wages and rising cost for basics; food, shelter, medicine, etc would not help those who live paycheck to paycheck.

I suspect the next new federal program in 2010 will be a modern WPA. People have to have jobs and the private sector will not be creating them.

You seem to (as always) have an amazing understanding of the obvious. Tell me, what are you prepared to do about this corruption?

AA

It is my believe there is going to be a bad mix of deflation and inflation.

Interest rates are rising because the Treasury must unload a huge amount of debt. ( $900 billion by September). The 10 yr yield has moved from around 2% to 3.71 % yesterday. If the market is already resisting the $100 billion in US debt this week, how is the market going to respond to $2 trillion in debt and trillions in debt down the line?

I think it is safe to say not well. Therefore, the dollar is going to be devalued because at some point the Fed will resort to printing money. Literally- the Fed buys the Treasury’s debt. It has too. This will cause foreign products, good and services to inflate in dollar terms.

But at the same time the higher interest rates will doom the recovery and the demand for domestic products will decline causing the price of domestic products to decline.

So rather than throwing your arguments at straw men, why not set up a “Wall Street of Shame”, providing a list of names for those responsible?
If you’re worried about being sued, then just provide me with the list. I’m not scared of the financial bogeymen or their lawyers :) They’re beneath Scientologists at this point.

Obviously, we’re at the mercy of our elite ruling class, who are in turn showing us absolutely no mercy. So given the bankers have no sense of honor, maybe it’s time we started holding them personally accountable for their actions.
Normally, I’d agree that unleashing mobs is a VERY bad idea – but in this case, fear of that group dynamic is really the peoples’ only protection. No one else is going to save them.
To cut to the chase –
I’m perty sure Billy Bob ain’t got NO problem whatsoever drivin’ his pickup truck up to NYC and opening up a can of whoop ass on some bankers. Just tell him WHO stole Momma’s life savings – give him a name.
I hear tell he’s awful angry about them thievin’ bastards – and with every passin’ day, well he’s just gettin’ more and more burnt up ’bout it.

Or are we still operating under the pretense that we live in a civilized society? :) Please…

Apparently the banker is free to strip away Billy Bob’s mama’s life savings – with absolutely no fear of retribution. And not only is the banker free to raid Mama’s cookie jar, but he’s throwing Billy Bob’s unborn children deep in debt. And you know how Billy Bob feels about his unborn children… :)

Contrary to their own belief, these bankers are NOT smart people – otherwise, we wouldn’t be in this mess. They only happen to have more money, simply because their social standing placed them in a position to steal money from people of “lower” class. How condescendingly convenient.

So let’s play this out. Eventually, Billy Bob’s blood is gonna boil over to the point he’ll show up at my door (or your door) seeking retribution. And personally, I’d prefer to steer clear of him. I didn’t hurt him or his mama. So let’s just toss everyone’s cards out on the table and let it ride.

Because, apparently, the longer we pretend to be “civil” about any of this, the worse it’s going to get. And again, I’d much prefer that those responsible faced the consequences of their own actions. Else it’s eventually going to fall on me.

And given the Billy Bobs outnumber the William Roberts by a staggering margin – I’m guessing they’ll sort all of this out amongst themselves in short order.

Then we can all get back to dinner and stop worrying about this mess. If anyone’s got a better solution, let me know :)