A modern financial nursery rhyme

Thursday, June 05, 2008

This is the house that Jack built

This is the loan that funded the house that Jack built

This is the bank that made the loan
That funded the house that Jack built

This is the CDO
Created by the bank that made the loan
That funded the house that Jack built

This is the hedge fund that bought the CDO
Created by the bank that made the loan
That funded the house that Jack built

These are the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the oil
Purchased with the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the inflation caused by the oil
Purchased with the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the central bank
That targets the inflation caused by the oil
Purchased with the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the tight monetary policy
Run by the central bank
That targets the inflation caused by the oil
Purchased with the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the housing crash
Caused by the tight monetary policy
Run by the central bank
That targets the inflation caused by the oil
Purchased with the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the recession resulting from the housing crash
Caused by the tight monetary policy
Run by the central bank
That targets the inflation caused by the oil
Purchased with the excess money
Printed by the mercantilist central bank
That bought the dollars sold by the hedge fund
That bought the CDO created by the bank
That made the loan that funded the house
That Jack built

This is the estate agent that went out of business after it couldn't sell the house that Jack built when he put it on the market after the structured credit group he worked for was closed down by bank which, ironically enough, made the original loan that funded the house that Jack built.

Posted by Macro Man at 8:56 AM  

20 comments:

Brilliant. Lovely fable on financial circuitry.

Adrem said...
10:16 AM  

If you stop being a trader, you could probably do a decent living by publishing financial poetry :)

vlade said...
11:00 AM  

Well said MM, well said indeed ...

Oh and I completely agree with vlade; you definitely have a fall back strategy here if you get one too many of those margin calls (knock on wood, salt over shoulder etc.)


btw: I am reading closely as ever but I am not finding the energy to move in with comments at this point althoug I use you frequently to update my own readers on what markets are up to.

Claus

CV said...
11:14 AM  

The hip bone is connected to the thigh bone...........

Anonymous said...
12:15 PM  

http://ftalphaville.ft.com/blog/2007/12/21/9814/
i-do-not-like-them-broker-joe-i-do-not-like-your-cdo/

Don't know if you saw this one late last year, but another gem.
All best,
JL

Anonymous said...
12:43 PM  

you mentioned central banks twice! that ought to tell you something :P

Anonymous said...
1:12 PM  

Well i wasnt as impressed as ususal....especially when there are far more important things going on such as......The death of emerging markets as evidenced by Turkey revising its inflation target http://www.hurriyet.com.tr/english/turkey/9105913.asp?gid=231&sz=28042 and Malaysis scrapping fuel subsidies http://www.ft.com/cms/s/0/8be18bb2-3298-11dd-9b87-0000779fd2ac.html . Throw in a twist of continued UK housing meltdown, IDS hinting at signs of the dreaded inflation pass through to wages and you could probably have mustered a more productive entry today.

Anonymous said...
1:31 PM  

Hoho, go on Mr Trichet, stuff it to the land barons!

Anonymous said...
2:57 PM  

as i watch Euribor sink through the 30 tick down mark....i read an interesting thought from one of our brokers....he wonders whether short sterling should be rallying here...Europe is the UK's biggest trading partner - any moves that hurt european appetite for UK exports will nip the only real valve of growth available to the UK economy

Anonymous said...
3:33 PM  

U think Mr Trichet will soon be found dead in an alley, the only clues at the scene being a trace of pasta and a straw donkey ?

richy rich said...
5:51 PM  

Anon 1.31:

We at MMI are sorry that you didn't enjoy today's entry. We endeavour to deliver total satisfaction to our paying subscribers.


Or b), it's a free site, I had about 15 minutes to write something today, and this was the first thing that came to mind. I do have a real job, you know.

Macro Man said...
6:06 PM  

Bravo! I've read that same nursery rhyme every day for the past three years when perhaps I should reciting prayers.

Just to clarify - not to pick nits: does "the Hedge Fund" have a long CDO position AND a short dollar position, or are they two separate funds and/or unrelated trades?

"Cassandra" said...
6:51 PM  

Ponzi scheme. It is not a new idea. Even if you put lipstick on that pig, it is still a ponzi scheme.

Mr. Prop said...
7:18 PM  

Cass, it is a "diversified multi-strategy fund" that has the capacity to both buy credit turds and play for the BWII breakup, albeit probably executed by different traders (one of whom may or may not still be employed....)

Macro Man said...
7:54 PM  

MM,

An excellent poetic description of financial market reality... You are truly the poet laureate of finance...

On another note, at 6 PM Eastern Time today - Thursday - I see that the U.S. stock market has again escaped the Big Down --- despite the fundamentals (or what one would think are the fundamental economic realities in the U.S.), the stock market only looks to the up side.

I can only attribute this to EITHER OR BOTH of the following: (1) the limitless Bernanke put; (2) the weight of enormous, idle liquidity looking for a play.

It is very difficult to be a rational analyst these days --- realistic analysis has not paid off --- quite the contrary, at least as regards the U.S. stock market.

Maybe some of your readers can come up with some strategies to deal with this...

Best regards,

MF

Anonymous said...
11:15 PM  

The only thing I could think, of course, was 'good riddance to the estate agent.'

This may have a little something to do with the fact that the California Association of Realtors just put a pretty good chunk of change behind the latest Jarvis-funded monstrosity on the ballot (praise be, it lost ignominously).

Nothing personal, but for that I hope every last one of them goes out of business.

wcw said...
4:18 AM  

MF,

I feel and share your pain. More days than not, I swallow hard and remind myself what Keynes said about the market and irrationality. Not that insolvency looms, but it SURE makes my numbers look bad ;-)

JS

Anonymous said...
5:47 AM  

It is very difficult to be a rational analyst these days....

When the market seems irrational the best thing to do is to stay out and stay on the sidelines. Don't try and push it. The notion that stock markets are good readers of the tea leaves is a fallacy. Just wait for openings to come along. They always do.

Adrem said...
9:15 AM  

And good riddance to bad rubbish!!!

Anonymous said...
1:33 PM  

Excellent.

Anonymous said...
6:59 PM  

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