The Dim-Post

September 30, 2011

Dreams of recession

Filed under: economics,finance — danylmc @ 12:21 pm

A couple of people sent me links to this clip of an unusually candid share trader on BBC, asking for my opinion. Allesio Rastani alleges that Goldman Sachs ‘rules the world’ and that traders dream of recession so they can make money from it, and he encourages ordinary people to do the same.

It’s true that some traders shorted the 2008 financial crisis and made loads of money. Michael Lewis wrote a great book about it called The Big Short, and Rastani seems to aspire to the same success as the characters in this book. But most of the financial world lost money in 2008. Lehman Brothers got wiped out. Bear Sterns went bankrupt the year before. Those traders weren’t ‘praying for recession’. Sure, most of the companies got bailed out, but that is no longer an option for most western nations, either financially or politically.

And if you’re hedging on recession, someone needs to buy those hedges.The ‘big shorters’ got rich by betting on the collapse of collaterised debt bubbles, because many experts and trading companies thought a market collapse was impossible. I don’t think many traders are going to get rich betting on market collapse in the next decade or so. Are any experts insisting that ‘Greece will never default’ or ‘a European banking crisis is unthinkable’? No.

It’s true that Goldman Sachs essentially owns both political parties in the US, and that makes them powerful in some respects. But they don’t control the decisions of central banks in China or Europe, which have a pretty massive impact on the global economy – arguably more than the US government does.

Update: Luke in the comments links to this Telegraph article explaining that Rastani is not really a trader, but a ‘motivational speaker’. Which makes sense.

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11 Comments »

  1. Umm, while that interview was rather awesome. Suggest you check out http://www.telegraph.co.uk/finance/economics/8792829/BBC-financial-expert-Alessio-Rastani-Im-an-attention-seeker-not-a-trader.html

    Comment by Luke — September 30, 2011 @ 12:26 pm

  2. And if you’re hedging on recession, someone needs to buy those hedges.The ‘big shorters’

    Hint: It’s called short-selling for a reason…

    Comment by Phil — September 30, 2011 @ 12:51 pm

  3. Sure, most of the companies got bailed out, but that is no longer an option for most western nations, either financially or politically.

    If one were looking for something to bet against, the above statement seems like a good option…

    Comment by bradluen — September 30, 2011 @ 1:00 pm

  4. @bradleun, yep there’s no such thing as a debt problem when you have a fiat currency and plenty of paper and ink :)

    Comment by ropata — September 30, 2011 @ 3:58 pm

  5. Not sure why this has achieved such prominence. Markets are a zero sum game – for every buyer there is a seller and vice versa. There cannot be more sellers than buyers, one side may be more willing than the other but that changes the price at which equilibrium occurs. Where it gets interesting is where one side of the transaction is not motivated by making or losing money – typically when one side is a sovereign.

    Not sure what you mean by your comment Phil, but without a buyer there can be no short seller, just a hopeful offerer.

    Comment by nadis — September 30, 2011 @ 4:31 pm

  6. @ Nadis,

    I was just being douchey, really.

    Danyl talked about the “Big shorters” who were “buying hedges”. That’s incorrect in a lot of ways.
    I think we all correctly get what he broadly means, but the termionology is wonky.

    Comment by Phil — September 30, 2011 @ 5:05 pm

  7. The Canadian Broadcasting Service screened riveting four-part documentary on the global financial crisis late last year. It’s available online.

    Meltdown – The Secret History of the Global Financial Collapse

    1. The Men Who Crashed the World
    2. A global Tsunami
    3. Paying the Price
    4. After the Fall

    http://www.cbc.ca/doczone/meltdown/about.html

    http://www.cbc.ca/doczone/meltdown/videos.html

    Comment by gopher — October 1, 2011 @ 11:19 am

  8. It sounds simple … but perhaps in the next decade, the reverse will be true.
    The shorters that got massively rich in this current widespread economic downturn, done so because they were the first to bet against ‘the odds’, most people were under the illusion that western economies were unsinkable, while the shorters knew that this wasn’t true and they were the first to get to the queue and place their bets.

    When we have another boom, which will undoubtedly be bigger and better than all previous booms because now India and China and many African and Asian countries will be involved as well as the traditional countries of wealth (Britain, New Zealand, Australia, Canada, Switzerland, USA), the ones that will get massively rich then will be the ones that start developing the properties, land, building businesses, starting and merging companies, completing acquisitions weven if they don’t seem to make an entire amount of sense.

    They will do this when it seems quite unwise, when so few people are doing it, when the economy looks as it is still at a halt. And it is these budding entrepreneurs, empire builders, visionaries, and businesspeople that will get rich.

    Comment by Betty — October 3, 2011 @ 10:47 am

  9. “the ones that will get massively rich then will be the ones that start developing the properties… And it is these budding entrepreneurs, empire builders, visionaries, and businesspeople that will get rich.”

    You mean, the Chinese who are trying to get rid of their risky dollars by buying real estate and companies? Scary stuff, and is what happens when a generation forgets to save, or leaves it up to their govt to do it for them. And then they teach their kids the same. So you end up with folk who demand free stuff then threaten to blow up parliament when you take it away. ( http://www.nzherald.co.nz/connect/news/article.cfm?c_id=1501833&objectid=10753326 )

    Comment by Clunking Fist — October 3, 2011 @ 1:57 pm

  10. “I agreed to go on because I’m attention seeker,” he said on Tuesday. “But I meant every word I said.”

    So there’s a Whaleoil in the UK as well, lolz.

    Comment by Clunking Fist — October 3, 2011 @ 1:59 pm

  11. No I’m primarily referring to the Indians and those in places such as the United Arab Emirates who have been brought up in vastly different cultures to us and therefore, as their countries continue to advance and progress, are the most likely people to know when the time is to strike and build up their holdings, as their will be a global boom that follows the global crisis.

    Comment by Betty — October 5, 2011 @ 11:46 am


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