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What looks risky now?



> 2009-05-31 - Conventional wisdom

>The future is now in the hands of political forces. We can't predict that from fundamentals. So we have no further predictions at this time.

So diversifying ones portfolio based on ones portfolio exposure to "political risks"? Usually you see people trade on that in currency markets? If most of ones portfolio is dominated by a single currency (and hard to liquidate to another asset?) one will have the most exposure to the political risks in that particular locale?


That reflects the TARP bailout and the Fed's policy on interest rates. The Fed bailed out the banking system by lending money to banks at very low rates, which they could then profitably re-lend at much higher rates, allowing banks to pay back the TARP loans. My point was that this was a political decision, one not predictable by financial analysis.

Through all that neither the dollar nor the Euro moved all that much compared to other markets. Housing, oil, stocks, and gold all moved more.


student loans.


The government owns student loans.


> The government owns student loans.

To back up your point, the US federal government guarantees the vast majority of the student loan market: https://fred.stlouisfed.org/series/FGCCSAQ027S

I believe the total student debt market is estimated somewhere between $1.3-1.4 trillion these days, so at least 77.5% backed by US taxpayers. I don't know what TARP topped out at, but I doubt it was 75% of banking assets.


A) not all of them.

B) the government owned the mortgage debt, given that they paid it.


I think the main question is how to get access to capitalize on the downside risks of A).

- Find out who has exposure to student loans portfolios and what percent is non performing?

- Find out what other assets A) is holding that will have liquidation pressure if *-swan occurs?

- What extent is B) tied to A)?

- What pressures B) would face long term due to non performance of student loans that would influence A) and the larger market of assets under the jurisdiction of B)?

- How much could be made from theoretically capitalizing on the downside risks of A) vs other assets in the mean time?


Subprime auto loans.


I see this as fundamentally different, mostly because it is far easier to repo a car and auction it off than it is to foreclose on a house and sell it to someone else.

Another thing is that no one is wildly pricing cars; the fact that lots of subprime people are buying cars does not drive up the price of cars for everyone else. Thus, if a whole bunch of subprime borrowers default, the rest of us aren't sitting there with a car that's actually worth a quarter of what we thought it would be worth.

We also don't keep an enormous share of our equity in cars the way that we do in housing.


True. Except it may be able to be used as a proxy for larger economic issues. If borrowers are defaulting on their car loans at a higher rate than usual, it begs the questions: "why" and "why now"?


Everything based on crypto currency.


It only counts if it's something that's riskier than it seems. Everyone knows cryptocurrency is extremely risky, the problem in 2008 was that these packaged mortgage products were far riskier than they appeared, far riskier than they were rated by Moody's, S&P, etc.

Maybe you only meant your comment as snark, but if not it's important to understand the difference between simple risky investments and potential structural flaws in the finance system, like the ones we saw in the financial crisis.




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