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Monday, September 29, 2008

Something for Everyone

The beauty of the financial situation is that there's something for
everyone. It was a real team effort by multitudes of players.

If you want to blame evil capitalist lenders and banks, there was
certainly plenty of greed and fraud to point your finger at.

If you want to blame big government, the CRA and Freddie and Fannie
give lots of opportunity for that sort of thing.

Hate mark-to-market regulations? Go ahead and blame that. Hate short
selling? Sure, why not blame that? Sarbanes-Oxley is even fair game
if you don't mind stretching a bit.

You think Bush and/or Congress suck? Certainly plenty of ammo for
blame there.

That's the wonderful thing. No matter what your ideology, there's
someone for you to blame!!! And that blame proves beyond a shadow of
a doubt that your ideology has been perfectly flawless all these
years!!! What could be better than that?

I haven't seen so many people so happy ever!!!


Hey Skipper said...

Notably absent is blaming all the idiots who undertook mortgages they couldn't possibly afford without ridiculous assumptions.

Also, I think you left out the Chinese keeping the yuan exchange rate artificially low.

You guys are the experts on this.

How is it that supposedly gifted people, at least to judge by their pay packets, have managed to run their companies so thoroughly aground?

Bret said...

The borrowers weren't necessarily idiots. The idea of taking out a loan with no down payment and no collateral if you have no money is called "rolling the dice".

If the housing market goes up, you've made money from nothing.

If the housing market stays even or goes down, then walk away and try again when the lenders let you. It may be immoral but it's not necessarily stupid.

My list wasn't inclusive of all culprits. An inclusive list would simply have taken up too darn much space.

Any single group of culprits would not have caused this crisis. It's more that widespread and pervasive mistakes (and corruption and fraud) have aligned here into kind of a perfect storm.

Gifted people make massive mistakes all of the time. Remember Long Term Capital Management? Make a few incorrect assumptions, trade on a massive scale according to an ultrasophisticated model based on those assumption, and see what happens in the real world. Always a recipe for disaster.

aog said...

Did LTCM lose long term? Mr. Eagar claims that they were profitable at the time they were shut down in 2000.

Otherwise, I agree with Bret.

Bret said...

The main point of LTCM was that it had probably the smartest set of individuals ever assembled in the history of financial institutions.

And boy, did they blow it big time!!!

Harry Eagar said...

Greed? What greed?

It was all 'maximizing profit opportunities' and 'unlocking shareholder value'?

Who could possibly blame that?

Howard said...

Of course if we ignore the rules and arrangements in which the gains were pursued we can mindlessly treat all pursuit of profit identically. "A foolish consistency is the hobgoblin of little minds."

By operating beyond the economic function of financial markets - to facilitate creation of real economic wealth, they will get their due.

Harry Eagar said...

Hey, I am the one treating this particular pursuit of profit the same yesterday, today and tomorrow.

It is the late cheerleaders for unleashing the magic powers of the markets who have stopped referring to 'maximizing profit potential' and started complaining about greed.

Nobody likes free markets who has to live in one.