Shorter Floyd Norris:

We bankers are idiots, we can’t do basic math, have little in the way of risk management. Lobbying for FASB rule changes is the only way we can cope. Also, our investors may likely be idiots also.

Longer version can be found here:

Banks Plead They Can’t Follow Rules
FLOYD NORRIS
NYT, January 11, 2008
http://www.nytimes.com/2008/01/11/business/11norris.html

Discuss . . .

Category: Corporate Management, Finance, Financial Press, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

43 Responses to “Are Bankers Incompetent Morons?”

  1. John Borchers says:

    BOA buying CFC buy now needs more capital to stay neutral?

    I believe both CFC and BAC are bankrupt.

  2. michael schumacher says:

    How could a company that could write off just below 50% of it’s equity ( market cap 44 billion ) be up…in a down market??

    Answer me that question and you have the answer to the above.

    Ciao
    MS

  3. Robert says:

    I’ll tell ya Barry, I don’t buy into this crap that the bankers were just blindly greedy or didn’t realize what was going on over the last ten years. These guys are in the money business – They knew. It’s basic economics – If you flood an economy with dollars, those dollars will end up somewhere. If you combine easy money with easy loans for homes, any moron can see that that created the bubble. We are told that, in hindsight, the banks see how that worked, but I don’t buy it. They knew. The heads of the banks knew exactly what was going on, and they did it anyways. Why? That I haven’t figured out yet – Maybe they knew the FED/government would come running to bail them out, so they got the money while it was good to get. Maybe the old conspiracy theory about banks creating inflation/deflation cycles to scoop up property at pennies on the dollar when things go south is true. Whatever their motive, I find it exceedingly difficult to believe that the banks simply forgot all about such elementary economic principles as bubble creation due to monetary inflation – And compounded that retardedness with all too easy loans. No, something stinks to high heaven here…

  4. larry says:

    Agree w/robert. CFC strikes me as a crooked org. They new that the loans they were making had zero chance of being fulfilled (during the last two years especially). Where were the contrarians? I had many cocktail party, 19th hole conversations with friends, where everyone could not believe the size of the loans w/ no money down. Are we to believe that none of the investment bankers, banking execs, and loan co execs were oblivious to this problem? Furthermore, are we to believe that the same bozo’s (cleaned up for a family site)that got us into this or were obliious can manage their way out of this crisis? Iraq is a model for the last question. We relied on the same bozos that did not plan or recognize the need for post war planning, to manage the mess. Guess what? We have a bigger mess and this is what I fear in the financial/debt crisis.

  5. zot23 says:

    I can tell you what happened, the USA didn’t secure the oil in Iraq and Iran as proposed. If we had strolled in, been “greeted as liberators”, gone on to Iran for a repeat, and then locked down all the oil for a century, this meltdown would not occur. Simply because the dollar would be the only game in town and no economy in the world could let it crash.

    The oil would have backed the dollar which woudl have held up the military requirements of an empire. No oil and this entire house of cards falls down.

    I’m not saying the bankers knew all this and it was an explicit plan, but had the invasion broke differently that would have been the reality. And oddly enough, there hasn’t been a war fought in the last 500 years that the bankers didn’t finance or know about ahead of time.

  6. Eric Davis says:

    Sounds like they built such a mess, all the kings horses and all the kings men won’t be able to put it back together again.

    I also agree that they could be making it difficult, just because they don’t want to come clean.

    Always missed in this mess is that Nobody has any idea what the CDOs are worth. or what the losses will be, the “put it all on the books” besides writing every loan they have on the books to 0, they won’t be able to do it.

  7. Dyde says:

    I doubt that bankers are idiots. While some CEOs and employees are undoubtedly stupid, I believe the subprime crisis was anticipated by the banks or some of the people in the banks. FED and the banks are much closer than FED and people, so they knew that the FED would bail them out.
    Conspiracy theories or not, a lot of bankers became reach on the crisis, whether by cashing out at the right time, through insider shorting or by waiting to buy assets at dirt cheap prices. Some even made money by getting fired.
    Eventually, the crisis will be over and the banks’ shares will go up. So bankers with deep pockets who have insider knowledge of FED decisions will make more profits.
    And who knows, maybe the whole subprime crisis was a con setup by Goldman Sachs to become the top dog on Wall Street? That’s another conspiracy theory to ponder on.

  8. John Borchers says:

    Whatever it may be it appears we are back in the denial stage.

  9. cinefoz says:

    No, most aren’t incompetent, They’re average. Hubris causes successful, but average, people to think they are exceptional. From that pinnacle, all manner of idiocy can be accomplished. Many of the most spectacularly deluded think they can effectively defy gravity. Throw in groupthink, creative justification, and a game of hot potato (greater fool theory) and you have a scandal du jour.

    Coincidentally, I am now reading an excellent book entitled “Why Smart People Do Dumb Things”. What’s old is new again.

    A long time ago I developed the concept of aggressive mediocrity. Imagine a bell shaped curve. At the midpoint, you have the greatest concentration of average. Since most members of a group are average, the greatest number of group members will occur at the mid point. Thus, the mid point is also the high point, when the quantity of average people are charted on the Y axis.

    An Aggressively Mediocre person will see the mid point as the pinnacle, since it is also the high point. Their efforts will be to stay at the highest point on the chart … which is also the place of the greatest mediocrity.

    An Aggressively Mediocre person with leadership capabilities will use personal and manipulative means to ensure that others strive to join them at their ‘pinnacle’. Any effort to move from mediocre to exceptional will be resisted because it is viewed as a lower point and, thus, undesirable. Aggressively Mediocre people are some of the most destructive people on Earth.

  10. tom a taxpayer says:

    “Moody’s warns on US sovereign rating” is the headline in Financial Times online. The article states:
    “The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s warned on Thursday. The warning over the future of the triple-A rating – granted to US government debt since it was first assessed in 1917 – reflects growing concerns over the country’s ability to retain its financial and economic supremacy.”

    http://ftalphaville.ft.com/blog/2008/01/11/10081/moody’s-warns-on-us-sovereign-rating/

    Uh-oh! As Jim Carey warned in “The Mask”: ‘Hold on to your lug nuts, it’s time for an overhaul.’

  11. Brett says:

    Barry,
    That was f-ing hillarious! “Are Bankers Incompetent Morons?” and that ‘Floyd Norris’ bit was an excellent summary. Having just bought my first house 2 years ago, I remember going through the process of finding a mortgage broker as being akin to having to run a gauntlet of sleazy used-car salesmen, only they were more ‘fly by the seat of your pants’ and dealt with larger chunks of money and none of them seemed too bright or trustworthy. So after reading that NYT article the sense I get is that you had these less than reputable mortgage companies bringing these oh so profitable debt bundles to banks, using their used-car salesman charm and waving shiny dollar symbols in front of the bankers eyes and basically jedi mind tricked them into taking that first hit of mortgage loan ‘profit’ goodness and then, then they were hooked on the mortgage brokers smack and it was all down hill from there. Don’t know how much of a conspiracy there was rather than un-checked greed and a ‘well if that guys making a gagillion dollars being all fiscally irresponsible and he ain’t worried then I better get in on that action too’. So yah, the banks knew what they were doing was wrong but it felt oh so good, and no one was yelling at them and everone else was doing it. And like a drug addict, the body or market in this case will eventually experience organ failure and the addict will crash. Are the FED or PPT good enough doctors to keep the market alive? I dunno, kinna doubt it though. Now if you wanna talk conspiracies in the larger markets I think u have a LOT more evidence of un-natural market events going on there. Kinna spooky. Keep up the great commentary though, and $$$ aside this whole market meltdown thing is a captivating spectacle. Makes me wanna get a bag-o-popcorn and just watch it all unfold (or implode as the case may be).

  12. david says:

    No, bankers can’t do math.

    They’re salesmen, people, not math geeks. They’re really good salesmen, otherwise they’d be doing door-to-door vacuum sales or selling cars.

    The math geeks are running quant shops or slaving away as junior analysts in a cube somewhere telling their salesmen bosses what they want to hear.

  13. RW says:

    It’s probably just privatize the profits and make the liabilities public time again: CFC was on the verge of bankruptcy so, doubtless with FED blessing beforehand, BAC gets to expand its retail network significantly and any further financial fallout WRT the combined entity is covered by the taxpayer.

    The executives who helped build the monster get paid off very well of course.

    Move on, nothing to see here, just more crony capitalism AKA socialism U.S. style.

  14. Kelja says:

    I agree Zot23. But the war wasn’t prosecuted like a war. I mean, after 9/11 we were told the way to support the effort was to go out and spend more. I can’t say that Americans are unaware we are engaged in War in two different countries. But to most, it’s a world away and they could care less.

    Yes, if we had acted like the ancient Romans and simply conquered, raped & pillaged, the dollar would be almighty for years to come. But we had scruples? (I wonder if the Chinese have those??)

    We should go to war only when we follow the constitution. That is, an official Declaration of War has to be declared. When was that last done? WWII?

    As it stands now, the dollar is burnt toast.

  15. Anonymous says:

    My general rule is to completely ignore any internet posting complaining about “incompetance” or “the incompetant”.

  16. Robert says:

    I’ll tell ya Barry, I don’t buy into this crap that the bankers were just blindly greedy or didn’t realize what was going on over the last ten years. These guys are in the money business – They knew. It’s basic economics – If you flood an economy with dollars, those dollars will end up somewhere. If you combine easy money with easy loans for homes, any moron can see that that created the bubble. We are told that, in hindsight, the banks see how that worked, but I don’t buy it. They knew. The heads of the banks knew exactly what was going on, and they did it anyways. Why? That I haven’t figured out yet – Maybe they knew the FED/government would come running to bail them out, so they got the money while it was good to get. Maybe the old conspiracy theory about banks creating inflation/deflation cycles to scoop up property at pennies on the dollar when things go south is true. Whatever their motive, I find it exceedingly difficult to believe that the banks simply forgot all about such elementary economic principles as bubble creation due to monetary inflation – And compounded that retardedness with all too easy loans. No, something stinks to high heaven here…

  17. cinefoz says:

    Anonymous said:

    My general rule is to completely ignore any internet posting complaining about “incompetance” or “the incompetant”.

    reply: You goofed.

  18. Mike M says:

    Bankers do not need to understand basic math because in their world $1 equals $9.

  19. cinefoz says:

    Robert,

    People did what came naturally. They saw huge piles of free money just laying around and they picked it up.

    The ones who kept putting out the piles of free money are the real culprits. My guess is Greenspan just liked being popular and powerful. He used free money to retain influence. And he spoke gobbledygook to make it look important and intellectual.

  20. forest gump says:

    Stupid is as stupid does.

  21. Rob Dawg says:

    BR,
    Maybe you can make a deal. You teach them Excel and they teach about spell checkers. ;-)

    What we are seeing is incompetence bred of never having to worry about failure and a complete disassociation of executive measures of success from corporate success. For the former refer to the BAC purchase of CFC. For the latter Mozillo’s recompense from same.

  22. Estragon says:

    I think the crux of the issue is whether residential mortgages can continue to be viewed as a pool of like risks.

    The basic nature of consumer finance hasn’t changed. People tend to pay their bills (or not) in predictable patterns based on personal circumstances and past history. The new wrinkle though is that a residential mortgage isn’t really a single product with a closely clustered set of features and associated risks any more. The terms have splintered to the point where they may be more like a commercial loan with nearly bespoke covenants, and as such, should be risk rated with similar granularity.

  23. JarHead says:

    “Every citizen should be a soldier. This was the case with the Greeks and Romans, and must be that of every free state.”

    “Every generation needs a new revolution.”

    “Every government degenerates when trusted to the rulers of the people alone. The people themselves are its only safe depositories.”

    “He who knows nothing is closer to the truth than he whose mind is filled with falsehoods and errors.”

    “Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.”

    “I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.”

    “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

    “I have no fear that the result of our experiment will be that men may be trusted to govern themselves without a master.”

    “I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

    Thomas Jefferson

  24. Peter Davis says:

    Is this a rhetorical question? Keeping their books is too time-consuming? Are you kidding me? What a crock of shit. I find it completely reprehensible but totally unsurprising that the banks would now be crying foul.

    Leave it to Wall Street to dream up a get-rich-quick scheme and then bail when its plans blow up in its face. While I really have no faith in the band of morally bankrupt cowards that currently comprise the United States Congress, I at least hold out a little hope that, for once, they will not cave and, instead, will actually show a little fortitude by telling the banks to go stick where the sun don’t shine.

    These guys got themselves into this mess. And they did it not because they didn’t understand the risks but because they chose to ignore them, believing, instead, in their own infallibility. This another of the classic tales of hubris which has colored Wall Street history. What is truly amazing is how quickly lessons are forgotten. What is truly unfortunate is that a lot of people are going to lose a lot of money – and not all are equally deserving of such a fate.

  25. Ross says:

    Gimme an R

    Gimme an I

    Gimme a C

    Gimme an O

    What do it spell? RICO. Also that piece I wrote last spring “Bennie and June” about Fire Equity Withdrawl seems on target. California suspecious home fires up 73% YoY.

  26. mhm says:

    Compare:
    “We bankers are idiots, we can’t do basic math…”
    To:
    “Never attribute to malice that which can be adequately explained by stupidity.”

    They lived for the moment, collected fees and got huge year end bonuses. None of that will be returned if the company goes bankrupt.

    And now they claim they didn’t know it was bad? Yeah right…

  27. Al Czervik says:

    RW,

    Privatize profits; socialize losses. Exactly!

    It’s been that way since at least 1913 so why would today’s bankers expect any different outcome?

    Stupid? Incompetent? Hardly. In fact, very good students of history.

  28. Larry says:

    Bet you those bankers were wearing suits though…

  29. D. says:

    I think Bankers are lazy, don’t do their homework and most actually believe that the sky is the limit. It’s been proven that the farther removed your studies have been from sciences, the more you believe in Santa Claus and that humans will fix all of its mess.

    Why do I know this? Because I worked for one of Canada’s 5 large banks and they truly did not believe in a real estate bubble.

    Anyway, what would they care… they work on the principle that they are too big to fail. They get their bonuses and options on the way up and the gorvernment picks up the tab when they collpase. Options then get repriced.

    So much for capitalism and free markets.

  30. Winslow R. says:

    al wrote” It’s been that way since at least 1913 so why would today’s bankers expect any different outcome?

    Stupid? Incompetent? Hardly. In fact, very good students of history.”

    …points out, no bankers are not stupid, the public that bails out their trading losses are.

    To be fair, it probably says nothing about the intelligence of either group but rather who holds excessive power over whom.

  31. Nobody commented on my mis-spelling of Incompetant?

    Geez, it must have been a tough week

  32. JarHead says:

    “Every citizen should be a soldier. This was the case with the Greeks and Romans, and must be that of every free state.”

    “Every generation needs a new revolution.”

    “Every government degenerates when trusted to the rulers of the people alone. The people themselves are its only safe depositories.”

    “He who knows nothing is closer to the truth than he whose mind is filled with falsehoods and errors.”

    “Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.”

    “I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.”

    “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

    “I have no fear that the result of our experiment will be that men may be trusted to govern themselves without a master.”

    “I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

    Thomas Jefferson

  33. michael schumacher says:

    look again BR……someone has…they just did’nt SCREAM out like that last grammar policeman did.

    August lows anyone???? Too funny

    Ciao
    MS

  34. Don says:

    Countrywide is just a mortgage broker–a very big mortgage broker, but a mortgage broker nonetheless. In the beginning of the securitization orgy (late 90′s) they mostly sold to Fannie and Freddie. Then along comes the investment banks–Bear, Lehman, Merrill, etc., to buy their stuff–or actually to provide loan programs to sell. Countrywide didn’t create zero-down, negative amortization option ARMS–the investment banks did and told CFC to go sell it. And they did.

    Why all this money floating around? Because massive trade deficits required massive securitization, i.e., capital account surpluses. The money had to go somewhere. It eventually found a happy little home (never mind the pun) in a 3/2 dump in your neighborhood. Now since folks got money cheaper than they should have, they could keep spending on the trinkets at Wal-mart manufactured in China that fed the trade deficit that needed an offsetting capital surplus, etc., etc., ,and so on–sort of like that kid book, “If you give a mouse a cookie.”

    The fed saw deflation in the Chinese ability to produce more w/out spending more as they leveraged nearly free and otherwise unemployed labor. The fed, fearing deflation more than all the other monsters under the bed, helped stoked the money fire with free or nearly free money.

    Were the bankers stupid? No, but if you give a banker a cookie….

  35. Rob Dawg says:

    Nobody commented on my mis-spelling of Incompetant?

    Geez, it must have been a tough week – BR

    Ummm: “Maybe you can make a deal. You teach them Excel and they teach about spell checkers.”

    Dow -280 is a day for subtle.

  36. zot23 says:

    Don – sort of like that kid book, “If you give a mouse a cookie.”

    Maybe the best comment I’ve ever read on these boards. Next time I read this to my kids I’ll be fighting back the laughter (or tears?)

  37. Farmer says:

    Why did the bankers do it???

    Let me put forth this> They did it because they get paid for keeping the stock up and short term is all they worry about. Gerate lots of fees, write bogus loans and unload the loans onto other fools. Bankers were only interested in next quarters profits and their bonus checks (options). So why worry, they got rich, they kept the price of the stock going for as long as possible and most are getting out rich…… What a deal, what a country.

    FINANCIAL ENGINEERING at its finest, also known as doing what ever it takes to make the CEO and upper management rich (managerial capitalism as Bogle calls it). And don’t think this type of thinking is limited to bankers, read Bogle’s “THE BATTLE FOR THE SOULD OF CAPITALISM” to get an idea of how wide spread the disease has spread.

  38. andy in nz says:

    I think its lack of institutional knowlegde.

    I am a joe six pack, I did a printing appenticeship, and i had to work for up to a month in every department of the factory to better understand the machinations of my work place. That was the best way to understand an organisation and the customers/suppliers relationships.

    the downsized, out sourced work place is a deliberate management strategy.

    If a MBA that gets recruited to a big bank, they have no idea about how the retail part of the operation works, so they don’t understand the customer. Add to that big boss types who was head hunted in to lift earnings who don’t understand what the MBA’s are doing, so the MBA make a cool slide show for big boss to show how CDO models work and how much money they make.

    Big boss buys into the model (pretty slide show and because the competition is doing it), and then they all stand around saying ‘who would of thought that would happen’, when the worst does happen.

    We all come across this on a smaller scale when we call a call centre or help desk and no one can fix your problem.

    my 2 cents.
    CEO

  39. Tom C says:

    Bankers are people and people are stupid. The hubris is the key. The bankers mind set is particularly absurd, adding up nickels and dimes in fees from client accounts. (You take the risk, we make the money). The securitization process brought that business plan to new levels in Greenspan’s credit environment. The mortgage business is big easy money in comparison and would have continued if the music hadn’t stopped. They have been encouraged in this behavior by the FED and the politicians. 10-20 years ago, the bankers were villified by congress for having standards too strict. Ferdinand St. Germaine is still the poster boy for the corrupt, self-serving relationship between the banks and politicians. The system is broke and it ain’t a market failure, it’s the short term thinking called politics.

  40. Pat Gorup says:

    “Are Bankers Incompetent Morons?”

    They would like you to think that but the truth of the matter is that like the FED, they want to redistribute wealth–yours & mine. That’s been going on for about 100 years now.

  41. Clyde says:

    Don,

    You & I think alike on this issue. The race to the bottom on lending standards was initiated by non-banks who securitized. The dealers saw what money could be made and bought lending & servicing platforms and started to compete on the race to the bottom. And as the best salespeople in the world, the Street sold the institutional investors a pig-in-the-poke with CDOs & other exotics. The dealers are what link all of the parties together in this debacle, they were instrumental.

  42. Francois says:

    “Are Bankers Incompetent Morons?”

    To paraphrase Mark Twain:

    Suppose you were a banker; suppose also you were incompetent and a moron. But I repeat myself.

  43. Will Lewis says:

    I don’t know if you have posted this, but this video gives a pretty good explanation of the situation (stupidity & greed): http://www.youtube.com/watch?v=SJ_qK4g6ntM