Black Swans or Grey Goose?
David Reilly is Bloomberg’s new king of snark.
His column this morning is another example of why media outlets should hire knowledgeable and opinionated experts and let them have their say. FT has this down to a science.
I first noticed this with Michael Lewis, then Caroline Baum, and now Reilly. Its heartening to see Bloomberg adopting what for lack of a better phrase can be describes as the British model. (Any publishing/journalist experts want to correct me, it would be appreciated).
Excerpt:
“Maybe it should come as no surprise that President Joe Cool’s administration has a laid-back view of bank stress. Investors expected the government to be a bit more intense in tests of the nation’s biggest banks. After all, if nightmare scenarios were appropriate in urging passage of a $787 billion stimulus package, they should be appropriate now to gauge a bank’s ability to withstand losses.
Sadly, that’s not the case, at least according to the stress-test criteria laid out by the Treasury Department and bank regulators Wednesday.
That is bad news for investors, taxpayers and the economy. The longer we keep trying to avoid the reality of banks’ dire straits, the longer the financial crisis will stretch. The lack of sufficient stress in the tests is especially surprising since a big lesson of the past two years is that the worst can happen, and then some. In times like these, the government and investors need to play “What If?” even when it involves some outlandish possibilities.
The failure to do such worst-case planning, even after plenty of red flags, probably made the after-shocks to the financial system from the collapse of Lehman Brothers Holdings Inc. far worse than they should have been.
Perhaps the biggest lesson, though, is that banks, like plenty of other companies, will get drunk on their own Kool-Aid. And regulators are supposed to be the ones who abstain.
Its not the banks, but Mr. Market that is failing the stress test.
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Source:
Bank Tests Ignore Black Swans, Rely on Grey Goose
David Reilly
Bloomberg, Feb. 27 2009
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_reilly&sid=av_BTw3JLGOs
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February 27th, 2009 at 9:39 am
Don’t forget Jonathan Weil. He shreds bank balance sheets like the dog shred your homework (great one yesterday on Regions Financial and Huntington Bancshares and how they confessed they were insolvent in their latest financial statements, but only in the comments section, not on the actual balance sheet itself).
TBP and Bloomberg, w/ some CR thrown in, is all you need to stay informed. And the beauty of it all is that it’s free!
The WSJ would do well to take lessons from Bloomberg about how to design a user-friendly, on-line business daily.
February 27th, 2009 at 9:43 am
i actually like Obama’s budget. but the talk and action described therein bear no relation to the kid-gloves approach to the financial industry’s losses taken by Summers?Geithner and that will be his undoing. NO TAXPAYER MONEY FOR FAILED SPECULATORS EXCEPT AT SUPER-PRIME LEVELS above the common, the preferred, the sub debt, the senior debt, bank debt, secured debt etc. give these institutions liquidity ONLY and let their balance sheet be restructured to match their losses. right up to the top.
February 27th, 2009 at 9:53 am
The only time stocks are worth buying is when no one else wants them. Bought C this morning.
February 27th, 2009 at 10:21 am
A buyer of C! The first today – good luck, Johnny B !! What a bargain !!!
(and being British I say that sans snark…)
Barry, by the British model, I assume what you mean is “telling it like it ass without all the arse kissing”. Yes, there is a lot to be said for the British model. Although in some ways I still prefer the Swedish model. BTW, Barry, don’t ever say “call me Inga” again, I had nightmares for days.
February 27th, 2009 at 10:24 am
And yet Bloomberg also prints Betsy McCoughey, who when she’s not factually inaccurate is kind of a paranoid hysteric.
Since then, I’ve been worried about everything Bloomberg prints–this piece was go glaringly wrong on so many facts and all you had to do to see that was click the links in the piece itself. Clearly, Bloomberg doesn’t fact-check their op-eds, so unless the piece is bylined by someone I know has their facts straight, I can’t believe that anything printed in Bloomberg is actually true unless I independently verify it.
Kind of a problem. I hope they decide to continue to move in this “hey, we’re going to go with reality-based coverage,” and less Betsy McCoughey “we know she’s making stuff up, but it would just be so scandalous if it were true (which it’s not) that we’re going to print it anyway!”
February 27th, 2009 at 10:34 am
Bloomberg airs Wall Street’s dirty laundry on the neighborhood clothesline where the WSJ can’t find a laundromat. The tawdriness of a high maintenance girlfriend’s jewelry and clothing credit expenses
paid-thru-play in the Alabama sewage fiasco. Former FL governor Jeb Bush’s advisory role to Lehman as they scrambled to unload their toxic waste onto the FL central fund, the swindlings from the Australian Outback to the fjords of Norway, clothespinned and colorfast.
February 27th, 2009 at 10:36 am
“President Joe Cool” is, not only the best appellation I’ve seen, yet, tagged to the O-one, it, also, fully delineates any upside that we can rationally expect of him.
http://www.thefreedictionary.com/appellation
February 27th, 2009 at 10:46 am
There’s a new Gitmo – He is ahead of the U.S. Treasury Department…(Get More From Geithner…and just keep getting mo, and mo ).
February 27th, 2009 at 10:59 am
Cant quite imagine anyone would make absolute comments as to these media circus rings. Maybe they got this story right …. What about the past 6 years? British model Sweedish model… context is everything, and these fools are a few years late on the BIG FINANCIAL SURPRISE!
February 27th, 2009 at 11:02 am
What can Obama really do? I guess the Joe Cool moniker, or chapa, is compelling on the surface, but it reveals a willingness to reduce to snarky comments the real problems this nation faces. Obama has an exceptionally volatile set of foreign relations challenges, an economy that is cratering faster than a Florida sinkhole, and the fact that the Nation-State is in a life or death struggle with the Corporatacy. Where does sovereignity lie, who (plural?) controls it, how is it balanced to ensure continuity of State. The challenges are simply enormous. He is attempting to preside and call upon people to cooperate. Maybe that’s his mistake. Parasites, regardless of stripe, never cooperate. [see story on missing nerve gas in Utah]
So yeah, Barack Obama is only going to be some guy who knows how to wear shades and purse his lips to evince steely determination. Me voy pa’l monte.
chapa: Spanish for bottle top, slang for nickname (Perú)
February 27th, 2009 at 11:05 am
Everything I read these days leads me to believe that the U.S. has lost sight of the fact that the bank stress tests, bailout packages, salvaging of bad financial institution, atrocious budgets, etc. are developed by our elected politicians and their appointees. What else should we expect from this group of brain-dead people? These are mentally challenged individuals and they are shooting in the dark.
February 27th, 2009 at 11:23 am
Geithner still has almost no staffing and can’t really make the big moves needed just yet. I think all of you need to keep harping on this, though, so that things move quickly once Timmy realizes the TARP ain’t gonna cover things…
February 27th, 2009 at 12:23 pm
I have to agree in principle with MReagan — “the Joe Cool moniker, or chapa, is compelling on the surface, but it reveals a willingness to reduce to snarky comments the real problems this nation faces. ” I feel that some have come to expect to much of Obama, not because he’s not intelligent and not because of his ideas (or ideals), but because of the enormity of the problem(s). I voted for Obama and do not regret it, but I’m a realist and never expected any sort of quick recovery. We’re in a world of hurt and Obama and his admin are not going to ‘save’ us. I hope they make the best decisions possible, but it’s hard not to see looking at the previous admin and this one that some very bright people and knowedgable people (and yes somewhat compromised by their connections) were in over their heads.
It’s apparent not easy to fight the various vocal constituencies and I fear that is continuing to affect the solutions being proposed and the actions taken.
February 27th, 2009 at 12:42 pm
Everything one needs to know is revealed when you read, “The Treasury plans to have the banks conduct the stress tests themselves; regulators will check the results.”
There ARE NO STRESS TESTS. This is only a diversion to pacify the masses.
February 27th, 2009 at 2:15 pm
TheSkeptic…
Shutdown Geitmo. Release the zombies.
February 27th, 2009 at 8:08 pm
Modern economic theory is based on “empty-world” economics. But, in fact, today the world is full. In a “full world,” the fish catch is limited by the remaining population of fish, not by the number of fishing boats, which are man-made capital in excess supply. Oil energy is limited by geological deposits, not by the drilling and pumping capacity of man-made capital. In national income accounting, the use of man-made capital is depreciated, but the use of nature’s capital has no cost. Therefore, the using up of natural capital always results in economic growth.
For example, the dead zones in the Gulf of Mexico from fertilizer runoff from chemical fertilizer farming are not counted as a cost against the increase in agricultural output from chemical farming. The brown clouds that reduce light over large areas of Asia are not included as costs in the production of energy from coal. Economists continue to assume that the only limits to growth are labor, man-made capital, and consumer demand. In fact, the critical limit is ecological.
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Alexander Cockburn can be reached at alexandercockburn@asis.com