This week’s Barron’s has Randall Forsyth going a bit postal on the Usual Suspects:

“With so many miscreants participating in arguably the biggest financial catastrophe in history, it’s all but impossible to point to the chief perpetrator.

In truth, there was a suspension of disbelief all down the line: by mortgage brokers who arranged loans for delusional borrowers who bought houses they both knew they couldn’t afford; bankers who collected, pooled and sliced and diced the junk mortgages into triple-A securities; ratings agencies who provided that Good Housekeeping Seal of Approval to those defective products; investors who credulously bought these mortgage-backed securities with gilt-edged ratings and junk-bond yields; sellers of credit-default swaps who never thought they’d have to pay off on the insurance they’d written. And don’t forget Fannie and Freddie, which leveraged the implicit (and later explicit) backing of Uncle Sam to use cheap credit to balloon their balance sheets. And it was all fine, of course, because house prices never went down.

No less an authority than Alan Greenspan, the former Federal Reserve chairman, saw no problem with this because, firstly, scattering all these loans to the wind meant the risk was dispersed and therefore nobody needed to worry about the all these dubious loans threatening the financial health of any one institution. Moreover, there was no need to worry about bubbles; though they inevitably burst, the damage can be contained by reinflating a new one.

In that, Greenspan had empirical evidence on his side, after having reflated successive burst bubbles over his tenure. The Fed had done just that after the 1987 stock-market crash, which led to the commercial real-estate and junk-bond booms and busts of the late ’80s. And after the dot-com bust of 2001 (which was helped importantly by Fed pumping to stave off the supposed Y2K threat), Greenspan countered by slashing rates to 1% by 2003 and leaving them at preternaturely low levels for a couple of years, which inflated the housing bubble.”

Note what Forsyth writes: Not that there are no villains, but that its hard to pick the worst of the bunch out of all the miscreants involved. Still, it seems he is nominating Greenie as the front runner.

And yet some other people continue to think there were no villains in all of this. Some folks have suggested its simply a case of defining deviancy down, but I believe the more likely explanation is that its yet another Atlas-addled brain unable to process evidence that conflicts with now hard-wired ideolology.

Call it yet another case of cognitive dissonance . . .


It’s Good to Be Goldman
Randall Forsyth
Barron’s, JULY 20, 2009

Category: Bailout Nation, Legal, Psychology, Regulation

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.

19 Responses to “So Many Miscreants . . .”

  1. Winston Munn says:

    I am pretty sure the ideology followed was Gozar-worship; after all, the epicenter was in NYC, there was real wrath of god-like repercussions, and the government’s solution was to put three clowns in charge.

  2. kansascitypothole says:

    Slightly OT

    Ratings agency ratings deserving first amendment protection?!? The same as newspaper editorials?!?

    “It shouldn’t change the legal dynamics that rating agencies are more important, or play a greater role, or are looked to by this or that element of the marketplace,” he says. “The major similarity here is that both the newspaper and S.& P. are offering opinions on matters that people can and do disagree about.”

  3. OkieLawyer says:

    It is difficult to get a man to understand something when his salary depends upon his not understanding it. — Upton Sinclair

    Although there are I am sure many who fooled themselves in this fiasco, the people who designed it understood the math and were fooling everybody else. I watched There Will Be Blood last night. Same mentality, different time.

  4. Completely OT:

    before he strides to the Teeing grounds of Hole # 55, here’s hoping that “old” Tom Watson picks #6, and a deserved place next to Harry Vardon in the History Books, by the EOD.

    Watson, and his Career, is Informative, at the minimum. Truly, one of the Best.

  5. Alan says:

    Is it just a coincidence The Plunge Protection Team was also established due to the 1987 crash?

  6. Cursive says:

    Nothing has changed. We are witnessing the same behavior again. Look at all of the new equity offerings in banks and REIT’s. And all of this AFTER the curtain was pulled back last fall. Rubes, rubes and more rubes. My wife was talking with a financial advisor friend of ours and he was trying to sell her on a great opportunity in commercial REIT’s. He admitted that this is a tough investing environment, but told her that is where he is investing his money. I kid you not. It seems the sheep are lining up for the slaughter.

  7. VennData says:

    Actually the time to buy REITs is when no one else wants them. That is true of most asset classes, in which there have been once-in-a-lifetime opportunities since March.

  8. danm says:

    Without going into a dissertation, I have always thought that the US psyche was still in adolescent mode. This crisis might finally force it into adulthood.

    Pure and applied sicences have certainly evolved much faster than social sciences. It does not help that here in North America, the mentality is still to poo poo social sciences because they are perceived as a cost. It does not matter that 90% of the economy is now discretionary or leisure based, social sciences is till a no go!

    It is evident that there are many villains but they are the product of teenage risk taking. And since they are underage, their identity can be masked and the sentence is much reduced.

    If you look at the distribution of personality types across a population, you will quickly notice that those thinkers who see the big picture are usually those who lack the social skills to rock the boat. Therefore, to nip the bad behavior in the bud, special structures should have been in place to deal with this contradiction. Those who can influence people would have had to listen to the thinkers. One quick glance at our system reveals this huge flaw. Who are the thinkers who can be trusted? Are the influencers talking to them and promoting their ideas? Nope.

    Had the US been an adult, it would have taken all these factors into consideration and would have structured itself better to protect itself from human nature by investing a little more in social sciences and less in teenage baubles. It would have understood that it had to invest some time, money and energy into their social structures, ideals, morals, values, etc.

    The next decade will reveal to us whether the US remains a juvenile delinquent or finally reaches responsible adulthood.

  9. Stuart says:

    People want to trust and generally believe that others are honest. Myself for example. This is the core. Slather on a heaping layer of laziness and you have a populace primed for the picking by those that prey upon the honesty, ignorance and naivety of others. Public looting 101. Of course there are villains and history will reveal many that thrived during the credit explosion and now seek to hide in shadows of opacity and behind the shield of policy during this contraction. Any conjecture there isn’t, well that is more than just cognitive dissonance. A simple examination of those who are opponents to transparency in the marketplace, without caveats, will reveal where to look.

  10. danm says:

    Barry, I also think you are looking at it in a very American-centric way. I can say that here in Canada, we did not belive in many of the Americans’ view of socialism but in the end, we always had to give in and follow your policies or we’d end up as a 3rd world country. And once you start going against your values, it’s a slippery slope down hill.

    No matter what the system system is, the criminal mind is there waiting for an opportunity. And the US policies of the last few decades just gave them a huge playing field. It’s like letting all your prisoners out of jail without any pocket money and not telling this to your citizens who always leave their front doors unlocked. What could you expect?

  11. alfred e says:

    @DanM: WOW! made that choice consciously two decades ago. Cost me, but life has been mine to define. Pleasure and pain. Inseparable.

    There’s an upper layer that thinks things are just fine. Just like before.

    I chose not to be that layer. It’s a false life. “And Jesus drove the money changers from the temple”. 41% GDP Wall Street. And BSO is going to shoot himself in the foot? Think not.

    The poor want to be rich and the rich want to be happy.

    “Cognitive dissonance”. Interesting that so many know the term but don’t.

  12. Cursive says:

    @VD 10:05

    Re: Commercial REIT and asset classes in general

    Apparently there are still some who really want them, my financial advisor friend included. However, March 2009 was just the beginning. I’m willing to bet that there will be several once-in-a-lifetime opportunities over the course of the next 5 years.

  13. OT:

    to put a Wrap on the 9:18 post:

    “Cink didn’t, Elevates Game to Win Open.”

    Watson, instructive, even in defeat, shows, again, why He’s One of the Best.

  14. wunsacon says:

    I dislike attempts to limit or focus on one individual. If people can’t remember (a) more names-to-blame and (b) that ideas and not simply certain people were to blame, then they’ll learn nothing from this or else draw wrong conclusions.

  15. Pat G. says:

    To arrive at a conclusion that; “there were no villains in all of this” is simply unfathomable.

  16. 155274263153 says:

    just a lurker but registered here
    in order to compliment stuart’s words
    above on this thread (timestamp 1036am)

    used to be a cynic of the highest order
    nowadays one of the neo guileless i suppose
    and stuart’s words really hit home
    most are trusting good and not lazy but
    just too pressed for time

    i do think it’s greed that causes theses troubles
    being able to not succomb to that the key

    and yes yes yes
    anybody who will not support 100% transparency
    is somebody who just can no longer allow to be part
    of the process going forward

    t/y again stuart for your words

  17. [...] The Big Picture on Randall Forsyth’s piece in Barron’s about who is responsible for the current economic meltdown Note what Forsyth writes: Not that there are no villains, but that its hard to pick the worst of the bunch out of all the miscreants involved. Still, it seems he is nominating Greenie as the front runner. [...]

  18. Greg0658 says:

    nice thread folks .. missed it for days
    post @ 9:43 said to myself .. NOW we need a system that lets a single sheep get sheared and that doesn’t bring down the whole field .. this connectedness of the wall street game and everyones living cash* is what needs to be fixed .. that Market Economy and the Real Economy shouldn’t be so interconnected … no perp is ridiculous AGREED problem is there are few prosecutable charges in our court system ASHAME … like corn in a grain bin / we have no system to keep cash at value for many years down the road for retirement / hense these games in our productive real world yet unproductive in the social world / blame CASH

    * one world government (I think its here .. different definition mantra only)