Why Didn’t the Fed See the Crisis Coming?
The must read commentary of the weekend is a Sunday NYT OpEd by Michael Burry — he’s featured in Michael Lewis The Big Short — titled I Saw the Crisis Coming. Why Didn’t the Fed?
Its another assault on Greenspan’s tarnished legacy:
“ALAN GREENSPAN, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”
But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen — with the expansion of easy mortgage lending — as high as they could go.
I had begun to worry about the housing market back in 2003, when lenders first resurrected interest-only mortgages, loosening their credit standards to generate a greater volume of loans. Throughout 2004, I had watched as these mortgages were offered to more and more subprime borrowers — those with the weakest credit. The lenders generally then sold these risky loans to Wall Street to be packaged into mortgage-backed securities, thus passing along most of the risk. Increasingly, lenders concerned themselves more with the quantity of mortgages they sold than with their quality.
It only gets worse from there . . .
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Source:
I Saw the Crisis Coming. Why Didn’t the Fed?
MICHAEL J. BURRY
NYT, April 3, 2010
http://www.nytimes.com/2010/04/04/opinion/04burry.html
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April 4th, 2010 at 11:37 pm
Saw the Burry article. Tres cool. He’s really, really good. Almost makes me wish I had his neurological disorder.
He made in excess of $700M betting against the WS ….. In spite of his clients bailing out thinking he was stupid. Bad advice. And from where exactly? Buy oil at $140????
I’m not sure making $700M that way is quite right.
Although if he had tried to blow the whistle he would have suffered the same fate as the Madoff whistleblower, only worse. Don’t fight city hall.
Just another nail in the should be coffins of our supposed regulators. Phony. Waste.
Perhaps the GOP is correct. Don’t need regulators. They are owned.
Blow the SEC away. We don’t need any sham or pretend regulation. They haven’t done squat.
But it does also make you wonder about these WS whiz kids that need megabuck bonuses because they are so exceptional. NOT.
It’s a closed club where they all drink the same kool-aid. Don’t rock the boat.
Pump that bubble up and ride it out. Bank the bonuses and yell: Whoopie!
It will be interesting to see if J6P and the retail guys buy back in. I’m not sure they’re that stupid.
April 5th, 2010 at 1:14 am
GREENSPAN – Knows what he did….
and… He knows WHY He had to do it.
(NOT ON MY WATCH… Hint, Hint, Wink, Wink.)
He want’s to put his spin on History away from him.
Anyone would.
His comments now are just “spin” before he takes the big dirt nap.
He does not WANT to be the one blamed for this, However I think history will write him in as the major factor.
April 5th, 2010 at 1:16 am
“It will be interesting to see if J6P and the retail guys buy back in. I’m not sure they’re that stupid.”
They’ll get back the day the social and market psychology experience a reset. Said reset will happen only when some justice will be served.
What do I mean by that?
This financial crisis is the only one where there hasn’t been no high-level prosecution, no truly independent commission of inquiry, no systematic investigation and denunciation by the press, and where the offenders have come out of the crisis they provoked, stronger and more politically connected than ever.
In these conditions, who can blame ordinary folks to strongly believe that “the fix is in”? And why could they even believe, let alone invest, in markets that are perceived as rigged?
April 5th, 2010 at 1:30 am
My Thoughts on “Greeny”…….
Coming out of the Cold War Greenspan believed that in order to keep us ahead of the deficit spending of the Cold war era he had to keep the Bubble machine going in order to keep us ahead of the world and be “THE” World power.
This did not come cheap. It meant that he had to keep producing bubbles in order to make the U.S. THE Super power that we claimed to be. He HAD to keep the U.S. in the Black (In actuality, in the Red) to keep the rest of the world believing in our banking system and our mantra of “ Greed/Capitalism is Good” & Deficit spending can only help capitalism.
NOT defending – Just Saying what I think he thought…..
April 5th, 2010 at 3:39 am
After reading Michael Lewis’ book, it is obvious that the fix has always been in, WS investment banks betting against other investment banks, their customers and especially the public. Ties quite nicely with the new Matt Taibbi article in Rolling Stone “Looting Main Street”… If you ever have any doubt about the corrupt and evil nature of both investment banks and local politicians, this is the article for you.
Really, do we have a chance against the greed, corruption, and incompetence of WS, combined with a government that looks the other way?
April 5th, 2010 at 7:00 am
Greenspan if an f’ing liar as are the rest of the wrecking crew :geithner,orszag, bernanke, summers,
paulson, greenspan,rubin, friedman,fuld, frank, thain, dodd,mozillo,o’neal, gensler, cassano, blankfein, shapiro,yellin, fink,kashkari, dudley, dugan, the entire Tribe that was minting trillions in “bonus” money.
Says so right here on CNN no less:
http://www.cnn.com/2004/LAW/09/17/mortgage.fraud/
April 5th, 2010 at 7:06 am
TBMBM….no a lot more than that. Too-Busy-Making-Big-Money. The old apple cart was quite clearly in skeleton luge mode.
Direct experience being eye-rolled and cold-shouldered by LEH top dogs in 2004. The higher up in that whirlwind the faster you were blown away. Think Hindenberg at Lakehurst on schedule for a landing. Hydrogen was just too explosive for prime time.
April 5th, 2010 at 8:12 am
Is he saying Alan Greenpsan lied to me? I am hurt. Too bad this entire Great Depression Deux happened after Greenspan was Knighted by the Queen of England:) Anybody know what a copy of Bob Woodward’s Maestro goes for these days?
April 5th, 2010 at 8:54 am
AlE – “see if J6P and the retail guys buy back in. I’m not sure they’re that stupid”
that one caught me too .. thought of todays thread post “stockbond-tug-of-war”
(squirrel does dramatic headspin to camera and lens zooms in fast)
thinks – where do I store my nuts for next winter
with interest rates so low for plain old savings accounts – Joe&Jane6P with the weight of a real job dayin dayout – and raising a real family (future laborers & soldiers) – I don’t know … but I think A answer is for the J6Ps to put cash in the bank and out of stocks-bonds and let the market calm down the system .. make them borrow from their accounts – real accounts for a change
to many words huh .. needs to be sound-byted .. “dont gameble / make business borrow from you”
April 5th, 2010 at 10:08 am
Ben Shalom has been the maestro since 2/1/06 – he certainly desrves a good portion of the blame. I think his zero interest punch bowl is going to leave us with a doozy of a hangover!
April 5th, 2010 at 10:22 am
“Nobody could have predicted” – the classic defense of “arrogant idiots” when they have screwed up and try to run away from the responsibility. Anybody who listened to other people would have known about the risk, and could have dug into it and discovered the problems. But if you think you are in total control and cannot make mistakes, then you eventually will make these kinds of blunders.
April 5th, 2010 at 11:03 am
For those that follow Greenspan, there was a recent Fortune Magazine article that was very good in explaining Greenspan’s defense of Fed policy leading to the housing crisis. The article is far more readable than Greenspan’s “The Crisis” paper.
The link to the Fortune story can be found in my blog post here:
http://www.economicgreenfield.com/2010/02/26/alan-greenspan-takes-on-his-critics/
April 5th, 2010 at 11:06 am
Bush I, Clinton, Bush II, Greenspan, et al.
NAFTA, CAFTA, GATT, ZIRP, Open Borders, Free Trade, China off shoring.
They all knew exacly what they were doing and that it would ruin this country.
Bush I is rumored to have said “If the people knew what we were up to, they would chase us down the street and lynch us.”
Grenspan rumored to have said, “It’s all going to collapse, and I can’t wait.”
I don’t know how those bastards keep a straight face when they pretend it is all a big surprise to them.
April 5th, 2010 at 11:13 am
Just finished “The Big Short.” I found it riveting reading. Dr. Burry didn’t know he had Asperger’s until his son was diagnosed. He could have just as easily been obsessed with model trains.
He never received a “thank you” from his investors or any recognition for what he, Lippman and Eisman saw coming. To read about the events through the eyes of these eccentric fellows is a must.
April 5th, 2010 at 2:41 pm
While I can’t claim to have known as much as Mr. Burry, I knew enough to take all of my retirement savings out of the stock market in early July of 2007 at DOW 14,000 (I started in 1984) and put it in an FDIC insured bank. For anybody who was really paying attention, the handwriting was on the wall (also a seven year double top [2000-2007] is a pretty strong technical signal–see what happened after the 1965 to 1972 double top). For Greenspan to say nobody could have seen what was coming is either a bald-faced lie or he was totally immersed in la la thinking.
April 6th, 2010 at 12:18 am
Quit picking on Alan. Can’t you see it’s upsetting him?
Sincerely,
John Galt