Posts filed under “Really, really bad calls”

Six Ideological Errors That Led to Financial Crisis

Princeton professor Alan Blinder identifies the 6 key policy errors that were the key elements in the financial crisis.

He especially notes that this was not a neccessary outcome of capitalism, but rather, was the result of six avoidable errors. And while the professor calls them “human errors” he himself errs — these were not merely cases of poor judgment, but rather, they were ideological errors.

As I noted in Bailout Nation, these decisions were driven not by pragmatic realism, not bad attempts at problem solving, but rather, due to an intellectual free market jihad. They were caused by a radical deregulatory zeal that could only be affected by “religious” ideologues:

WILD DERIVATIVES In 1998, Brooksley E. Born, chairwoman of the Commodity Futures Trading Commission, tried to reign in derivatives. She was shouted down by Robert Rubin, Alan Greenspan, and Larry Summers.

SKY-HIGH LEVERAGE In 2004, the S.E.C. let securities firms raise their leverage from 12 to 1 to 33 to 1 and greater.

SUBPRIME SURGE From 2003 to 2007, subprime lending grew unsupervised by the Fed into a large, dangerous credit facility. Lending standards fell disgracefully, as dubious transactions became common.

FIDDLING ON FORECLOSURES This is one where I mostly disagree with professor Blinder’s conclusions. Home prices remian dangerously elevated; Foreclosures are driving prices back to a more normalized range. Until prives revert to historical metrics, real estate will stay weak, and the economy soft.

LETTING LEHMAN GO Its not that letting Lehman Brothers fail was such a terrible decision — it was that there was no undferstandable difference between LEH and Bear Stearns. The inconsistency was part of the problem. Add to it, the idiotic managment of LEH, who should have asked for an orderly dissolution assistance from the Fed.

TARP’S DETOUR The Troubled Asset Relief Program was an on-the-fly, no strategic planning, seat of the pants, inconsistent mess.

Purchase bad assets? Recapitalize banks? Rescue homeowners? Jumpstart the economy? Just WTF was the point of TARP? Its morphed so many times no one has a clue . . .

Professor Blinder notes these were a series of largely avoidable errors — but he does not explain what types of errors they were. They were not due to greed, or miscalculation or even systemic regulatory problems. They were inavoidable errors caused by a faulty belief system.

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Source:
Six Errors on the Path to the Financial Crisis
ALAN S. BLINDER
NYT, January 24, 2009

http://www.nytimes.com/2009/01/25/business/economy/25view.html

Category: Bailouts, Markets, Politics, Psychology, Really, really bad calls

Calpers Bad Bets

via WSJ > Source: Risky, Ill-Timed Land Deals Hit Calpers MICHAEL CORKERY, CRAIG KARMIN, RHONDA L. RUNDLE and JOANN S. LUBLIN WSJ, DECEMBER 17, 2008 http://online.wsj.com/article/SB122947172015212225.html

Category: Digital Media, Investing, Real Estate, Really, really bad calls

Congratulations Britons: Its a Recession!

Since I am in Grand Cayman, a British Overseas Territory, I thought it only appropriate to note that its now official: the UK joins the US in the ranks of formally being in an announced — and pronounced — recession. The British economy contracted 1.8% for the 2008 calendar year. For the first time since…Read More

Category: Economy, Really, really bad calls

Agnotology

Fascinating discussion via Wired‘s Clive Thompson, and Stanford historian of science Robert Proctor, on Agnotology: “When it comes to many contentious subjects, our usual relationship to information is reversed: Ignorance increases. [Proctor] has developed a word inspired by this trend: agnotology. Derived from the Greek root agnosis, it is “the study of culturally constructed ignorance.”…Read More

Category: Psychology, Really, really bad calls, Science, UnScience

No, Madoff Never Turned Down Money

Part of the story about the Madoff Ponzi scheme was that Madoff created this elusive, difficult-to-become-a-member club. The exclusivity and rejections made membership all the more desirable to greedy investors. That actually is turning out to be somewhat of a myth. There is much more to his canny trick of rejecting investors than initially meets…Read More

Category: Hedge Funds, Investing, Legal, Really, really bad calls, Regulation

What 60 Minutes Missed on Oil Speculation

Last night’s 60 Minutes had a story on Oil Speculation. Its not that they said anything that was factually wrong per se, its more that they told 10% of the story of the rise and fall of energy prices. The entire report was surprisingly thin, and avoided discussing all of the many other factors that…Read More

Category: Commodities, Energy, Financial Press, Markets, Really, really bad calls, Trading

Time to Overhaul the Bailout Plan

The Treasury Department TARP/Bailout plan has been an utter disaster. It has been mishandled from day one — poorly planned, poorly executed. Both Hank Paulson and Congress for passing such a shoddy piece of legislation should be ashamed of themselves for their horrific judgment and egregious failures. It is hard to see a single thing…Read More

Category: Bailouts, Credit, Really, really bad calls, Taxes and Policy

Beware Wall Street’s Happy Talk

Over at Marketwatch, Paul Farrell sifts through a book (sitting on my shelf) and pulls out these embarrassing quotes. 15 reminders of how happy talk misled us a decade ago October 1999: James Glassman, author “Dow 36,000.” “What is dangerous is for Americans not to be in the market. We’re going to reach a point…Read More

Category: Financial Press, Humor, Markets, Psychology, Really, really bad calls

Former NAR Economist David Lereah is a Jackass

Alternative Title: David Lereah: Even More Full of Shit Than Previously Believed > Of all the various parties who contributed to the boom and bust in housing and credit, none have escaped more unscathed than the National Association of Realtors, and their former Baghdad-Bob-in-Chief, David Lereah. The NAR turned a blind eye to fraud amongst…Read More

Category: Contrary Indicators, Legal, Real Estate, Really, really bad calls

How to Repair a Broken Financial World

Here is another excerpt — part II — of the all consuming OpEd of the Sunday New York Times by Michael Lewis and David Einhorn: Excerpt: When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole…Read More

Category: Bailouts, Credit, Derivatives, Legal, Markets, Really, really bad calls, Regulation