Posts filed under “UnGuru”
“If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction.”
Over the years, I have been critical of economist Michael Boskin: I have critiqued his market forecasts (“Obama’s Radicalism is Killing the Dow“) that were made literally on the day markets hit their lows and began a 5 year, 136% rally; I abhor his artifice in damaging how economic data is assembled; and how he officially distorted how CPI data is modeled.
In 2010, I made the following observation about Boskin:
“For those of you who may be unaware, Boskin is the economist/weasel/fraud who helped to officially distort the CPI, making it more or less worthless as a measure of inflation. The Boskin Commission was an act of fraud, a backdoor method to suppress Social Security cost of living adjustments (COLAs). To be blunt, it was an act of cowardice. Rather than man up and say “fix this, its broken, we can’t afford it” the commission took a different route — they fabricated a series of nonsense adjustments that artificially lowered CPI by 1.1%.
The Boskin Commission’s massive government falsehood allowed former Fed Chair Alan Greenspan to take rates to absurdly low levels, as the official CPI data showed no inflation, despite double digit price increases.”
Thus, it was not just that he is merely intellectually dishonest, or just a terrible economist, or also a political hack — it is that these combined to contribute to the financial crisis. His Orwellian artifice in mucking about the BEA/BLS data actually made inflation appear far more tame than it was. This contributed to then Fed chair Alan Greenspan’s irresponsible ultra-low rates. Easy Al was under the false impression that inflation was contained, at least according to the official Boskin adjusted inflation data. It was not.
While we cannot blame Boskin for the financial crisis, we can recognize that he, in his own small way, was one of the many contributing factors.
I was reminded of all this yesterday when I linked to an amusing New York magazine column: World’s Wrongest Man Ventures Latest Prediction. The piece details many of the hack predictions that Boskin has made.
New York points out that investors who listened to Boskin over the past 3 decades have gotten annihilated:
“If you are an investor, Boskin’s doomsaying is a sure sign of a coming bull market. Four years ago, Boskin penned a Journal op-ed whose thesis was captured in the headline, “Obama’s Radicalism Is Killing The Dow.” That was the signal for the Dow to go on a tear, doubling over the next four years. As Kevin points out, the Dow’s current “high” is an overstated artifact of dumb, unweighted statistics, but the underlying reality remains that the stock market has enjoyed an incredibly good four years under Obama’s radicalism.
One might suppose that Boskin has simply suffered a single unfortunate coincidence. In fact, his career is a mighty testament to the power of enduring, invincible wrongness. In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail. In a Journal op-ed entered into the Congressional Record by grateful Republicans, he accused Clinton’s administration of “fundamental distrust of free enterprise.” He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.”
Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.” (The preceding pre-Internet quotes are all via a Lexis-Nexis search.)”
The article details how “literally every Boskin prediction turned out to be the opposite of reality.”
In the new radical right movement, being consistently wrong is some kind of a badge of honor, and so he rose through its ranks, failing upwards as an economist, but scoring points as a propagandist. As a former George W. Bush economic adviser, we expect him to have made bad decisions, as that was seemingly a requirement for any job in that worst of all administrations. As a fellow at the Hoover Institute, we expect him to continue pursuing the brilliant policies that made President Hoover such an economic success story. (Note its called the “Hoover Institute” because the name “Clusterfuck Foundation” was already taken).
But all of that is just so much political bullshit. What is most unforgivable, is that he sandbagged investors for political reasons. Anyone who listened to the advice of this ‘respected economist,’ wrapped in the language of investing (but in actuality partisan political tripe) was crushed.
That is the real reason you should ignore anything and everything Boskin writes or says — because he is so contemptuous of you as an investor that he is willing to throw you under the bus in pursuit of his own radical right ideology.
You see, it was never Boskin’s intentions to give you investing advice — indeed, from all appearances, he could not care less about that. His agenda was an attempt to scare you politically. That he did so in financial papers like the Wall Street Journal or Investor’s Business Daily simply reveals the contempt he (and their OpEd managers) hold for their readers — saps, marks, subscribers, investors — suckers all.
Over the years, I have mocked the WSJ OpEd pages as filled with drunks and cads hell bent on losing you money. Boskin is a classic example of why you should never let anyone’s politics influence your investing. He is part of the reason why I quarantined money-losers like the WSJ OpEd pages.
And think, it only took 30 years of money losing advice for the rest of the world to wise up to him . . .
Michael Boskin on “The Obama Crash” (December 7th, 2009)
Why Michael Boskin Deserves Our Contempt (January 19th, 2010)
Boskin’s Bottom Tick: Obama’s Killing the Dow (March 9th, 2011)
Why politics and investing don’t mix (February 6, 2011)
World’s Wrongest Man Ventures Latest Prediction
New York Magazine, March 5, 2013
The Big Lie Annotated: An AEI History Of The Financial Crisis
February 26, 2013
“There was never any significant debate about the causes of the 2008 financial crisis,” argues Peter Wallison, who must believe that his stint on the Financial Crisis Inquiry Commission was a complete waste of time. Two years ago, he blamed the other nine FCIC commissioners, for “ignoring” the research of Edward Pinto, who proclaimed that the crisis was caused by Fannie, Freddie and affordable housing goals.
Now Wallison blames the media. “Although there were two narratives about why it happened, only one of them was accepted and propagated by the media,” he says. “And in effect the necessary competition in ideas never occurred.” For $72 you can read all about it in his new book, Bad History, Worse Policy: How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act.
The irony could not be more rich. Neither Peter Wallison nor Edward Pinto would ever subject themselves to a free and open competition of ideas, because their “research” cannot withstand a modicum of scrutiny. FCIC staffers carefully reviewed Pinto’s work, but neither they nor Pinto were ever able to reconcile his risk categories with actual loan performance, which seemed to nullify Pinto’s thesis. So Wallison simply lied to Congress, when he testified that the FCIC never reviewed Pinto’s work.
The schism described by Wallison is not between left and right, between Democrats and Republicans, or between regulation and laissez-faire. It is the divide between capitalists and crackpots. In the world of capitalism, everyone takes risks. Some pay off; some do not. Capitalists study the results in order to ascertain who was lucky and who was smart. Not crackpots like Wallison and Pinto. They declare that, “28 million mortgages, were subprime or otherwise low-quality,” of which, “three quarters were on the books of government agencies.” But they refuse to examine loan performance over time.
Wallison and Pinto maintain their media platforms because they are protected by a vast conspiracy of silence–an informal agreement among conservative think tanks, Republican politicians, academic shills, and friendly media outlets–which insulates the words of Wallison and Pinto to any kind of fact checking.
Consequently, there has never been an adequate takedown of the multifarious lies and deceptions embedded within the Wallison/Pinto “narrative.” So, what follows is a description of the elephant in the room, a brief explainer of some of Wallison’s more egregious whoppers. The list is by no means comprehensive. And it merely touches upon Pinto’s new disinformation campaign against FHA, which deserves a separate debunking. (Spoiler Alert: If you believe Pinto’s claim that, “FHA’s Estimated GAAP Net Worth Equals –$26.27 Billion,” you don’t know much about GAAP or finance.)
A Few Basic Metrics
But first, a few basic metrics.
Best Loan Performance: Over the past few decades, Fannie and Freddie’s loan performance has always been exponentially superior to that of any other segment in the mortgage market. The first chart covers the period of 1998 – 2010, the second from the beginning of the 2008 crisis until now.
$216 Billion versus $888 Billion: Similarly, the total credit losses incurred by the GSEs are about one-fourth those incurred about by private label mortgage securitizations, which are packaged and sold by Wall Street.
Laurie Goodman of Amherst Securities estimated that losses on private label securitizations issued between 2005 – 2007 total about $714 billion, a number fairly close to Moody’s current estimates. Add in another $133 billion in losses from synthetic subprime CDOs, which never financed a single mortgage, plus another $41 billion from CDOs issued before 2005, and the total approaches $888 billion.
If you hang around these parts for any length of time, you will occasionally run across one of my jeremiads complaining about the Financial Services Industry. I’ve been thinking about this more than usual lately. This has led to some correspondence with Helaine Olen, whose book Pound Foolish: Exposing the Dark Side of the Personal…Read More
My wife happened to mention hearing a financial guru on the radio a little while back. I am always interested in knowing what financial gurus are saying (and thinking maybe it was Ritholtz or Rosenberg or Levkovich or someone else I personally know). I asked her who it was.
“Dave Ramsey,” she said.
“Dave who?” was my reply.
So I asked around – colleagues, friends in the business, etc. etc. Couldn’t get a bid. I turned to The Google and in short order realized that Dave Ramsey is the male version of Suze Orman. He seems to be a self-promoter with little actual experience or knowledge of financial markets or economics. But what really struck me was the condescending, patronizing tone he directs toward his callers. This a site refers to him as a “Christian financial guru,” yet he doesn’t seem to preach in very Christ-like manner.
I could write a thesis about all that’s wrong with this ilk. But rather than take the 30,000 feet view (that’s BR’s province), let’s get granular:
Once again, investors are reacting to the uncertainty in the stock market by investing in gold. Since the third quarter of 2010, the price of gold has jumped 40%, peaking at just over $1,900 an ounce. The “experts” are touting gold as the only “safe” investment in a volatile market.
So is now the time to buy gold?
Think about it: Why would you buy something at its all-time high?
Before we move on to the idiocy of the final sentence, let’s consider another aspect of what’s going on here.
Later in that same post:
Gold Stash is a quality company that will gladly buy any of your unused gold and silver. They do business the right way, going above and beyond. Dave wouldn’t endorse them if they did any less. With Gold Stash, you can take advantage of the high gold prices in a safe and responsible way.
So, not only is Mr. Ramsey advising against gold under nearly all circumstances, he’s recommending selling it to a company he “endorses,” who coinicentally happens to be an advertiser?
Oct. 13, 2009: “He never has, and he never will [advise buying gold]. Companies like GoldStash.com offer an outlet for you to make some money on your unwanted or unneeded jewelry. Dave will only endorse companies that he trusts, and Gold Stash is reputable, honest and absolutely trustworthy.” Gold price then: About $1,050/oz.).
Who is Gold Stash? Hmm. Well, there’s a tab that allows us to see who “Dave Recommends.” There’s Gold Stash. Funny thing is that at the bottom of that drop down is a link for us to “View all Advertisers.”
Gold Stash is an advertiser of his, and Dave wholeheartedly endorses them (and only them, apparently) and, coincidentally, is always – 100 percent of the time – bearish gold. Dave is so concerned about your financial well-being that he’s going to let those suckers at Gold Stash take the hit on your soon-to-be-worthless gold. What a guy.
Paul Farrell responded to Wharton School prof Jeremy Siegel’s most recent predictions for the Dow by year-end 2013, who said: “My Dow 17,000 projection may turn out to be too timid.” He channels William Sherden, author of “The Fortune Sellers: The Big Business of Buying and Selling Predictions.” Sherden decided to test the accuracy of…Read More
Pundit tracker is an interesting new site that proclaims its mission as bringing accountability to the prediction industry.
The site notes the Media’s lack of institutional memory. This creates perverse incentives — Pundits learn that brash predictions generates news coverage. If it turns out that they are wrong, well, it hardly matters, as no one ever remembers or calls them out on it. On those occasions when the blind squirrel finds the occasional nut, they can selectively tout that correct call for self-promotional purposes. The entire cycle then repeats.
I am especially keen on these Pundit excuses:
Too early: “I was simply too early; just wait and see, that stock market crash is still coming.” (see: Broken Clock Pundits)
Black swan: “Sure, our credit rating models failed, but who could have predicted that housing prices would fall across the country at the same time?”
Close enough: “Hey, I said the stock market would go up more than 10% and it went up 8%. I was basically right.”
Self-negated: “It was our own beliefs and actions that spared the world from catastrophe.” (see When Prophecy Fails)
Hedged: “I only said that it could happen.” (See: The 40% Rule) — note: when pundits are correct, they strangely fail to mention the hedge.
Pundit tracker wants to create a permanent catalogue / track record for the punditocracy’s predictions.
It is an interesting site that has the potential to correct some abuses. It will really have an impact once the media starts to use it in questioning or even booking their guests.
More from the site after the jump…
Interesting discussion by Think Tank contributor MacroMan, who retells a story about Yale Professor Robert Shiller: We asked him once to visit us in our offices and the meeting took place the day after then Fed Chairman Alan Greenspan’s famous Irrational Exuberance speech in December 1996: “But how do we know when irrational exuberance has…Read More
This is the third or so in a continuing series of WTH/WTF posts where we look at famous wealthy folks’ investing errors, and wonder just WTF is going in their personal finances. Our goal: Learn from other people’s mistakes. Today’s WTF?! celeb is 42 year old golfer Phil Mickelson. Phil is “mad as hell about…Read More
Distinguished Lecture by Nobel Laureate Prof. Joseph E. Stiglitz
Occasion: Investiture ceremony of Prof. Joseph E. Stiglitz
Date: 04, January 2013
Venue: University of Hyderabad, India
Speaker: Prof. Joseph E. Stiglitz, Columbia University
Topic: Macro Economics in crisis: An agenda for Rejuvenating the discipline
About the speaker:
Joseph E. Stiglitz, a Nobel Laureate in Economics (2001) and University Professor at Columbia University, is one of the most eminent economists who has explored and pioneered many pivotal concepts and theories in Economics.
His Works have helped explain several critical market circumstances, globalization and economic crises in several parts of the world.
He has also authored several books in Economics. Some popular ones being, “The Price of Inequality”, “Globalization and its Discontents”.
As Ben Walsh of Reuters mentions, the Tim Geithner Legacy Project is underway. There was a large post by Neil Irwin in the Washington Post, arguing that he’ll be one of the most important Treasury secretaries in history. Joe Weisenthal argues he’s done a great job guiding us out of the recession compared to other countries. As there will be several pieces like this in the weeks ahead, I want to make some general criticisms. This will probably go across several posts.
Joe Weisthnal notes that our recovery has been better than other financial crisis recessions.
Four things about the chart. First, I’d note as a matter of the empirical research that “financial crisis” isn’t a coherent unit of measurement for these purposes. If Finland was going to have a recession three-times worse than the United States, it would also have a “financial crisis” at some point. But that doesn’t mean the recessions are identical. This idea that financial crises creates long recessions when long recessions really create financial crises is the weak part of the whole Rogoff-Reinhart argument. So I’m not sure these are equal starting points for a comparison.