Charles W. Calomiris, a professor at Columbia Business School and the author of “U.S. Bank Deregulation in Historical Perspective” (Cambridge 2006), writing in the WSJ:
It’s grind-your-favorite-axe day on the network news shows. The financial crisis is all the fault of dreaded “deregulation,” shout some pundits; others blame the “small government” mentality of the Bush administration and Republicans in Congress.
But haven’t federal and state tax revenues been growing even faster than home prices in most places in the U.S. over the past eight years? Hasn’t the problem with our government’s fiscal affairs been enormous growth in spending and entitlements not seen since the days of LBJ? Congressional Democrats — along with a surprising number of pork-barrel Republicans — demanded nonwar spending on a Great Society scale and the president gave in to buy their votes for the war.
To interject here: I’m glad to see this mentioned. Bush has been rightly excoriated by conservatives for his failure to veto, and for the social spending built in to “compassionate conservative.” At the same time, however — and even though I’ve been willing to pile on W about increasing government spending — I’ve had the nagging sense, which I’ve mentioned here on a few occasions, that Bush’s nearly singular focus has been what he sees as an existential battle between the west with its freedoms and those theocracies and authoritarian rules trying to launch a campaign aimed at re-establishing medievalist social contracts and fundamentalist religious law.
If this feeling I have is correct, Bush’s tunnel-vision — which has to this point kept us safe (recall the feeling in the air after 911: when would the other shoe drop?) — came at a political cost: Dems and some Republicans problematized the war(s) against radical Islam to create leverage for getting what they wanted in exchange for their ultimate support for the war on terror.
Couple this with the kind of social engineering and vote buying that has grown out of the Great Society programs, as they’ve learned to be gamed by leaders of various identity groups, and we have a recipe for spending that is difficult to overcome.
I say this not to excuse the GOP, who in my estimation squandered opportunities to lead and so solidify themselves as the leadership party in Congress for years to come. Instead, I offer these observations to note that perhaps George Bush, having to decide where to lay his marker, chose what may prove to be the more prudent course in the long run.
At any rate, food for thought.
Back to Calomiris:
As for the evils of deregulation, exactly which measures are they referring to? Financial deregulation for the past three decades consisted of the removal of deposit interest-rate ceilings, the relaxation of branching powers, and allowing commercial banks to enter underwriting and insurance and other financial activities. Wasn’t the ability for commercial and investment banks to merge (the result of the 1999 Gramm-Leach-Bliley Act, which repealed part of the 1933 Glass-Steagall Act) a major stabilizer to the financial system this past year? Indeed, it allowed Bear Stearns and Merrill Lynch to be acquired by J.P. Morgan Chase and Bank of America, and allowed Goldman Sachs and Morgan Stanley to convert to bank holding companies to help shore up their positions during the mid-September bear runs on their stocks.
Even more to the point, subprime lending, securitization and dealing in swaps were all activities that banks and other financial institutions have had the ability to engage in all along. There is no connection between any of these and deregulation. On the contrary, it was the ever-growing Basel Committee rules for measuring bank risk and allocating capital to absorb that risk (just try reading the Basel standards if you don’t believe me) that failed miserably. The Basel rules outsourced the measurement of risk to ratings agencies or to the modelers within the banks themselves. Incentives were not properly aligned, as those that measured risk profited from underestimating it and earned large fees for doing so.
That ineffectual, Rube Goldberg apparatus was, of course, the direct result of the politicization of prudential regulation by the Basel Committee, which was itself the direct consequence of pursuing “international coordination” among countries, which produced rules that work politically but not economically. International cooperation, in case you haven’t heard, is exactly what the French and the Germans now say was missing in the past few years.
So why blame deregulation and small government? The social psychologist Gustav Jahoda says that unreasonable beliefs often arise in circumstances where people lack control and need to believe in something to get them through a highly stressful situation. And a fellow named Machiavelli might help us to understand a different reason for simplistic explanations.
Here is the non-stress-relieving truth. Severe financial crises have occurred in many countries — roughly 100 over the past 30 years — and even on a global scale many times before. About 2,000 years ago, Tiberius solved an early global financial crisis by making huge zero-interest loans to Roman banks. Sound familiar? These unusual events often reflect a confluence of different circumstances; for the most part they are not the inevitable result of a single, foreseeable fault in the system.
So what really happened and what should we do to make things better? The current financial crisis, like many in the past, had its roots in several areas: loose monetary policy (from 2002-2005, the real fed-funds rate was persistently negative to a degree not seen since the mid-1970s); government subsidies for leverage in real estate (the list is a long one, but the government’s role in Fannie and Freddie tops it); and many other errors by the public and private sector, including longstanding flaws in prudential regulation (see aforementioned Basel rules).
As we try to devise solutions to the regulatory problems, there is plenty of room for improvement and lots of sensible ideas about how to proceed — all of which have been around for a long time. The single most important reform that is needed is the restoration of discipline in the measurement of risk within the banking system.
Academics have been calling for reforms — especially a minimum subordinated debt requirement that would create ongoing, market-based measurement of true bank risk — for many years. In fact, a study of that reform was mandated by the Gramm-Leach-Bliley Act of 1999. Although the study by the Federal Reserve indicated that the reform would be extremely helpful, the big banks successfully lobbied to avoid the imposition of discipline on their risk taking.
The starting point for reform is to begin with a dispassionate and informed assessment of what happened. History is messy, and the careful study of facts offers little satisfaction for one-note Johnnies. It’s easier to just invent one’s own history than to study the real thing (which may explain why invention is so much more popular).
All this reminds me of an old Doonesbury comic strip in which a history teacher tries to shock his class by telling them outrageous made-up facts, only to find that they finally seem to be taking notes. Neither Jahoda nor Machiavelli would be surprised.
[my emphases]
Discuss.
****
related
Also related.
This, too.
(h/t Terry H)
“The single most important reform that is needed is the restoration of discipline in the measurement of risk within the banking system.” Barney Frank isn’t gonna like that.
“In fact, a study of that reform was mandated by the Gramm-Leach-Bliley Act of 1999.” Heh.
I contracted with a large regional bank’s IT department implementing the changes that would be necessary to map their data to the Basel Accord models. I had to read this shit in its entirety and realized then that this was a huge POS. They thought I was nuts to be wary of the Europization of the regs. I worked for a French company in the 80s and was quite aware of their ethical standards (they have none) and saw that coupling – the proclivity for shadiness with the supposed reserve and regulatory functions of treasury – was a recipe for disaster.
I said back when this crisis was first starting that this was the prime issue with the crisis and was poo-pooed by “those that know.” Seems some relatively unedumakated, non-Ivy, non-banking, non-finance computer nerd saw the problem way ahead of the experts. Figures.
I will no longer hire anyone who comes with top rate or ivy credentials. To me, it is a sign that trouble will soon follow. I prefer to stick with people who know their limitations and realize that they aren’t “all that” and will not be overcome by hubris.
Very much appreciated, Jeff: Reason and background presented with the historical detail to jell convincingly.
The system went unstable after decades of excesses, primarily as the result of bad social policy spending, the great majority of all government spending for decades. Lacking the check and balance of the classic closed feedback system, eventually it all went somewhat exponential — Bernake is quoted saying they lost the reigns mid-2008 and that the output no longer tracked the Fed’s inputs.
But not before, in other words, many calls went out for study and reforms, to be unheeded primarily by the Democrats given, one presumes, the charge of hoeing the field for the first great American collective, in this case under Obama. Irony, that.
Following Paulsen reportedly literally falling to his knee before Madame Chairwoman, some three quarters of a trillion crisp new dollars in Dem-led freebies also recently jammed their thumb in the voter’s eye to the tune of, as I recall, well over ninety percent of us rejecting the whole damn project. Naturally, Pelosi immediately called for another three hundred billion while Frank and Waters and a whole passel of house and senate Democrats sincerely wished video recording hadn’t ever been invented.
Of course, that was only a fraction of the over two trillion dollars sent onto the taxpayer’s backs as it all played and continues to play out. Assuming an Obama presidency, the entire question of his mystery tax plan — whereby we mostly all get a break and a shitload of free stuff — takes on an interesting new, um, flavor.
That much nuance is likely to blow quite a number of leftwing gaskets, but there it is. The contemporary “conservative” forces in government, such as they are, may be a friend of big spending but there’s no evidence they’ve ever been a close, exclusive friend of manipulating markets and their outcomes outright as a matter of philosophy. Or of some fifty to sixty trillion dollars in unpaid entitlements.
Repeat: Entitlements. I think we know who’s in charge of that department. Yes, we know approximately who espouse the theory that markets are by nature defective. The stage-left freakshow that manipulated them into oblivion.
Thanks for the link, Jeff.
The “Columbia” brand just rose in my estimation. Professor Calomiris’ brisk, factual essay has done much to mitigate the damage done to Columbia’s reputation by the uni’s other, more loquacious hallmarks, Gore, Cole and Said.
There is sanity in the asylum.
I’ll keep this simple because I really don’t won’t to engage in debate with a platoon of Christian soldier-airheads whose base naivete has ’em exclusively pointing their God-fingers at Barney Frank and ACORN for all the evil ways of Wall Street.
The banks had the capital. The brokerage firms had the ability to sell high margin products. The case for repealing Glass-Steagal was that the banks would add capital to the acquired brokerage firms. In return the banks would attain the ability to sell the brokerage firm’s higher profit margin products to the newly combined customer base, which many argued was already a shared customer base. Also, the banks sought to acquire that Wall Street talent – humans – and the Wall Street attitude, the higher returns on capital from the Masters of the Capitalist Universe, in other words the aggressive risk takers on the trading desks.
The cultures never effectively merged. The Masters moved off the trading desks and opened their own hedge funds, and they could do so with very little capital because the banks and brokerage firms that they once worked for lined up to loan their former employees lines of credit to trade the markets using trading strategies they themselves would consider far too risky.
The banks ended up being drained of risk analysis and market trading talent. They ended being the witless customers of those who were quicker in the head.
It all goes back to the theory that if you took all the money away from everyone and distributed it evenly that it would only be a matter of time before those who had it all to start with would have it all in the end.
I hope that makes the failure of Glass-Steagal’s repeal easier to understand.
I don’t have time to proof. My apologies to any English teachers for any typos in the above. See ya.
Ah, I see JHo has already started in on the social deconstructionist blame game, which, I’ll continue to point out is the well-pimped narrative of those who lack in knowledge of the specific issues within the financial services industry will fall back on.
They ain’t got the chops for much else other than games of political nuance.
Truth, beeeotches, hurts.
We’ve been bad and we must be punished.
From the second link:
Claims that markets are inherently defective and must be tightly regulated to work — likely intellectual precursors to nationalizing them — fail to regard that another manipulation put us here: The reason credit is tight is because it had been artificially lax. Forcing markets into compliance is a concept disproved by FDR’s policies.
All of which are why we’ll simply need to try them all over again, probably under Obama. The next basic underlying propagator could be infrastructure and/or alternative energy; look for them. Whatever they are, the cries are already going up from the left for even more spending ourselves rich.
Perhaps the difference between conservative and liberal monetary policy is that the latter doesn’t seem to have the ability or desire to see the endgames it creates. We should ask Frank and Waters about that.
So you can take it up with Schwartz, thor. Bitch.
And when thor provides anything within a couple light years of the truth, my jaw bouncing off the floor will hurt quite a bit.
Heh. thor’s long posts are even more obtuse and completely, 180 degrees wrong than his short ones.
Good grief, what a dope.
Having tumbled down both flights of stairs and severely bent his ice cream because he wasn’t paying attention, thor gathered himself up.
“Look!” he said, whirling to confront the bedeviled device, his face a scowl. “Treads!”
In a previous thread thor issued the observation that politics skew perceptions — mine in that instance. Interestingly, what thor now fails/refuses to regard is that the excess liquidity Schwartz points to as the culprit behind the credit crisis has a number of primary factors that are in fact partisan in nature: The enormous Frankensteinian Freddie/Fannie debacle, the likewise enormous Dem-championed bailout bill, and now the apparent fallout wherein the left is increasingly unified in calling for the very kind of Keynesian spending the Republicans, in spirit and word if not in consistent deed, traditionally philosophically oppose.
Instead thor delves into instruments, all the while detaching the vast papering over currency effects of their immediate aftermath (assuming he’s even remotely complete as far as he goes) which are clearly rooted in partisan politics.
All this has been said. It’s as if someone has political blinders on.
An excerpt from an interview with Russell Roberts:
“The single most important reform that is needed is the restoration of discipline in the measurement of risk within the banking system.â€Â
I think thor just rehashed this line in his own inimitable way… with an addition or two that then rehashed this one:
“The Basel rules outsourced the measurement of risk to ratings agencies or to the modelers within the banks themselves. Incentives were not properly aligned, as those that measured risk profited from underestimating it and earned large fees for doing so.”
OK then.
The government, through social policies implemented through the GSEs, made it profitable to deal in sub-prime paper; slowly at first, but at a much higher rate through the 90’s and last 8 years…
Following 9/11, the Fed lent banks money at very low rates for a long period of time…
The banks, took this money that the Feds lent them for next to nothing and made sub-prime loans, the ones that Fannie/Freddie were buying hell bent for leather-up to 20% of the purchases they made per year, subsequently selling them to the GSEs for a tidy profit…
The GSE’s bundled these puchased loans into securities, paying really good interest rates, and sold them to investment banks-the only ones who could afford them…
The investment banks, in turn, sold little pieces of these securities, like shares in stock, to all of the super-smart hedge fund guys that thor is speaking of who could not otherwise afford to belly up to the GSE bar…
But ’em up boys, the government is guaranteeing this deal, I mean, they’re not gonna let Fannie/Freddie fail, right? You know, because they’re backed by the government, right?…
All the while, Dodd, Frank, Schumer, Waters, and the other members of the social justice crew were talking about how big a racist the OFHEO head was for questioning the operations at the GSEs were; or how there was no need! for any additional regulation or oversight…
And when the whole house of cards came crashing down, owing to the bad idea of lending money, in the first place, to folks that couldn’t pay it back, we are all collectively left holding the bag…
And we all agreed to do so because we were told we wouldn’t be able to use our credit cards, or our employers would go out of business, soon if this problem wasn’t taken care of…
Forgive me, but that sounds like the musical chairs game that’s played every time the local governments wish to raise property taxes…”Well, if we don’t do something about it, I guess the only recourse is to cut back on Police and Fire department services”…Good old politics of fear mongering!
I agree with Anna Schwartz; “Everything works much better when wrong decisions are punished and good decisions make you rich“.
And, BTW Jeff G,
I agree completely, and have been saying for years, that Bush and the congressional Republicans has gone along with the massive spending increases in the Federal budget as part and parcel of buying Democrat support for the war on terror. I’ve cussed and grit my teeth every time he went along with their spending crap, instead of towing the line of greater fiscal responsibility.
I wonder if he realized that the who Chimpy BusHitlerBurton meme came with their legislative support, you know, kinda like a package deal…
And isn’t it ironic how O! is pushing the whole “Deregulation has caused this whole mess” meme…?
I’m glad Mr. Calomiris wrote this piece; its just too bad more folks don’t read the WSJ. ‘Cuz you know the MSM Obamites are never gonna discuss any possible theories other than the one O! advances…
Obama surely has never read the WSJ… not that he cares either.
I’m still dumbfounded by the way the media let Obama off the hook for his Columbia (the nation of:) remarks in the debate.
Old lefty talking points trump a deal worth billions to the USA which means jobs, taxes, and general economic feel goodyness down the tubes because the left is in the tank for Chavez.
Great.
Hey Comrades,
Why question the powers of the government? You know they are always right and we, the stupid idiots, should never dare to question them. Just pray that “the one” will use his vast experience and financial knowledge to lead those of us in these 57 states plus 2 more still clinging to our guns and religion. Trust that between the tutelage of Reverend Wright, Franklin Raines, Jim Johnson and William Ayers & wife “the one” will guide us all to the promise land where they will spread around the milk and honey to all.
I’ll keep this simple because I really don’t won’t to engage in debate with a platoon of Christian soldier-airheads…
thor would rather just creep around peeping in windows and breathing heavy in the phone like an emotionally stunted little mental pervert.
thor @ 10/18 @ 11:57 am
“The case for repealing Glass-Steagal was that the banks would add capital to the acquired brokerage firms.”
The fact is that, prior to Gramm-Leach-Bliley, parts of the Glass-Steagall legislation had become cumbersome and, in effect, unenforceable. The lines between commercial and investment banks were blurring and both were ignoring, or bypassing, the regulations. It just had to be repealed.
From the WSJ aricle:
“On the contrary, it was the ever-growing Basel Committee rules for measuring bank risk and allocating capital to absorb that risk (just try reading the Basel standards if you don’t believe me) that failed miserably.
Exactly. Moodys, in particular, screwed it up royally.
So…Stanley Milgram was right…
Speaking economically, this also means that John Maynard Keynes was wrong.
I’m not certain what you’re one about, probably the itchy Marxist gremlins way-up your butt, no doubt.
Do you know anything about money supply and the Fed Funds Rate? No, I don’t think you do. That’s because you’re a retard.
I’ve already written of the Fed’s role, specifically Greenspan’s fucking up of the Fed Funds Rate and the mortgage market after the stock market crash in 2000 and then again after 9/11. It looks to me like you’ve found a somewhat logical twit who underscores what I’ve already stated.
Now run along, McCarthy-wipe, because I know all this recent history from memory for it’s not merely an abstract theory it’s what I used to do everyday, all day.
And no, you’re fuckin’ wrong, Fannie Mae and Freddie Mac weren’t steered like a tool by liberals. You’re easily fooled, that’s why you believe that sort’a stupid narrative. And anyone else who believes that stupid shit – fuckin’ retards as well. You’re a disgusting pile of Republican rat poison and an over-arching political turd who should be flattened and FedExed to the Finland Station.
Oh yeah,
And who exactly are the bunch of rocket scientists that proposed we get in line with some international finance standards written by the Europeans???
That whole Basel formula of determining the capitalization ratio based on the rating of the assets in question is so mind-numbingly subjective that it makes my head explode fathoming it…
And, the whole notion of a few over-arching ratings companies being able to assess the values of assets, WTF!!!! That also, is part and parcel of the whole systemic problem…
Banks and investment houses had a better handle on the real worth of their portfolio’s when they had companies of their own internal analysts, who would come to a consensus agreement on the portfolio’s value…
While there’s a lotta directions to point the finger in, CRA and the actons of Fannie/Freddie, coupled with long periods of the availability of beaucoup cheap money, with a large helping of greed on the part of lenders and borrowers, all formed a perfect storm of causes to give us the effects we are dealing with today!
Bottom line, O! is lying when he tries to say it was simply the eeeeeeevil RethugliKKKans and their penchant for de-regulation that caused the Wall st meltdown…
What a disingenuous putz…
Ah, someone who dies have a clue. Obviously you’re not a regular here.
dies = does
Explain Goldman Sachs, they were active traders in agency paper. Why did they not suffer? Repealing Glass-Steagal and twenty years of M&A activity in the banking sector left us with too many consolidated large players who knew nothing of what they were doing or how to price risk. They were bottom-line chasers who I’m sure didn’t allow who they were going to vote for in the 2008 Presidential elections to influence their daily routine of fuckin’ up a large financial institutions.
Ah thor, fresh from your most recent tail-turning, back to reframe comments — “steering FM&FM” for political gain when I’d alluded Frank ran cover, which he did, and bailouts and more bailouts were and are vociferously championed by the DC left, although certainly not exclusively — so as to generate even more spew when maybe nobody’s looking.
Which factors are true. Liar.
Meaning that for such a chasm of characteristic meaningless suddenly you’ve got an entire library of comprehensive self-references…and perhaps even one of them will one day connect in-context. Pardon the attendance for not delving in sooner. Or deeper.
As I alluded in the other thread, because you cannot really grasp ideas, preferring to borrow them. No mind for it, I guess, too busy out banging hookers. Tends to discourage one from hanging on your every word.
Although you could link them, no? Together with the grand unifying thor-thesis of a proper civilization; Palinite wingtardnuts being so, you know, fundamentally wrong.
Actually, being retarded, I don’t have a problem with the four percent insight and perspective you can manage, poor tainted thor. Silly I know, but I find it oddly encouraging that that miniature contribution you can indeed hang a world view from solid enough to give you regular ISP money and a breathalyzer.
And so proudly. Maybe one day you’ll add to it.
Aaaand where did the source of capital come from????? Wait for it….
You mere mortals dare question the intellectual superiority of the ayatollah Russian fucker thor the magnificent??!!!! Are you not aware of all the classic authors he will throw in your face?? Have you not read Celine and Mann like he has?? Fall to your knees, mortals! Hail the mighty literati thor and he may be kind enough to share his superior wisdom, name dropping literary figures from the canon, crafting witty bon mots, and wielding his might two incher in your faces to make you all succumb to his superior wit and wisdom!!!
You mean like the Goldman management team of Rubin, Corzine, Paulson & Johnson, who gave us Enron, the Mexican peso default the IPO for Petrochina, the bailout, and the Edwards vp slot and Fannie & Freddie Mac, I was worried for a minute there.
Jeff!
Thanks for the link to the WSJ piece with Anna Schwartz. There very likely isn’t anyone alive who knows more about money than she does. She is also probably the only one alive who could tell Greenspan he fucked up and cause him to actually feel chastised to the point that he would have trouble sleeping at night for a while.
Jeff G.: Two things.
(1) Your comment about how Bush got support for the war by letting Congress have other spending is similar to comments I have made about how difficult it is to have a slim majority in Congress. If a large minority stays relatively united, then that majority needs to be bought in order to keep things running*. It explains why Bush did not veto any of these bills when the Republicans held Congress – he couldn’t or he would void the deal.
*In a Paliamenatry system the parties are much stronger because the executive comes from the legislature, so a slim majority is more likely to hold together to avoid a vote of confidence and the likely fall of the government and an unscheduled election.
(2) I remember that Doonesbury cartoon because I had a similar experience as a student at Michigan State in 1987. The professor was going over Watergate and we were taking notes and he finally asked why we weren’t outraged. I volunteered that at the time I was just a little kid and more interested in my matchbox cars, it was all history to us. The look on his face when he realized that what was an important event he witnessed wasn’t personally important to his students was interesting. He then made a comment about getting old.
To put it in perspective, the fall of the Soviet Union is further back from today than Watergate was then.
thor,
Goldman-Sachs has probably the best cadre of internal analysts who didn’t fool themselves about the worth of their portfolios-EVAH!
And, from what I understand they have a ruthless policy of assessment of the portfolio value-daily-based on worst case scenarios instead of roses, sweetness and light…
There may have been far too much consolidation in the financial sector; that’s something we’ll really determine in retrospect…
I still agree with Anna Schwarz, let those institutions that made poor decisions fail, and that way the ones that didn’t will do much better, much faster than they might otherwise…
Best wishes…
Note that W had the precedent of LBJ; there’s been a fair amount of ink published that one reason the “Great Society” went too far is that LBJ was buying votes on Vietnam.
Oh, and thor doesn’t realize, since he has no standards, that the most pernicious effect of CRA, and affirmative action for Official Victim Groups in general, is that if you can’t enforce standards on everybody, pretty soon you can’t enforce them on ANYBODY, and even the existence of mechanisms to enforce standards become prima facie evidence that those mechanisms are used strictly for evile purposes.
So no one gets asked about income to pay the mortgage. The actual dollar amount of ACORN influenced loans pales into insignificance by comparison.
Goldman proves brains and decisions count. They don’t need a bailout. No bank or brokerage firm had to own mortgage-backed paper.
Another exceptional advantage Goldman has is its tradition and history. They were, until recently, a communal (Communists! Communists! Communists!) management structured company, in other words a partnership. Every partner’s personal wealth was at stake, versus the go-go game of lightning-strikin’-dice-rolling good time Jimmies who fill the management ranks of most Wall Street firms hence the have a risk-averse attitude in assessing risk to their capital.
Goldman Sachs – historically Socialist, Judaic, Opportunistic – is the real deal.
Datalessdave strikes again:
The Gini index* for 1933 was nearly 70. Between 1913 and today it’s never been lower than 40. Today’s Gini index is higher than the lowpoint (around 1970) but still less than 50.
*Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. A Lorenz curve plots the cumulative percentages of total income received against the cumulative number of recipients, starting with the poorest individual or household. The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line. Thus a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.
You’re the one cut’n’pasting and trying to poke coodies onto your enemies on a imaginary political playground. I know the business off the top of my head. The system failed because too many structures were flawed and so were the motivations of too many players, and I’m talking on the field of play and not in the make-it-up as you go realm that you motor your mouth about, namely, political hackery. You’re a fool running his mouth during the silly season of politics. I’ve already stated the firms should fail that made mistakes and that the Fed created a environment of speculation by setting rates to stimulate the economy instead of fighting inflation, defending the currency and insuring a healthy economic environment. They played politics and/or tried to manage the economy instead of protecting it, but that’s what you get with today’s Republicans – stupid lies on top of ignorance.
Reagonomics was always total bullshit. Smell it, yet?
Why anyone engages that mental mayfly is a mystery to me.
thor,
You are absolutely correct about GS being a partnership, until recently. It may be a stretch to charcterize them as communal, but very much like a law firm, their overall fortune depended heavily on each partner living up to their individual responsibility to do their best-for the good of the team.
I would argue that this meritocratic model is more representative of both the system of government envisioned by our founders, as well as the underlying principle of capitalism; that a group of individuals could form a “company” of folks that, through the collection of their individual efforts, might all benefit from the hard work…
But you are absolutely right about all of the “lightning-strikin’-dice-rolling good time Jimmies” working at all the investment houses and hedge funds. Maybe this is revealing of the overall devaluation of an MBA through the proliferation of those programs throughout the country since the mid 80’s. Or, perhaps it simply speaks to the caliber of folks that undertook those degrees, the strength of the cirriculum the institutions mandated, the intellectual heft of the professors teaching the courses, or simply the recruiting preferences/system employed by the major Wall street firms…
I have to say, isn’t J.P. Morgan doing quite well these days too? Must not be too much Disneyland goin’ on in their internal analysis departments…
So I have to disagree overall that GS is socialistic; I’m sure if one didn’t perform that tenure there would not be forthcoming-at least not in the name of fairness! But they are very much opportunistic…
And is the Judaic bit a reference to the famous house of Rothschilde?
Good points,
Best Wishes…
thor,
Another point you make that is absolutely on target is the extensionof the whole notion of personal responsibility to large Wall street firms…
Just like none of us should individually get over-extended, vis-a-vis perpetual debt financing, so too should none of these investment firms been as highle leveraged as they were…
Although the Basel standards on banking allowed for ridiculous leveraging in some cases, no one was holding a gun to anybody’s head forcing them to leverage to the hilt…
When the fed finally put the brakes on cheap money the entire scam came to an end; kinda like a credit card company raising the rate such that the minimum payment you were used to making could no longer retire any of the debt owed…
Irresponsibility everywhere, as well as culpability. But I have to wonder whether any of these kind of risky practices would have become so widespread had Fannie/Freddie not been buying them up as fast as they were…
Were you a banker or trader or what??? You’re pretty knowledgable about all this…
I’m a humble aerospace engineer, who admittidly took a lot of social science and humanities courses to relieve the boredom, but also a devout policy wonk from all of my years spent living in DC; next to the Redskins, politics was our favorite spectator sport!
Best wishes…
Isn’t leveraging to the hilt the opposite of risk aversion?
Do go on about Reganonomics, thor. This being the silly season.
Give, loser. Reganomics. Take the cukes off your eyes and say something, anything, that connects with the reality beyond your tearoom. The macro we’ll have to give up on, this being you — no FDR exposes here, nosiree. But you go right ahead and do up some just meaningful righteousness on evil old Ron, what with your superior operating system. 28 years on, it all came crashing down, you bet.
Come on, you perpetual excuse.
RTO,
Leveraging to the hilt is the diametric opposite of risk aversion…
Like I said, I can’t understand how so many MBA’s could be so wrong for so long…
I mean, didn’t they have to study economics and statistics, like we in the engineering disciplines have to study calculus, physics, and probabilities…?
Did their professors just stink, or what???
It’s the First Rule of Fight Club, Bob.
(The self-identified Libertarian and financial expert present — it’s all he does — may just elect to stoop to coolly disassemble fellow Libertarian Murray Rothbard on the greater subject. Damned if MR didn’t go and get himself posthumously published at the wrong site, but still, what an opportunity.
http://www.lewrockwell.com/rothbard/frb.html )
So thor is diametrically opposite of reality–that’s what I thought.
JHoward,
Thanks for the link! Although I was familiar with fractional banking, it is a fairly good discussion of the system…
Best Wishes…
I was a manager on the retail side and then later a bond trader on the institutional side.
Are you two dating?
RTO: “The Gini index* for 1933 was nearly 70. Between 1913 and today it’s never been lower than 40. Today’s Gini index is higher than the lowpoint (around 1970) but still less than 50.”
DD: “not sure where you get the info. RTO? For example, only one country presently has a Gini of 70, the hidiously impoverished Namibia, where as the USA is also quite low on the scale at 45. (CIA gini stats) If we were at 70 at one time it was awful.”
It was 1933, so yeah, it was awful.
DD’s reading comprehension hasn’t improved.
The source is PS: Political Science and Politics. The article contains a graph showing the Gini from 1913 to 2004.
And it directly refutes your bald (as usual) assertion that today we have the widest income gap since the Great Depression. That’s patently false.
“Off the charts” is wholely dependent on the guy drawing the charts.
I mean, didn’t they have to study economics and statistics, like we in the engineering disciplines have to study calculus, physics, and probabilities…?
Unlikely. I remember a graduate modeling and simulations course I took, back in the day.
Mixed bag of physical scientists, social scientists, engineers, computer scientists, and MBA students (the course was cross-listed to hell and gone).
None of the MBA students made it past the first homework set.
Oh, and to make it clear: these were mostly stochastic simulations.
Unfortunately for the B-school guys, doing the sims right required actually understanding the models rather than simply punching crap into SPSS or SAS like a chimp playing with a Magic 8 Ball toy.
This point bears repeating: Bush’s single-minded focus on the war had costs elsewhere in the system. I believe he chose the right course, but there’s no free lunch — in order to get what he wanted he had to give way on other things.
[…] “Most Pundits Are Wrong About the Bubble: The repeal of Glass-Steagall … […]