Ten Years Have Got Behind You
It has been almost ten years since:
- Bear Stearns folded
- Lehmann collapsed of its own free will
- I posted on this blog
- All of the above
Those who guessed “c” or “d” are optimists. Those who are expecting a long series of posts dwelling on the correct answer of “b” (with some references to “a” and AIGFP) will not be disappointed.
But this is an introduction. I have been trying to think of how to simplify ten years of lessons as if there were one root cause. And I think I finally have it.
Two friends were claiming that Democratic politicians have to be nice, noting that otherwise Republicans will obstruct anything they try to do if there is ever a free election in the United States again. My response of “So what?” (a more direct version of my usual “Ma nishta ha’lailah hazim?“) was met with reminiscence from them of the Good Old Days when the Democrats had a fighter in the mix: James Carville.
So I have been thinking about Carville today, and especially his most famous quote:
I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.*
And therein lies the problem. He said this in the early 1990s. By the time fifteen years had passed and the world economy went over a securitization cliff abetted by “Weapons of Mass Destruction” that are used in ways so obviously non-economic that an economist looking at the market for the first time called them out ten years ago—and virtually nothing (on net) has been done to ameliorate the situation since.
But back to the bond market. If there is one lesson from basically Hallowe’en of 2006 to September of 2008 should have taught everyone, that should have been that the problem isn’t that the bond market is feared; the problem is “What if the bond market is correct?”
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To be continued…
*His most accurate quote may well be “What I’m suggesting is, stand for yourself, be for something and the hell with it. Because the hand-wringers and the editorialists and the sigh-and-pontificate crowd will be against you, whatever you do.”
Thanks for the links. I almost didn’t dare hope before clicking and am deeply flattered
Well Ken:
I am happy to see you write on this topic. Robert did call it correctly at Angry Bear. There were others too such as Brooksley Born, Iris Mack who questioned Summer’s Harvard investments, and Senator Dorgan who resisted the full repeal of GS (which had been decidedly weakened by Greenspan and the rest of the FED since the eighties) along with a small group of other senators.
We never learned the lesson of LTCM a precursor of what was to happen occurring before the 2008 collapse. We also let the fox back into the chicken coop with the raising of the limit to $250 billion from a $50 billion requirement for additional Dodd Frank regulation. Included in this newly won freedom from close regulation were several banks – “Deutsche Bank, BNP Paribas, UBS, and Credit Suisse—the last banks on earth that should be deregulated” due to their fraudulent practices. All in the name of less regulation for community banks under $10 billion, which have had any escrow requirements for gambling on WS with their expected profits removed. Calculated Risk kept a tally of how many Community Banks went out of business. It was more than just a few. Blue Dog Dems up for election caved with Repubs pushing this catastrophe waiting to happen in the near future.
I remember part of the issue was the reserves to back the CDS and Naked CDS insurance. It was pennies on the dollar or not enough to cover what happened when GS called on AIG while it received $billions in help from Tarp. The banksters took their commissions up front whether the instrument of destruction was profitable or not. Bastards all . . .
2003 to 2013 for Buffet to dump his securities? What the hell was he thinking after labeling them as WMDs?
Deja Vu or Ground Hog Day? Your choice.