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?”
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.”