Read some Austrian Economics. They pretty much had the blue print laid out decades ago for this current economic disaster.
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Save capitalism from the banks - Nassim Taleb
- Thread starter Thunderdog
- Start date
Quote from trendlover:
If funds like Lahde Capital, Paulson Company, Balestra Capital, Haymen Capital all make money because they see the bad risk and bad bets the banks made, why the smart people who work for banks and responsible for bank risk could not see how the risk they took of selling subprime loan package with AAA rating would destroy them in time? What I am saying is if some people could see how bad risk/reward was, why not the bank people?
Oh they saw it coming, they just didn't care. I spoke with someone in banking in '07 in a social setting and we both agreed that something huge and nasty was coming down the pipe. I think it was a combination of each individual institution believing it was better than the rest and would get out first and on some level realizing that they would never be able to recover the losses since the bubble had grown so large that they might as well rake in all the fees and earnings they could while it lasted. Especially since everyone else was doing it.
Quote from trendlover:
What I am saying is if some people could see how bad risk/reward was, why not the bank people?
you are assuming that they didn't. why is that?
Quote from trendlover:
If funds like Lahde Capital, Paulson Company, Balestra Capital, Haymen Capital all make money because they see the bad risk and bad bets the banks made, why the smart people who work for banks and responsible for bank risk could not see how the risk they took of selling subprime loan package with AAA rating would destroy them in time?
Saying those people are brilliant may be like saying whoever happend to be long amazon and yahoo in 1998-2000 was brilliant. Of all the funds out there, they just happened to be short at the right time. Now in retrospect everyone assumes it was due to superior analytics and insight... it's the narrative fallacy and attribution bias at work (some of you will understand this quip in the context of the greater thread).
Quote from trendlover:
If funds like Lahde Capital, Paulson Company, Balestra Capital, Haymen Capital all make money because they see the bad risk and bad bets the banks made, why the smart people who work for banks and responsible for bank risk could not see how the risk they took of selling subprime loan package with AAA rating would destroy them in time? What I am saying is if some people could see how bad risk/reward was, why not the bank people?
Simply because those selfish bastards running the banks only had one single thing in mind: their goddam bonuses and trying to make as much as possible as quickly as possible.
The very same issue can be extended to other businesses as well, where CEOs and top managers only care about reaching their targets at any cost, without thinking long term and for the good of the company.
If you are a 50yr old top manager and a large chunk of your income comes from bonuses, do you really care where the company will be 10yrs from today? You probably would if you had some etchics and love for the company, which most of those greedy assholes don't have.
Taleb is spot on, the whole system must be changed and the entire remuneration structure must be changed too. Everywhere, not only in the banking sector.
Quote from texrex2002:
you are assuming that they didn't. why is that?
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I think bank people have to know subprime lending was bad, and know that it will cause default. But they sold the risk to other instituitions to make fast money and throw away the risk. What I think they did not know is how leverage in derivatives, and the swaps that it created could get so big to destroy the banks that started the mess to make money. And destroy other countrys finances too.
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-----------------------------------------------------------------------------------from texrex2002
Saying those people are brilliant may be like saying whoever happend to be long amazon and yahoo in 1998-2000 was brilliant. Of all the funds out there, they just happened to be short at the right time. Now in retrospect everyone assumes it was due to superior analytics and insight... it's the narrative fallacy and attribution bias at work (some of you will understand this quip in the context of the greater thread).
I am not sure what you mean by this. The funds who made
money have to understand something about the risk of subprime lending and leverage, yes? So they bet against them. So maybe not brilliant, but common sense? Maybe those funds have no idea how big a winner they would be because no one understood the amount of leverage because it was secret.
Taleb is one of the few men in this world whose opinion I don't immediately dismiss as likely horeshit, re-statement of the obvious or thoughtless parroting.
I don't agree with some of his concepts and conclusions, however almost all of them are worthy of consideration, as he has proven himself as a capable and independent thinker.
While I am exactly the economist/MBA type that he keeps ranting about as idiot savants (fu(k you too, Nassim), I cannot deny that his train of thought is redeeming and refreshing. Not always does his opinion resonate sweetly with my own, but I've never regretted entertaining any of his ideas, for if they didn't casue me to reconsider or alter my own position, they further cemented them in a way not comparable to hearing some ratings-hungry nit-wit slogan-shouter on Fox News agree with me.
Separating the risk business from the utility money infrastructure business is a great concept, and he's obviously not the first to think of it (and I dont' think he takes credit for it). It's just like in Energy: some market functions are regulated, some are open for market participants willing to take on and manage risk. If risk gets out of hand and the risk merchant(s) blows up, so be it. The grid keeps humming.
Is it the only idea that's good? No, but it's a lot better than some of the other ideas I'm hearing...
I don't agree with some of his concepts and conclusions, however almost all of them are worthy of consideration, as he has proven himself as a capable and independent thinker.
While I am exactly the economist/MBA type that he keeps ranting about as idiot savants (fu(k you too, Nassim), I cannot deny that his train of thought is redeeming and refreshing. Not always does his opinion resonate sweetly with my own, but I've never regretted entertaining any of his ideas, for if they didn't casue me to reconsider or alter my own position, they further cemented them in a way not comparable to hearing some ratings-hungry nit-wit slogan-shouter on Fox News agree with me.
Separating the risk business from the utility money infrastructure business is a great concept, and he's obviously not the first to think of it (and I dont' think he takes credit for it). It's just like in Energy: some market functions are regulated, some are open for market participants willing to take on and manage risk. If risk gets out of hand and the risk merchant(s) blows up, so be it. The grid keeps humming.
Is it the only idea that's good? No, but it's a lot better than some of the other ideas I'm hearing...
Quote from trendlover:
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I am not sure what you mean by this. The funds who made
money have to understand something about the risk of subprime lending and leverage, yes? So they bet against them. So maybe not brilliant, but common sense? Maybe those funds have no idea how big a winner they would be because no one understood the amount of leverage because it was secret.
Right, and I bet there were 1000x more players out there who had this level of "common sense" but ran out of powder because they didn't have the timing right. These funds did have the timing right, and I say it was pure chance. Had events taken a year less or more to unravel it would likely be a different subset of hedgies that'd now be getting praise and admiration for their astounding level of insight (or common sense, whatever we're calling it).
Unless of course they were big enough to bear-raid the financials into defeat on their own (the funds') time table. That would alter things of course. Not that the financials don't belong where they are now, but huge short funds may have been able to accelerate the developments to coincide nicely with the terms of their open positions....
And therein lies a big problem. Although I genuinely like Taleb, my quibble with his plan is due to the relative numbers of people that want 3% return versus the numbers of people that want 11% return. One of the trends in consumer behavior has been a shift away from low-risk accounts. And now my broker offers checking, debit card, online billpay, etc. Why do I need a bank?Quote from Pa(b)st Prime:
Some folks want no risk-for them 3%. Others are ok with funding a strip mall-for them 11%.
Are there enough people willing to take the 3% option to support the U.S. banking system?
Quote from jem:
We just had that free market concept. CDOs. It did not work too well. Not to many people want the gov't involved with money - but we are not happy with the fed either.
Perhaps you wish to put me in charge.
We don't have free markets.
As long as private banks own the FED, we have a Gigantic Moral Hazard
Quote from Random.Capital:
That is a technically correct statement that still IMO manages to miss the mark entirely.
Nationalizing the banks simply replaces the current free market banking inefficiencies - which are absolutely enormous - with bureaucratic ones. Until someone can demonstrate that free market banking is particularly efficient (quite the challange, that), there is no introduction of fresh inefficiencies, it is merely swapping one set of them for another.
Propping failed banks or having the Government run them is 6 or 1 half dozen.
The point is to remedy the situation without going down the road of Commie Pinko Banking.
So if we're to socialize losses for the banks so no 401K'er looses their shirt (lest we have to deal with a nation of fucking whiners who were stupid enough to believe the Market and Wallstreet only produce wealth, not take it!!!) then keeping life-long politicians out of Citi's board room is prudent, no?
The problem is this problem could have been solved a long time ago.
Nationalizing toxic assets, removing them from balance sheets, would have solved one half of this crisis. This could have been accomplished for under 2 Trillion.
Instead, over 11 Trillion has been handed out like party favors.
Thats a 200% workable interim solution to reviving and stabilizing credit markets and banking without having politicos take the helm. Thats priority number 1.
After that, we can debate whether or not fractional reserve gearing should even exist. And if not, how best to accomplish banking.
Free market banking is better than any monopolistic system envisioned.
Let Banks issue their own currency. Legalize competing currencies. Let commodity-backed money back in. Whatever. Let market democracies explore and innovate their own solutions, and we'll have a much sounder system then before.
The FED Monopoly on credit has brought us to our knees. And this is not the first time!!!
We must collectively admit their system is inherently corrupt and destructive, before we can begin to debate alternatives.