This is a long, meaty, provocative and fiercely prescient look at today’s financial crisis. Quinn underpins the crisis to debt, makes a compelling case for the size and scale of the unwind (deleveraging) in our midst, and was alarmingly right about the speed of events from October 7th to now. He borrows a now widely cited quote by Andrew Jackson in 1832 that was new to me:
“Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.” (President Andrew Jackson 1832)
Quinn lays blame on Reaganomics (indirectly), the Bush administration, and directly onto baby boomers for their thirty years of living beyond their means.
In his conclusion he expresses a glimmer of somber hope. Somber in that he accepts the pain of the current process, and hopeful in that he sees this as a cleansing for a more sustainable future.
For the 1st time in many years I saw something that shows promise for our country’s future. Despite the rhetoric from President Bush, Hank Paulson, Ben Bernanke, Nancy Pelosi, Barney Frank, all CNBC commentators, and various ultra-rich Wall Street shills, the American public was firmly against this bailout bill. I sense that the “ME GENERATION” is finally ready to accept the consequences of their selfish lifestyle over the last 30 years. The materialistic frenzy that has been the hallmark of the Baby Boom Generation is coming to an end. It is being forced upon many, but will be the choice of many more. The worldwide deleveraging will lead to a new mantra for this generation, frugality and living beneath your means. The psychology of the whole world has changed in a fortnight. Our leaders are so consumed by their own agendas that they have not realized the implications of this psychological change. Chaos and turmoil reign in the markets today. The population of the U.S. will turn inward and seek comfort in more simple pursuits. This will ultimately be a beneficial change for our society. But, the immediate result will be wrenching for the country. [Full Story]
James Quinn is Senior Director of Strategic Planning at The Wharton School at the University of Pennsylvania.
NEW YORK (Reuters) – Lower hemlines are coming back in fashion for spring and that could spell bad news for the U.S. stock market.
The higher the hemlines, the better the outlook for stocks, according to a popular, but frequently disputed, theory. When hemlines drop, watch out — the Dow Jones Industrial Average is likely to fall, the theory goes.
The past few fashion seasons, short skirts have ruled and, this spring, stocks rallied.
The hemline theory proved on the money as the Dow hit 14,000 for the first time this summer, and the Standard & Poor’s 500 Index set a record.
But in recent weeks, stocks have plunged following a jump in foreclosures on subprime home loans for borrowers with poor credit that hit bank credit lines and roiled the bond market.
At this week’s fashion show extravaganza in New York, hemlines are markedly lower.
Designers Nicole Miller, BCBGMAXAZRIA and Josh Goot showed hemlines at the knee for spring, Generra’s hems were mostly mid-thigh, as were those at Erin Fetherston and Miss Sixty, and dresses were knee-length or longer at Nary Manivong.
Tracy Reese introduced dresses that fell some 3 inches (7.6 cm) below the knee.
“The long, printed daytime dress which takes us back to the late ’70s” will be the iconic item for spring, said David A. Wolfe, creative director of The Doneger Group trend forecaster. [More]
At the current pace, we may all be wearing burkas next year.
Last Friday an article was published on Bloomberg.com by Katherine Burton about Andrew Lahde, the maverick hedge fund manager who octupled his money shorting the mortgage market. I, along with a gazillion others blogged the article filled with amusing quotes.
Well a week later, Michael Lewis, famed author of the Wall Street manifesto “Liars Poker” penned a curiously similar satirical commentary for Bloomberg. Its finance porn, but worth reading. Excerpts and a link to the full piece are below.
This Hedge Fund Manager Tries to Short Himself: Michael Lewis
Commentary by Michael Lewis
Oct. 24 (Bloomberg) — The first time I sensed the alarming change in my soul was when I caught myself, five minutes after the market open, reaching for a reefer.
Trust me, I didn’t amass legacy wealth (underestimated by Forbes magazine in the high eight figures) by smoking weed during trading hours. Exhaling that first hit I thought and might even have moaned aloud: “Whoa, dude! Why are you even running a hedge fund?” The markets were collapsing, and so was my passion.
Bloomberg subscribers have come to know me as a seriously successful hedge-fund manager who tries to serve society in more ways than one. Not only have I made as much money as possible, and proven the natural inferiority of the little rich-kid idiots from Harvard and Yale who went to work for Lehman Brothers Holdings Inc. I have also freely shared my thoughts and opinions with you.
…
The short squeeze forces me to buy back everything at prices that would make a Japanese investor blink. How did I feel? Imagine how it would feel to be Michael Jordan in mid-air, three feet above the rim with no one around you, when the ref blows the whistle. Dunking is now illegal, he says. The league fines you for trying to dunk; the media lambastes you for trying to dunk. Barney Franksubpoenas the dunkers.
I’m not saying I’m the Michael Jordan of hedge-fund managers. Others say that. I’m saying that for the first time in his career the Michael Jordan of hedge-fund managers feels like picking up his ball and going home. Which brings me to…
…
If you haven’t figured it out by now, America has hired the wrong Paulson. There are two of them, Hank and John. Hank turned Goldman Sachs from an investment bank into a busload of tourists going to a casino, with borrowed money.
Goldman might have been the smartest investment bank but you only needed to see Dick Fuld testify before a congressional committee to know how much that means. No pun intended, but Dick didn’t know dick.
Astute observers will note that every time they run across a party of midgets, one is tallest, and his name is usually Goldman. Suffice it to say that while Hank’s shop was creating subprime mortgage-backed bonds, John’s was shorting them. Hank wound up working for the government, John wound up making $3.7 billion. For himself.
Wake up America! The teacher has just asked the class to send one member to the chalk board to figure out a problem. You just reached past the A student in the front row and plucked the guy in the middle who’s working hard for a B-minus. And he’s confused! … [More]
So I’m a little behind the times on a lot of stuff. Being directed to Nate Silver’s FiveThirtyEight election mega polling data site is one of those things I missed out on until today.
I thought I’d help get the word out to those people who may live in a bubble like me. The chart below is from this afternoon (October 24, 2008), and can be revised as often as new data is available. Nate has a number of resources on his site, among them a FAQ to help explain the jumble of charts, lists and spreadsheets of political polling data.
The way I interpret the Win Percentage chart below is the percentage chance that Obama will win the election by the spread of popular votes and electoral voted noted. Pretty cool.
FiveThirtyEight.com
Having read his methods, an understanding the the credibility he has built, I wonder if the market is responding in any way to an Obama cabinet. I suppose that assumes most people don’t live in the bubble I do.
It’s just as well Milton Friedman dropped dead when he did.
Famous for holding an extremely high opinion of himself, Friedman would’ve loathed witnessing his carefully burnished reputation as the 20th Century’s preeminent economist unravel as quickly as the world’s financial markets.
At the same time, the standing of his great rival, the British economist John Maynard Keynes, is being restored.
Hubris is punished, Keynesians would argue, and virtue rewarded.
Friedman, who died two years ago, and his acolytes at the Chicago School of economics proposed the “efficient markets” and “rational expectation” hypotheses.
It is these theories that provided the intellectual architecture upon which nearly three decades of financial de-regulation is based.
To grossly simplify, according to the Chicago theory, speculators sell when stock prices rise to unjustifiable heights; if prices drop too low they swoop in and buy, thus creating an efficient market.
The theory of rational expectation holds that a market reality exists in which all people possess group knowledge, form beliefs about economic indicators such as inflation and rationally act on that knowledge. [More]
The financial crisis of 2008 has totally dwarfed any individual’s capacity to control it. Below are seven people who we have been relying on to maintain order in the financial system. This is not a complete list, but simply a fun one.
This is an ode to those who have proven themselves to be mostly impotent in preventing or concluding the current crisis. As such they seem smaller in stature today than they did just a few months ago.
Totally random I know. In alphabetical order (by dwarf of course):
Bashful: Former Federal Reserve Chairman, Paul Volcker
Bashful
Paul Volcker
Doc: Federal Reserve Chairman, Ben Bernanke
Doc
Ben Bernanke
Dopey: Chairman of the SEC, Christopher Cox
Dopey
Christopher Cox
Grumpy: Secretary of the Treasury, Henry Paulson
Grumpy
Henry Paulson
Happy: President George W. Bush
Happy
George W. Bush
Sleepy: Former Federal Reserve Chairman Alan Greenspan
I was at a panel this evening on government intervention in financial markets. So as not to give away names, or to point fingers of my own, I will leave the venue, host and panelist’s names out.
One of the panelists, however, was the head of restructuring for a marquee private equity firm, and a high-brow veteran of Wall Street. In between some of his better ideas and comments, of which there were many, was some finger pointing at mortgage brokers, who from the sentiment provoked, were to blame for the entire financial mess.
What was striking about it, was the idea that it was not the Wall Street Ivy Leaguers who are to blame, but those state schooled hooligans who mucked everything up by falsifying loan documents and helping homeowners on Main Street lie about their financial positions. He briefly defended Wall Street as having done its job, and that everything would be fine if the three percent default rate expectations were honored by all market participants. Hah!
It was outstandingly arrogant to hear this view, which I imagine is probably shared by a host of Ivy League alumnus, many of whom work or have worked on Wall Street over the last five years. To borrow a phrase from Scooby Doo it felt like he was saying: “What we did would have worked, if it hadn’t been for those meddling kids.”
What stuck in my craw is that none of those Ivy Leaguers, content with their pricing and risk models, remembered snippets of micro economics, such as utility maximizing behavior, game theory and agency costs, or in simple terms that they weren’t the only ones preying on fear and greed.
It was in fact the Ivy Leaguers who created the financial and risk models and the liquidity for mortgage brokers to do their bidding, aided by the ratings agencies, mono-line insurers and one could argue a blind eye from regulators. But did the Ivy’s forget that left to their own devices sales people will do just about anything to make a buck? Didn’t they realize the agency problem embedded in the marketplace they were building? Did they really not realize the the perverse incentive system created a great race to the bottom of lending standards? I suppose for the large investment and commercial banks, it was kind of like being an arms dealer, and not taking responsible for the loss of life.
If you bring it back to the educators, and to those once aspiring students who became the robber barrons of recent time, one must consider how excited these kids were to learn about derivatives, modeling, and all the sexy Wall Street gear of yesteryear. Of course many of them were getting their degrees in the 1980’s and 1990’s. In all that hunger for the “fun” classes, I suppose the emphasis on the classics was lost.
I guess sleeping through micro economics has bitten us all in the butt.
If you’ve been suffering from back, neck or shoulder pain lately, much of it could be a direct result of the financial crisis gripping the world, says pain specialist Norman Marcus, M.D., who offers suggestions to help you deal with that pain. They include talking, walking, laughing and sex.
Dr. Marcus is Clinical Associate Professor in Anesthesiology and Psychiatry and Director of Muscle Pain Research at the N.Y.U. School of Medicine and a past president of the American Academy of Pain Medicine
“The financial meltdown is causing millions to worry about losing their jobs, their homes and their retirement savings. And stress and tension are major causes of most common back and neck pain,” says Dr. Marcus.
“When you’re tense, anxious, fearful or angry, your back, shoulder and neck muscles contract. And prolonged contraction of muscles as a result of stress and tension can cause pain severe enough to impair you.
But there are strategies you can use to relieve that pain,” says Dr. Marcus. [More here]
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Smoke and Reuters Screens
October 24, 2008Last Friday an article was published on Bloomberg.com by Katherine Burton about Andrew Lahde, the maverick hedge fund manager who octupled his money shorting the mortgage market. I, along with a gazillion others blogged the article filled with amusing quotes.
Well a week later, Michael Lewis, famed author of the Wall Street manifesto “Liars Poker” penned a curiously similar satirical commentary for Bloomberg. Its finance porn, but worth reading. Excerpts and a link to the full piece are below.
Sources:
This Hedge Fund Manager Tries to Short Himself: Michael Lewis
Michael Lewis, Bloomberg, October 24, 2008
http://www.bloomberg.com/apps/news?pid=20601039&sid=a5PEgwA8j68M&refer=home
Lahde Quits Hedge Funds, Thanks `Idiots’ for Success
Katherine Burton, Bloomberg, October 17, 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVUE96d.HKyw