tag:blogger.com,1999:blog-7651702561869518108.post1941648298165076128..comments2024-01-12T19:58:00.378-06:00Comments on Causes of the Crisis: Three Myths about the Crisis: Bonuses, Irrationality, and CapitalismCritical Reviewhttp://www.blogger.com/profile/11368176629434189670noreply@blogger.comBlogger32125tag:blogger.com,1999:blog-7651702561869518108.post-76186739841220261622015-09-02T11:55:10.474-05:002015-09-02T11:55:10.474-05:00Thank you for some other informative blog. Where c... Thank you for some other informative blog. Where could I get that type of information written in such an ideal means? I have a mission that I’m just now working on, and I have been at the look out for such information.<br /><b><a href="http://www.bigbonusbets.com.au/" rel="nofollow">Mobile Free Bets,</a></b>james brownnhttps://www.blogger.com/profile/02028427553636467260noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-17565900410294583082015-08-08T10:34:43.400-05:002015-08-08T10:34:43.400-05:00Positive site, where did u come up the information...Positive site, where did u come up the information on this posting?I have read a few of the articles on your website now, and I really like your style. Thanks a million and please keep up the effective work.<br /><b><a href="http://www.bigbonusbets.com.au/" rel="nofollow">Sports and Racing Bonuses</a></b>james brownnhttps://www.blogger.com/profile/02028427553636467260noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-73738554595415893062011-10-18T12:36:38.675-05:002011-10-18T12:36:38.675-05:00What role did the Japanese Financial Crisis of the...What role did the Japanese Financial Crisis of the early '90s play in the subsequent E.Asian financial crisis?Rulett Fogalomtárhttp://www.online-casinok.hu/online-rulett/fogalmak.htmlnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-80276447091309101792011-02-01T10:56:52.989-06:002011-02-01T10:56:52.989-06:00What does the recent financial crisis suggest abou...What does the recent financial crisis suggest about the relationship between capitalism and democracy?Brad Fallonhttp://www.freelinereport.com/noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-43911435106023616302009-10-06T15:24:21.531-05:002009-10-06T15:24:21.531-05:00It is the realtors and builders and mortgage broke...It is the realtors and builders and mortgage brokers who need to be regulated by the Federal Reserve. Realtors did away with professional appraisors by lobbying for the right to do this themselves. Then they did away with the hard earned skills of professional engineers by getting themselves the right to do home inspections. They got themselves the right to do these things when they lack the decade of experience.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-85236080496104575742009-09-23T15:31:06.705-05:002009-09-23T15:31:06.705-05:00There may not have been a national housing bubble,...There may not have been a national housing bubble, but it seems there were enough local or regional bubbles to cause the same result.Kevin Mnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-63540666617391458272009-09-23T07:32:51.473-05:002009-09-23T07:32:51.473-05:00"Perhaps the most powerful evidence against t...<i> "Perhaps the most powerful evidence against the executive-compensation thesis, however, is that 81 percent of the mortgage-backed tranches purchased by banks were rated AAA[5], and thus produced lower returns than the double-A and lower-rated tranches of the same mortgage-backed securities that were available. Bankers who were indifferent to risk because they were seeking higher return, hence higher bonuses, should have bought the lower-rated tranches universally, but they did so only 19 percent of the time. And most of those purchases were of double-A rather than A, BBB, or lower-rated, more-lucrative tranches."</i><br /><br />If that's your most powerful evidence than perhaps your conclusions are invalid. For the most part, the investment banks didn't really purchase the 'AAA' tranches of the CDO's so much as retain them to facilitate the transactions which would permit the bank to book millions of dollars in investment banking fees available for bonus. Without the banks retention of the 'AAA' these transactions would not have taken place and bankers would not have earned the fees. It was clearly an arrangement where the bankers were paid currently while the bank took long term risk with no downside for the banker if losses were subsequently realized.DaveJnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-9867294006479701902009-09-22T18:32:00.006-05:002009-09-22T18:32:00.006-05:00Jeff:
Be careful about "capital." Bank...Jeff:<br /><br />Be careful about "capital." Banks do "lend" capital out at interest--I guess. It is a source of funds, not a type of asset. It is the funds the owners put in the bank, and it it used to finance, fund, all sorts of assets, and these can earn interest.<br /><br />If a bank has a lower capital requirement, it can borrow more and lend that money out at interest. The lower requirement means that the current amount of fund the owners have contributed to the bank can be a smaller fraction of the total borrowing and total lending of the bank. <br /><br />Hey, I heard Rogoff on NPR and he said about the same thing. And I know he knows better.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-80852818326040224622009-09-20T21:00:35.784-05:002009-09-20T21:00:35.784-05:00Unfortunately, being legal mandates, these rules--...<i>Unfortunately, being legal mandates, these rules--unlike the different strategies pursued by competing capitalists--aren't subjected to a competitive process. </i><br />Not entirely true, given the operation of competitive jurisdictions. Surely, a sensible thing to do is cross-country analysis of which financial systems did not "freeze up".<br /><br /><i>Contrary to popular belief, then, the crisis of 2008 is best described as a crisis of regulation—not a crisis of capitalism.</i><br />Australian (and I believe Canadian) prudential regulation seems to have worked rather better. So the wrong mix of regulation seems to be the issue.Lorenzohttps://www.blogger.com/profile/00305933404442191098noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-71310153070681289052009-09-18T09:35:09.438-05:002009-09-18T09:35:09.438-05:00To Hayekian...
I am confused, no doubt. From Hen...To Hayekian...<br /><br />I am confused, no doubt. From Henry Paulson's PR from 9/19/08 - announcing the reasons for TARP to the nation:<br /><br />"The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded."<br /><br />As an ordinary citizen, living a life far removed from math models and Wall Street, this indicates to me the repercussions of the explosion of a national bubble. I cannot for the life of me understand how the collapse of bubbles in isolated markets could cause such a catastrophic impact on our economy.<br /><br />So it would seem Bernanke, et al, were wrong about the localized nature of the bubble.<br /><br />To then say that the "no-recourse laws" gave consumers the idea to buy houses they couldn't afford because they could walk away later - well, perhaps there is a large population of Americans who did that, I don't know. The consumers I know who have upside-down loans are not the ones who walked away and they're just stuck right now.<br /><br />However, you cannot have a borrower without a lender. For bankers to make large number of loans to people without the income to support it - there's nothing rational about that - unless they believed in the irrationally exuberant notion that the value of the collateral would skyrocket upward forever. <br /><br />But the bubble popped (as all bubbles do) - and the "toxic assets" on the off-balance sheets of the banks sucked the lifeblood out of the American economy - and the federal Treasury. (So much for capitalism.)<br /><br />There was a time in America when this story would have ended with the loan application. But this time, it didn't. And the crash is the result of borrowers who felt liberated by the no-recourse rules? I am intrigued by the notion that highly compensated bankers were powerless in all of this.annehttp://wardonwords.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-90047844593053976662009-09-17T09:42:20.958-05:002009-09-17T09:42:20.958-05:00Anne, you are confused. A local real estate bubble...Anne, you are confused. A local real estate bubble is not a national one. Bernanke, Greenspance, and all the rest of the economists knew there were local bubbles but denied there was a national one. You are saying they are wrong but were they irrational?<br /><br />You have a confused definition of irrational as wrong and rational as right. Friedman isn't saying bankers were blameless, he is just saying that to understand what they did, calling them crazy does not help. He is trying to understand not blame. And where does he say that we need more regulation? I read the second part of his article as saying regulators caused the problem!hayekiannoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-9853812087257126202009-09-16T21:03:58.534-05:002009-09-16T21:03:58.534-05:00Not an economist, but I did watch the real estate ...Not an economist, but I did watch the real estate market in my neighborhood in Chicago over the last decade. To look at the appreciation of prices and conclude there was no reason to assume it was a bubble is not a concept that makes sense. Prices grew to insane levels in a very short period of time. If that does not signal a bubble, then what does?<br /><br />Mortgage brokers made a pretty penny on terrible loans made to people who had no hope of paying them back. To look at NINJA loans or the no-doc loans as "rational" ways of conducting business - again, I do not understand how you can say this. <br /><br />Lloyd Blankfein has made at least two speeches in the last year (one in February and one again in April, both receiving fairly good press coverage) suggesting that reforming the compensation structure is essential (not clear that he's acted on his own advice, but that's another story.) <br /><br />That Richard Fuld had a billion dollars in stock options to lose does in fact provide rather suggestive evidence of an out-of-whack compensation system. I'd like to know how much cash he walked away with, in addition to the options. Were his flower purchases and dry cleaning expenses covered in his parachute, a la Jack Welch? <br /><br />What about the compensation of the rank and file within the banks? Were they given stock options or cash bonuses? The behaviors of the employees were critical to the build up of toxic assets, not just the actions of the occupants of the C-Suite.<br /><br />And a financial system alive today thanks solely to the generosity of the government is a sorry excuse of capitalism. <br /><br />To say that the behaviors of brokers and bankers were blameless but we need more regulation to avoid such a meltdown again is an odd argument.<br /><br />We need better regulation because the behaviors of bankers and brokers were terribly risky in ways they didn't need to be. JPMorgan's behavior, as you note, indicates that not all businessmen choose to engage in terrible business activities - even without prudent regulation to rein them in.<br /><br />Nothing will change if economists point the finger only at the flaws of government. And with TBTF institutions now even bigger, I'm not sure there'll be a bailout big enough next time.annehttp://wardonwords.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-73083506957411300092009-09-16T08:37:18.312-05:002009-09-16T08:37:18.312-05:00Surely, not executives, but salesmen greed, the bo...Surely, not executives, but salesmen greed, the boys who did the selling and were on commission. Them, and the corporate environment that accommodated them, there's your guilty parties. There, was that so difficult?<br /><br />BBBill Krusehttp://www.economania.co.uknoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-73420663575222841932009-09-15T20:38:54.642-05:002009-09-15T20:38:54.642-05:00While we're at it: it is no defense in the ar...While we're at it: it is no defense in the argument that the bankers didn't do it for greed because they were ignorant of the risk.<br /><br />It is just as bad to be ignorant, and be paid for it, than to be greedy, know the risk you are taking, and bet the house. Either one is bad, but, since you concede that they were ignorant and well paid, that probably is enough. Being overpaid for ignorance is pretty bad too. But, I don't think they were ignorant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-19555087171361716022009-09-15T20:33:29.229-05:002009-09-15T20:33:29.229-05:00To the person who said: "NPTO, Why do you an...To the person who said: "NPTO, Why do you and Anonymous sound so desperate to pick holes in Friedman's article? Has he hit a nerve?"<br /><br />This is not a psychoanalsis session of why someone is asking a question. It does hit my nerve when someone makes an assertion and doesn't support it.<br /><br />As to what is Irrational Exuberance, it is a very good book. Read the second edition. If you want to learn more, you can watch the entire Yale finance course Shiller teaches at oyc.yale.edu He discusses it in more detail, but the finance course and the math are pretty good too. Enjoy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-21516216111046222312009-09-15T19:39:38.811-05:002009-09-15T19:39:38.811-05:00Another anon: Perhaps I don't fully understand...Another anon: Perhaps I don't fully understand it, as I'm not fully convinced. Within that description, we read about the credit agencies had "oligarchy status". Was everyone who was making investments based on their ratings really doing analysis based on whether or not those agencies were wrong? I'm not talking about the Recourse Rule's risk weights, but the internal financial modeling each large firm was purportedly working on. <br /><br />At a certain point, risk modeling becomes impossibly recursive. And, like you've mentioned, some bankers kept their heads. I overgeneralized about the entire market, but every major player was affected. But the take home lesson in all of this, to me at least, is that due to the huge quantity of information available, risk is a long ways away from being adequately quantified. In a deregulated system, there's the advantage that mistakes received quicker feedback.Aaronhttps://www.blogger.com/profile/13138448357185761973noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-9548059007037015272009-09-15T18:04:47.579-05:002009-09-15T18:04:47.579-05:00Private gains and public losses are rational for i...Private gains and public losses are rational for individuals but are they for society? <br /><br />Short term bonuses and securitization create inherent time focus and agency problems. These are real. <br /><br />Government and regulators don't act without cause but at the demand of business and markets. The government didn't decide on its own to prefer ABS, nor did it decide on its own to allow increased leverage. Treating it as a black block obscures rather than illuminates.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-37926991242808318752009-09-15T11:29:32.159-05:002009-09-15T11:29:32.159-05:00NPTO, Why do you and Anonymous sound so desperate ...NPTO, Why do you and Anonymous sound so desperate to pick holes in Friedman's article? Has he hit a nerve? <br /><br />Friedman says that Wladimir Kraus is interviewing bankers, not that Friedman is doing it. Interviews have their problems, but how would you investigate why bankers did what they did? At least Friedman is telling us about a possible cause of the crisis that we haven't heard of before. What is your contribution?<br /><br />And what is Shiller's important point that you keep referring to? Friedman's saying the bubble wasn't "irrational." He's not saying it didn't exist. He's saying the opposite. It existed. People like Bernanke who denied that it existed were mistaken. (Greenspan too.) But he's saying that mistaken does not = irrational. Please tell us, what exactly does Shiller say to rebut this??<br /><br />Aaron calls everyone who made incorrect risk judgments "irrational." That doesn't explain anything. Also, Aaron claims that "the entire market" was irrational. That's not true. Friedman's main point is that the regulators imposed their mistaken ("irrational"?) theory on bankers, but that some bankers like Dimon resisted even though the regulators made it artificially profitable to buy subprime securities. Without that artificial encouragement even fewer bankers would have made this mistake. Didn't you understand the part at the end of Friedman's article about "heterogeneous" capitalists vs. "homogenizing" regulations?another anonnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-52000392700661810992009-09-15T11:25:47.231-05:002009-09-15T11:25:47.231-05:00I am the author of Anonymous comments 1 2 3 and 5,...I am the author of Anonymous comments 1 2 3 and 5, and I agree with NPTO last comment and challenge.<br /><br />I just have trouble rationally understanding the author's argument, although I can understand the conclusion he is trying to reach: that regulation (and not the failure of or quality of regulation) caused the problem. I am also trying to be hard on the author, challenging him to offer evidence supporting his conclusions and reasoning on how he got there.<br /><br />Yesterday was sort of like the Anniversary of 9/11 in financial terms with the bankruptcy of Lehman. And the historical rewrite here is sort of like saying that the Twin Towers didn't fall (because there was no irrational exuberance), that it was done on a stage in Hollywood, and that the bad actor was the FBI (in this case government regulation). You can say that, but you've got to prove it,Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-27041448482526761042009-09-15T10:20:29.572-05:002009-09-15T10:20:29.572-05:00By the way, concerning endnote 6: "We won'...By the way, concerning endnote 6: "We won't know with any certainty, however, that bankers did buy these securities because of the Recourse Rule until somebody actually asks them, in confidence"<br /><br />What is the plan? To ask bankers, "So, is the crisis the market's fault, which implies you should be more regulated, or was it the government's, in which case you should be left alone?"?<br /><br />I am sure it isn't, but that's the impression one gets from the writing.NPTOhttp://napraticaateoriaeoutra.orgnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-87802812794012642802009-09-15T10:09:11.687-05:002009-09-15T10:09:11.687-05:00I'm sorry to disagree with one of the many Ano...I'm sorry to disagree with one of the many Anonymous (dialogue will be hard if people don't choose at least a nickname of sorts). Friedman does refer to a housing bubble:<br /><br />"But absent the Recourse Rule, there is no reason that banks seeking a safe way to increase their profitability would have converged on asset-backed securities (rather than Treasurys or triple-A corporate bonds); thus, they would not have been so vulnerable to a burst housing bubble"<br /><br />This is crucial to Friedman's argument, by the way. If government simply chanelled resources into non-bubbly investments, and/or, as it is now claimed, it did not cause a bubble by doing so, is hard to see how the crisis came about. <br /> <br />And, no matter how many times I re-read it, I still have not found a refutation of Shiller, without which I think the whole discussion is pointless. Let´s "establish the phenomenae" first.NPTOhttp://napraticaateoriaeoutra.orgnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-88094678796747715392009-09-15T06:38:59.468-05:002009-09-15T06:38:59.468-05:00A large area of irrationality that I believe your ...A large area of irrationality that I believe your piece misses has to do with risk, which (to me at least) is quite obviously where investors and regulators both failed. If risk had been rationally factored into the rising house prices, the crisis would not have occurred. Of course, the risk wasn't priced in. Loans were still available at low rates, which would have been rational if the potential default rates were much lower. They weren't. At every level, in organizations both public and private the risk of individual loans, and more importantly the combining of those loans, was completely ignored. If you want to have a regulation based critique, you fault the regulators. If you argue for a freer market approach, you blame the investors. But in any case, the entire market was irrational about the risk the market contained.Aaronhttps://www.blogger.com/profile/13138448357185761973noreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-43293007719143429862009-09-15T01:38:32.166-05:002009-09-15T01:38:32.166-05:00Make no mistake: it was a bubble.Make no mistake: it was a bubble.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-54409409920746620422009-09-14T22:14:49.903-05:002009-09-14T22:14:49.903-05:00If Greenspan had said financial innovation had mad...If Greenspan had said financial innovation had made it possible to fly off the top of the Empire State Building, and the Basel conventions stated falling from heights less that 10,000 feet was prudent, it wouldn't have been the fault of bankers getting fees and bonuses from selling jumping rights to other bankers for experience of safely flying to the ground for the pile of dead bankers and pedestrians?<br /><br />If bankers got no fees or bonuses for buying and packaging subprime mortgages they wouldn't have been buying and setting up mortgage originators to push subprime mortgages to feed the demand for paper.<br /><br /><br />Or as another person noted on a radio call-in, quoting someone else, if real innovators were creating new companies producing cutting edge technology for say energy or highly efficient "eco" modular factory built construction materials, say as a result of a green initative to make the US independent of imported oil and thus immune to Persian Gulf conflict, the bankers would have been financing productive capital investment instead of financing at best consumption to be paid for over the next 30 years.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7651702561869518108.post-42831323892550085712009-09-14T21:43:27.994-05:002009-09-14T21:43:27.994-05:00Friedman never mentions that recourse laws created...Friedman never mentions that recourse laws created a housing bubble. Friedman's first paragraph deals with his finding that there was no housing bubble. After that he leaves the concept of a housing bubble alone. <br /><br />If you move on to the second section of his post you will not see anywhere a mention of a housing bubble. He describes the recourse law as a regulation that gives incentives to bankers to buy mortgage backed securities. That is all that he says.<br /><br />Nowhere in Friedman's post is there any mention to the idea that the recourse law caused the housing bubble. The original poster needs to thoroughly reread the post and then reevaluate his or her claims.Anonymousnoreply@blogger.com