Posted on 10/14/2009 8:54:44 AM PDT by SeekAndFind
“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”
The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. “But I have to buy you a drink to hear it?” I asked.
“Absolutely not,” he said. “I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening.”
He did indeed look capable of buying his own drinks — one of which, a dry martini, straight up, was on the bar in front of him. He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late ’50s or early ’60s — a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts.
“O.K.,” I said. “Let’s hear it.”
“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.
“But weren’t there smart guys on Wall Street in the first place?” I asked.
He looked at me the way a mathematics teacher might look at a child who, despite heroic efforts by the teacher, seemed incapable of learning the most rudimentary principles of long division. “You are either a lot younger than you look or you don’t have much of a memory,” he said.
(Excerpt) Read more at nytimes.com ...
I read til it said 8 or 10 years ago.....IT’S BUSH’S FAULT!
Of course he was the one who called on congress multiple times to reign in fannie and freddie/ACORN etc...
what a pathetic article. please tell me this didn’t actually get put on paper?
The man observes the following pattern that occurred and is still occurring in Wall Street :
* Most of the guys from the lower third of the class who went to Wall Street had a lot of nice qualities. Most of them were pleasant enough. They made a good impression. And now we realize that by the standards that came later, they weren’t really greedy. They just wanted a nice house and a family in the suburbs.
* College was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they’d have so much money they could then become professors or legal-services lawyers or whatever they’d wanted to be in the first place.
* That’s when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.
* When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Answer: The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. All these guys knew was that they were getting disgustingly rich, and they had gotten to like that. All of that easy money had eaten away at their sense of enoughness.
IT TOOK A WHILE BUT THE SMART GUYS ( THOSE WITH HIGH IQ ) FINALLY DID IT -— THE COLLAPSE OF WALL STREET !!
10 years ago was 1998, the year the internet stock bubble (from 1994-1998) burst.
So really, we can blame the near collapse on the Universities?! I like that idea...
Fits right in with my personal theory that Harvard and Yale are responsible for ruining the country if they havn’t already finished the process.
the author, ‘Trillin’ was the tipoff. Best known for his columns in free indy city papers. He’s worth what you pay him.
It was both the smart guys (I tried to be for a billionaire here but he was too stupid. long story). But the only way the balloon could happen is with government protecting the failures. Fannie and Freddie and Fed pumping etc all added fuel to the fire.
I wouldn’t get my Wall Street interpretations from Calvin Trillin. It’s like listening to all these folks who intone rants about derivatives, while something in their voice as they pronounce the word “derivatives” tells you they have no clue what a derivative is. They just know they don’t like it.
There may be some truth in that analysis, but the Ivy League & MBA types started invading Wall Street during the Reagan Administration. The influx of of the college-trained was a major theme of the book “Liars Poker” which was about the commoditization of the home mortgage market.
That would mean he took his savings off the market during the dot com bust, which means he lost a lot of money and apparently lived by the addage of "buy high, sell low" - if he really knew half as much as he claimed he would have left his money in for another 4-5 years, recouped his losses and then sold before the latest bust.
This is all ignoring that as you get closer to retirement age a lesser portion of your 401k should be invested in stocks. Nothing to do with any specific conditions; the stock market is always volatile, it goes up and it goes down. If you need your investment to be secure than place it anywhere but stocks.
Please enlighten us - what exactly is a derivative?
I can also, from personal observation, support the conclusion that if you REALLY want to screw anything up, you need to put it in the hands of people who think like this: "I am so smart I make myself sick."
Smart as a whip does, all too often, translates into dumb as a hoe handle in the real world. I've seen that, too, at many institutions and in many eras.
Congressman Billybob
Oh, what a nice story -— must’ve been written by O’Henry for the NYTimes... It’s hard to find another article that would be similarly devoid of content (facts and logic).
Yes, the big drop was still to come. But the tech industry had already hit some peaks.
Real smart people understand that there is lot more that they don’t know, than what they do know.
It reads like a Jayson Blair “article.” What stupidity.
Oh No! It was all those poor people and the CRA and poor widdle bankers being forced to make bad loans. (/s)
Here’s a link on how they did the math:
http://www.npr.org/templates/story/story.php?storyId=102325715
parsy, who says people never learn
The NY Times is irrelevant.
Right there it tells you that the measurement that put them into the lower third is flawed. It exists only in the head of the author.
In any class there are "smart" guys that don't get many dates but help others with math. That is only ONE kind of being "smart." Another is to be able to handle a great deal of "soft" data from multiple sources and communicate with diverse populations of people. That is what often makes a good manager. Math and physics geniuses are particularly bad at such tasks. So, what was the measurement that puts a manager of Brown Brothers Harriman into the lower third of the class?
[ The author has committed a logical fallacy known as argumentum ad stramineus homo (arguing against a straw man), wherein one falsely attributes something to a person or situatin and then claims that the result is flawed.]
"College was getting so expensive that people from reasonably prosperous families were graduating with huge debts."
This in itself is a joke. Prosperous families have trust funds coming from GRANDparents. (Since one is permitted to gift tax-free only %10,000 per year, for many people this is an advantageous way to distribute wealth before dying. Prosperous families that do not have education trust funds are self-made (first generation). But this is NOT whom the author is talking about; he explicitly mentions parents that were also on Wall Street and have houses in Greenwich.
Yet another falsehood is plugged in thus.
In addition, the author portrays getting on Wall Street as a decision of the supposedly debt-ridden graduates. This is utter nonsense: it's the Wall Street firms that pick them; their desire is very far from sufficient. Even in the best (easiest) years competition for finance jobs, especially Mergers and Acquisitions, was EXTREMELY fierce. Just wanting to make money to offset the debt is FARE from sufficient. A graduate should've also planned that move in advance: most have taken a few finance course and some additional economics. In sum, one has to be a star, and a reasonably prepared one at that.
The author's statement is simply stupid: it's like saying "Great many people now go to acting and NFL because their student and mortgage loans have increased lately." Just plain stupid.
"When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Answer: The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. "
Yet another moronic statement that reveals the author's lack of even basic understanding of management. Is the CEO of Alcoa a physicist or chemist? Probably not. How come Gerstner came to manage IBM from Pepsi? Because a manager is practically never a specialist. What (s)he does is pose right questions to specialist in his team. That is true for Alcoa, IBM, GE or any Wall Street firm. All those managers know ENOUGH to ask the math specialists right questions.
The author is simply ignorant of what the management function is and how it is performed.
And, incidentally, CSO is a form of insurance -- that simple. Math is needed only to calculate risk --- in the same way as insurance on a house or car. Do you really believe that Wall Street managers did not have a clue? The author is a moron (a person with arrested development).
As I said in an earlier post, it is difficult to find another article, even in the NYTImes, that would so utterly devoid of content.
It is simply an investment that derives its value from some other thing. Not much different than an option, but rather than being an option for a direct investment (purchase or sale of gold, corn, pork bellies, etc.) it is perhaps a credit default swap - whose payoff is contingent on the default of a single obligor (say GM or Chyrsler).
The article does have some valid points.
Consider this analogy. Wall Street, up until about the end of the last decade, was run by guys like GW Bush. He is personable, a jock, and popular but maybe lacking the soaring “intellect” of the nerds. Most importantly, since he is already well liked (and wealthy) he does not need to demonstrate to others, for his own ego, how successful or smart he is. GW (or an old school Wall Street executive)was comfortable being competent and did not need constant adoration from his peers to stroke his ego.
Beginning in the 90s though, Wall Street began to bring in more Obama types. Sure they might be smart, but they are socially maladjusted. They resented and resent the jocks popularity and pleasing personality. As a result, they put constant pressure on themselves to best the jocks by displaying their intellectual superiority. This display often is manifested in the implementation of academic theories when pursuing profits rather than Wall Street common sense. The theories are arcane, barely-tested under real world conditions, thus subjecting the firm to out-sized risks.
Exactly!
The Government has been protecting the financial industry for decades.
If they are from the lower third of their class how are they so smart to be called smart guys?
Sounds like this Climer is talking to Jim cramer....the ultimate WS prick.
intellectual superiority...
Consists of fraud, corruption and manipulation.
And as I have warned, the gold bubble has not yet burst.
.
Ten years ago was 1999 by the way.
Damn. I need a new calendar.
The flaw in the theory is that the people at the top on Wall Street were always brilliant. You don't get to be in senior management at the big Wall Street firms while failing to understand what derivatives are. They may have had a lot of middle management that were not very smart, but those in control should have known better. The problem was incorrect risk management assumptions and an addiction to excessive leverage in order to maximize profits and get those big bonuses. That's what did it, and the people who watched it happen were smart enough to know better.
Happens to me, too. Whenever anyone asks me my age, I first have to remember what year it is, then do the math.
But you just joined 4 years ago?
You didn't read the article, did you?
Check sgain, pal.
.
Sorry, pal. I misread the popup as “’05”. Far be it for me to not give you adequate credit as an old timer.
On the other hand, sometimes he gets it right:
This is a BS story but it was fun.
It is possible for markets to generate real wealth. Buying resources at a time and place where they are plentiful, and selling them at a time and place where they are scarce, creates real wealth. That is the only way that pure markets create wealth (but it's a huge one). Any money which someone gets out of the marketplace without generating real wealth comes out of someone else's pocket. One really wouldn't have to look very hard at things like the mortgage markets to see a lot of people making pretty obscene amounts of money for actions which didn't generate any wealth (and in fact destroyed a lot of it).
I did but I didn’t understand it.
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