Posted on 01/24/2008 8:42:19 AM PST by Travis McGee
Short excerpt of above:
The Fed chairman [Greenspan] was ever vigilant in assuring all that derivatives reduced risk.
In May 2003: “Derivatives have permitted financial risks to be unbundled in ways that have facilitated both their measurement and their management…. As a result, not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”
In April 2005: “[L]enders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers…. These improvements have led to rapid growth in subprime mortgage lending.”
In May 2005: “The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions.”
Henry Kaufman viewed the development differently: “[I]nstitutions with aggressive [derivative] models will get the business and garner the profits. Senior managers will find it more difficult to resist increasing pressures to compete using riskier models, especially if doing so would cause the earnings and stock process to lag behind those of institutions deploying riskier models. Ongoing financial intermediation and balance-sheet leveraging also will continue to support riskier modeling on the near horizon.”
In March 2007, before all hell broke loose, Kaufman viewed the preferable solution as impractical: “One [solution] is to let competitive forces discipline market participants. In this scenario, the managers who perform well will prosper, while those who do not will fail. But…[we] typically do not allow the process to follow through when it comes to very large financial institutions. The failure of behemoth financial conglomerates not only exacts enormous social costs, but also poses systemic risks for markets around the world.”
Perhaps Jon Stewart of Comedy Central should be running for President, or at least the Senate. He certainly got to the essential question for Greenspan, something no Senator ever did. In all those hearings with Greenspan, they never asked why a central bank should have control of our “free enterprise” economy.
That grabbed my attention too.
Prepare for knee-jerk anti-Soros and Stewart responses.
(Excerpt)
During Greenspan’s recent book tour promotion, the most enterprising interviewer was Jon Stewart on Comedy Central. Stewart, unencumbered with presumptions of how he should think and what he should not say, spoke much as the boy who asked why the emperor wore no clothes:
STEWART: Many people are free-market capitalists, and they always ask about free-market capitalism, and that is our economic theory. So why do we have a Fed? … [W]ouldn’t the market take care of interest rates and all that? Why do we have someone adjusting rates if we are in a free-market society?
GREENSPAN: You’re asking a very fundamental question.
STEWART: I am? Should I leave?”
Greenspan convinced his host to both stay and listen to an inaccurate Federal Reserve pep talk. (The former chairman seemed to think the Fed was founded in the 1930s). Stewart was not satisfied with the mumbo-jumbo:
STEWART: So, we’re not in a free market then.
GREENSPAN: No. No.
STEWART: There’s a… benevolent hand that touches us.
GREENSPAN: Absolutely. You’re quite correct.
Naturally. Pavlovian response. We might not like them, but neither of those two are stupid.
You know its funny, I always read those quotes about democracies only lasting as long as it takes the people to realize they can vote themselves largesse from the Public Treasury. But somehow I don’t think they’re talking about the millionaires who dig themselve a hole, profiting all the way to the bottom, and then ask the Taxpayers to bail them out.
Ironic eh? Imagine running a firm into the ground, and walking away with 100 mill+. Mozillo, etc.
But don’t worry about their future welfare. Most of the worst culprits have insurance in the form of mansions in a dozen countries, and all of necessary offshore accounts.
There may be a hundred Robert Vescos walking the world’s beaches by the time this is over.
Priceless, absolutely priceless. My respect for Jon Stewart just went up 1000%. Thanks for the ping!
I still need to read the whole article but from skimming it I’ m really excited about what it says about economic activity vs financial activity. I think this is real key and I need to understand it better. The financial industry has been amazingly creative in coming up with new ‘financial instruments’ but none of it has much to do with the human activities of producing, exchanging and consuming goods and services.
The crisis of the abuses of banking is arrived. The banks have pronounced their own sentence of death. Between two and three hundred millions of dollars of their promissory notes are in the hands of the people, for solid produce and property sold, and they formally declare they will not pay them. This is an act of bankruptcy, of course, and will be so pronounced by any court before which it shall be brought. But cui bono? The laws can only uncover their insolvency, by opening to its suitors their empty vaults. Thus by the dupery of our citizens, and tame acquiescence of our legislators, the nation is plundered of two or three hundred millions of dollars, treble the amount of debt contracted in the Revolutionary war, and which, instead of redeeming our liberty, has been expended on sumptuous houses, carriages, and dinners. A fearful tax! if equalized on all; but overwhelming and convulsive by its partial fall.
Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper, as we were formerly by the old Continental paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burthen all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs. Prudent men must be on their guard in this game of Robin's alive, and take care that the spark does not extinguish in their hands. I am an enemy to all banks discounting bills or notes for anything but coin. But our whole country is so fascinated by this Jack-lantern wealth, that they will not stop short of its total and fatal explosion.
~~Thomas Jefferson to Dr. Thomas Cooper, 1814
The Fed has lost control over the banks it failed to regulate and the credit-creating apparatus it no longer understands.BumPing!
* * * STEWART: Many people are free-market capitalists, and they always ask about free-market capitalism, and that is our economic theory. So why do we have a Fed? … [W]ouldn’t the market take care of interest rates and all that? Why do we have someone adjusting rates if we are in a free-market society?GREENSPAN: You’re asking a very fundamental question.
* * * STEWART: So, we’re not in a free market then.GREENSPAN: No. No.
It was the same great year in which the 16th and 17th Amendments were ratified - 1913.
What if (for a moment) what if this is all smoke and mirrors.....
What if we look behind the curtain....and see a bunch of smirks and quiet laughter?
We don’t need to think it’s smoke and mirrors to see the smirks and hear the laughter.....
To all the idiot’s I’ve debated points related to this...I say, kiss my ass!
Oh, and thank you nicmarlo for the ping ;)
You’re welcome. I thought it would be of interest to you. : )
I really tried, but that was the nicest way I could come up with to put it :) I went the extra mile to stay cordial ;)
You seem to show up a lot on Financial Threads.
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