The End of the Financial World as We Know It

NYT ^ | 01/04/09 | MICHAEL LEWIS and DAVID EINHORN

[TigerLikesRooster]

The End of the Financial World as We Know It

By MICHAEL LEWIS and DAVID EINHORN

AMERICANS enter the New Year in a strange new role: financial lunatics. We’ve been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.

This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?

Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?

To that end consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.

[TigerLikesRooster]

Ping!

[Fred]

It is the end for the NYT big time.

[Fred]

[TigerLikesRooster]

Still over 5 bucks? That is unacceptable.

[libh8er]

Do we not put Barf Alerts any more ?

[Dallas59]

What is the NYT? An internet game?

[Jeff F]

A well written and clear analysis of the debacle. I agree with many, though certainly not all, of the authors' recommended solutions.

It is well worth people's time here to read all five pages of this op-ed. Don't be put off too much by the fact it was printed by the NYT. If someone wants to slam the piece, he should at least read it first.

[glide625]

ping

[dennisw]

The NY Times has been publishing some good pieces on the Wall St machine that lead us to this debacle. This one is co written by Michael Lewis who wrote “Liar’s Poker” 20 years ago about his wild days working for Salmon Brothers

Those excesses were nothing compared to what Wall St did since 9-11-2001 ....... The gates were thrown open and easy money flooded out. We had an asset inflation in real estate, commodities and stocks and Wall St figured out how to make themselves billions in bonuses by making selling derivatives based on eternally rising asset values. Equity buyout firms like scummy Cerberus thrived on easy money

The Fed’s easy money policy did not show up much in consumer prices except in energy. Cheap imports from China etc tamped down consumer inflation

[Jeff F]

Lewis and Einhorn also do a good job describing just how broken are all the various checks against Wall Street excesses such as the SEC, and the rating agencies. The very agencies which are suppose to protect the investor instead have been effectively perverted to advance the interests of the financial firms and their senior employees against those of the investors. Driving much of this the direct career paths from regulating entities to the financial firms, and the hugely corrupting level of salaries and particularly bonuses at the financial firms.

The authors make a good case that a handful of common sense changes could go a long way to clean up the current mess and avoid the future calamities. Unfortunately I do not see these changes being discussed widely outside of the occasional opinion piece such as this one.

[indthkr]

Finance bump for later............

[dennisw]

Lewis and Einhorn also do a good job describing just how broken are all the various checks against Wall Street excesses such as the SEC, and the rating agencies. The very agencies which are suppose to protect the investor instead have been effectively perverted to advance the interests of the financial firms and their senior employees against those of the investors. Driving much of this the direct career paths from regulating entities to the financial firms, and the hugely corrupting level of salaries and particularly bonuses at the financial firms.Lewis and Einhorn also do a good job describing just how broken are all the various checks against Wall Street excesses such as the SEC, and the rating agencies. 

Many Freepers want zero regulation everywhere. So laughable and childish. But the Bush administration sure behaved this way. 100% hands off the markets

It's like telling thieves that robbery is now legal
What we need is intelligent and honest regulation of Wall St financiers
They will run wild without it and the credit default swap mess is proof

[GOPJ]

I’d love to read it, but they’ve got a sign up page - and I don’t want to sign up for the NYTs even if it’s free. Sad, because from what I can tell - this one is worth reading. My resistance is weakening...

[Jeff F]

In the case of Credit Default Swaps - if it looks, walks, and acts like an insurance instrument, then by gosh treat it as one. Simply adding a capital reserve requirement for CDS transactions would prevent an awful lot of mischief.

It is fairly simple to devise good ways to remedy the problems that led to the current debacle. On the other hand, it is very hard politically to have these solutions correctly identified and implemented. The current public policy fixes will only make matters worse.

[Jeff F]

I’d love to read it, but they’ve got a sign up page - and I don’t want to sign up for the NYTs even if it’s free. Sad, because from what I can tell - this one is worth reading. My resistance is weakening...

I gave in just to read this article. It was worth it, I guess. Got to admit that I do feel dirty now.

[dennisw]

Do a search in google news for “The End of the Financial World as We Know It” http://news.google.com/news?sourceid=navclient&ie=UTF-8&rlz=1T4GGLL_enUS308US309&q=%22The%20End%20of%20the%20Financial%20World%20as%20We%20Know%20It%22&um=1&sa=N&tab=wn

Use that link. No sign in 99% of the time when you access NY Times via google news

[Travis McGee]

Great article, gracias para el linko.

[dennisw]

In the case of Credit Default Swaps - if it looks, walks, and acts like an insurance instrument, then by gosh treat it as one. Simply adding a capital reserve requirement for CDS transactions would prevent an awful lot of mischief.

Yaeh but the whole point of credit default swaps was to get rid of those reserve requirements and free up that money to make money!!!!! And bigger year end bonuses!!!!!!

They were dreamed up by some JP Morgan boys in 1997 to free up those reserves and put them to work.

Credit default swap - Wikipedia, the free encyclopedia

Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase [7] [8] [9]. They were designed to shift the risk of default to a ...
en.wikipedia.org/wiki/Credit_default_swap - 121k - Cached - Similar pages

 

[dennisw]

NY Times has been publishing some very good “what went wrong” articles