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 ...
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.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.