Professor Stiglitz' on "Financial Alchemy"
Professor Stiglitz' explanation of the
"financial alchemy" responsible for the collapse of Lehman Brothers: "The Fall of Lehman Brothers"
Professor Stiglitz then addressed the question of whether Lehman's executives should have to answer for their decisions: "Should We Hold Lehman's Executives Accountable?"
Stiglitz also looked beyond the headlines, drawing attention to the less visible factors influencing America's economy: "How Foreign Governments are Buying America"
See also:
How to prevent the next Wall Street crisis
Joseph E. Stiglitz
9:19 a.m. EDT, Wed September 17, 2008
http://www.cnn.com/2008/POLITICS/09/17/stiglitz.crisis/index.html
Thursday, September 18, 2008 | 12:30 AM | Permalink
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Comments
A rather damning indictment for the entire financial industry. Deliberately and purposefully seeking out a greater fool to sell too. If those fools have deep pockets, certainly hope they don't see this video as they may become a tad bit less of a fool next time we come calling. Considering we got ourselves completely dependent now on foreign fools for financing, seems there are plenty of fools here and overseas to go around.
Posted by: Stuart | Sep 18, 2008 12:46:42 AM
"This is all a charade..." he got that right.
Can anyone even believe the havoc, rack and ruin brought on by the republican administration over the last 8 years? I never thot that presidents even mattered! I thot the Big Guys ran the country. Who did they sell out to and why? Or was it hubris?
Disclosure: I'm am a registered republican.
Posted by: karen | Sep 18, 2008 1:07:59 AM
Is our destiny to become a banana republic ? But before that would happen, one would see secession movements. We would unwind as fast as the Soviet Union did and faster than the delevering in the financial markets.
Posted by: Tom | Sep 18, 2008 1:16:22 AM
Hey Barry,
At least these reckless Mr. Toads(think Wind in the Willows) are creating an economic 'teachable moment' for the nation.
Be sure and take every possible opportunity folks while people's ears are wide open
Posted by: DavidB | Sep 18, 2008 1:28:23 AM
It's only 3 videos out of 11. The whole thing is pretty interesting.
http://www.bigthink.com/user/joseph-stiglitz/1
Posted by: Fifi | Sep 18, 2008 1:29:11 AM
I'd offer the metaphor of water pollution: "we all live downstream."
Posted by: Douglas Watts | Sep 18, 2008 1:31:14 AM
Should we hold executives accountable?
Of course we should. One thing that is becoming overtly clear throughout this entire debacle is that the leadership of these banks is utterly incompetent.
We're talking about a handful of the highest paid executives who not only presided over money losing corporations (which alone should be grounds for termination without a parachute), but these halfwits presided over the rapid, unglamorous *deaths* of their corporations and had no knowledge that they were doing so until it was far too late.
These guys are assclowns.
Not only can they not run their companies, they can't even talk to the media without sabotaging themselves. Which raises the question: What exactly are they good at?
Take Morgan Stanley's CEO, John J. Mack's disastrous quote which appeared in the NY Times: http://www.nytimes.com/2008/09/18/business/18wall.html?_r=1&adxnnl=1&o
He came out and said "We're not going to make it".
Huh? What? Hello? Are there any adults at home?
Are we to understand that the CEO of an endangered bank was just quoted in the NY Times saying that they're "not going to make it"?
Holy Mother of God.
Why not just print up invitations, and send them to the shorts? You may have been in trouble yesterday bro, but now you're well and truly f*cked. Here's a little prediciton Johnny -- Morgan Stanley isn't going to survive the week now because you're completely incompetent.
Yeah... executives should be held responsible. And Johnny Mack should never, ever be allowed to run anything bigger than a candy store ever again.
Posted by: Popo | Sep 18, 2008 1:32:24 AM
Stiglitz, like Roubini, has tried to do us, all, a favor by giving us a heads-up over the years.
It's too bad that these clips weren't longer, it seemed that there was much that he was leaving out/skimming over for the sake of brevity.
If he's willing to be discursive, they should invite him back for a lengthier sit-down.
karen,
to your Q's, do you have any semblance of answers?
Posted by: Mark E Hoffer | Sep 18, 2008 1:34:18 AM
feef,
thanks for the link~
Posted by: Mark E Hoffer | Sep 18, 2008 1:37:37 AM
No one mentioned the stellar performance of the S+P guy on CNBC yesterday ...he came off at best incoherent...and then when he mentioned "market sentiment" as one of the criteria for his triple AAA ratings ..I was sure he was confused and must have thought he was at his daytrading class ...there is political and societal blame up and down both aisles ..the country has been sold out ..and that is a fact..
Posted by: brasil | Sep 18, 2008 1:49:06 AM
ps ...and I am of the belief.. just because the bartender kept serving till dawn ..and the bouncers were not paying attention...they are not responsible for the riot that ensued..or the dead bodies..this is Wall Street and the rating agencies baby...in the responsibility dept..80% or more ..could never ever have gotten this big with out the rating agencies incompetance greed and self serving fraud...
Posted by: brasil | Sep 18, 2008 1:56:36 AM
to karen's Q & brasil's statement:
http://www.bragg.army.mil/psyop/download/4%20POG%20Cap%20Brief.ppt
just a simple primer to chew on
Posted by: Mark E Hoffer | Sep 18, 2008 2:16:59 AM
His analysis of what happened is pretty good, with some decent analogies.
But there is one striking problem with his analysis - he has a complete blind-spot to past regulations, and he continues to propose government regulations as the solution.
You could fill an encyclopedia with regulations that caused this credit bubble.
* The Community Reinvestment Act, the Home Mortgage Disclosure Act, Mortgage Forgiveness Debt Relief Act of 2007, "Housing and Economic Recovery Act of 2008".
* The government creation of the GSEs, Fannie and Freddie, whose charters were not to be profitable but to provide credit for home owners.
* The existence of an unaccountable Fed which facilitated the credit bubble for decades through fractional reserve banking.
* A reckless government which has sent the deficit into the stratosphere, $9 trillion and counting, with unfunded future liabilities of over $70 trillion.
Stiglitz proved himself to be a socialist fool by not mentioning these.
Posted by: Jono | Sep 18, 2008 3:17:59 AM
Well,
We are all in deep ____(Fill in the blank). The deflation pressure upon the market is huge. All the pre-cursers of a crash are showing. If we try to inflate out of this it looks like it won't work. No more cloak and dagger. It is pistols and knives.
Econ 101
Posted by: Economics 101 | Sep 18, 2008 3:22:34 AM
One of the best, most-informative books I've ever read regarding the history and perils of a laissez-faire market economy was Karl Polanyi's "The Great Transformation". Unfortunately, the book was published in 1944, the same year as Hayek's "Road to Serfdom" so, Polanyi's rational suggestion that societies shouldn't be subordinated to the whims of the market was drowned out and not heard.
Anyway, Stiglitz wrote a great introduction to the latest edition. Check it out.
http://en.wikipedia.org/wiki/The_Great_Transformation
Posted by: James S | Sep 18, 2008 3:40:20 AM
Jono,
REALLY?
How about selective enforcement and selective non-enforcement. There's an old saying: Locks are to keep honest people honest. The crooks always find a way in. The crooks found their way into the government they despised and winked at their chronies while the nation was raped.
This isn't about regulations; this is about criminal behavior. Maybe you like the wild west, king of the shitpile, soprano free-for-all of the dog-eat-dog world. Maybe you don't like police forces but anyone who thinks they don't need police must not need to sleep. We, the middle class are fed up with the lying, overeducated, elitist pigs who think they're so-o-o-o special when they are really nothing but cheap crooks spinning fantasies about how we "all can get rich" while they rob us blind. Sell it to someone else, pal.
Posted by: AGG | Sep 18, 2008 3:42:34 AM
"Stiglitz proved himself to be a socialist fool by not mentioning these."
You have it. Stiglitz, former adviser to the Clinton Administration, left out a lot of important details. The government pressured the banks to lend to obvious deadbeats so minorities could have the "American Dream" of homeownership. This pressure caused lax underwriting standards which is the root cause of the subprime crisis. If the old standards had been in force, the toxic mortgage junk would never have been created in the first place and therefore never have showed up in CDOs or passed off into SPVs which are off balance sheet. Stiglitz and his Democrat cronies are as much to blame as Bush and his Republican cronies. The whole system is rotten and changing parties won't help.
Posted by: A. Zarkov | Sep 18, 2008 4:49:39 AM
Geez Jono, at least two of the 'regulations' you point to were passed AFTER the crisis began. (Late 2006) The credit crunch didn't hit until August 2007.
Um, didn't you listen to the videos? Dr. Stiglitz quite clearly points out that the primary cause of our problems was 'securitization' (for profit.)
Where the rating agencies and the IB's sold this worthless 'junk' to investors around the world. (You'd think they'd have been smart enough to keep it off their own books, but anything for a buck.)
So, when the greedy basically ignore 'safe' underwriting standards...whose fault is it? The borrower or the bank?
You've gotta stop listening to Limbaugh.
Posted by: Gegner | Sep 18, 2008 4:58:49 AM
Stiglitz didn't quite come out and say it, but the message was definitely there : the US has pursued globalization for its own benefit. When its the turn of other nations, the US actively blocks globalization.
Well now the other nations don't trust the US. I wonder where you will get the capital you need just to stay afloat ?
Aug and Sep last year saw two successive negative TIC reports. July this year is a big negative. Trying for three in a row ?
Previous posters here have indulged in political pot shots. When will you realise that the rest of world is watching and waiting for some sign that US public and private institutions are being rehabilitated into honourable and trustworthy entities ?
What will you do today to make a difference ?
When will there be bipartisan support for the investigation and conviction (if necessary) of the fraudsters ? (Hint : it can't be yet another Congressional investigation) When ? Over to you.
Posted by: Keith | Sep 18, 2008 6:16:41 AM
Zarkov: "The government pressured the banks to lend to obvious deadbeats so minorities could have the "American Dream" of homeownership."
This is hardly an argument, but it does reveal an interesting undercurrent of xenophobia.
To your point, though, how could the government "pressure" the banks? This isn't foreign relations where we have trade negotiations and complex treaty networks. The pressure you suggest that the government puts on banks has to be profit motivation. In this case, the profits were artificial, and the put guarantee that the government offered as an incentive is being exercised... one at a time (Bear, FNM, FRE, AIG, more to come?).
The bit about "minorities" is more about you than the financial crisis.
Posted by: gb | Sep 18, 2008 7:56:19 AM
More alchemy this morning with the liquidity injections around the world. If you sit quietly, you can hear the printing presses...
The aim at the moment will be to unfreeze the money markets and try to bring down LIBOR, then stumble through the end of September debt rollovers. If they have to they will use a 50bp rate cut, as El-Erian suggested this morning.
Hmm... printing, rate cut.. got gold?
Posted by: leftback | Sep 18, 2008 8:52:06 AM
A. Zarkov | Sep 18, 2008 4:49:39 AM
Jono | Sep 18, 2008 3:17:59 AM
I'd say Stiglitz covered the bases fairly well although he left a couple of things out like the run up in the budget deficit and the current account deficit. He's not a socialist fool and remarks like this only betray the prejudices of those that make them. One of their favorite hobby horses is F/F which although everyone here wants to deny it are an essential part of supporting a 7.5 million a year housing market through good times and bad. That's why they exist, that's why they had to save them and that's why they are never going away whatever Larry Kudlow tells you. And btw the govt didn't force banks to make loans to deadbeats. Angelo and co didn't need any encouragement.
Posted by: John(2) | Sep 18, 2008 8:56:20 AM
OT:
Gross' sidekick, from PIM(P)CO was just on "Cawk Box" w/ Jo Ke(rnen)--all smiles, hardly containing his glee, that the FedRes was injecting liquidity, and on, and on...now Stevo Liesman, is there a better name for a commentator on Keynesian Economics?, is trying to explain the virtue of WWide CB U$D swaps/lending--of course, it's All Necessary, and all....
I hope one of these we'll pull out book, like Human Action, by Ludwig von Mises, or a work by Hayek--maybe even surf over to mises.org, before we're all serfs, yet again..
Posted by: Mark E Hoffer | Sep 18, 2008 9:11:39 AM
Is anyone going to comment on how culpable Standards & Poors and Moody's is in this process? Those companies gave investment grade ratings to securities that few people on the street could understand. Their ratings USED to be the checks and balances of the (not-so-very) free market.
Posted by: Tyler | Sep 18, 2008 9:14:11 AM
Tyler,
they, like the Fed, misused their license to print money..Stiglitz mentions their role, briefly..others have pointed to them.
to me, Egan Jones or, even, gimmecredit.com, should be the SRO on the paper, as first minister of fitness, on the paper you buy..
But, back to BR's admonition: "Know what you Own."
Posted by: Mark E Hoffer | Sep 18, 2008 9:36:22 AM
