The Innovator, the Imitator, the Idiot
Today's credit crisis quote comes to us via Theodore Forstmann of of Forstmann Little & Company:
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"Buffett once told me there are three 'I's in every cycle. The 'innovator,' that's the first 'I.' After the innovator comes the 'imitator.' And after the imitator in the cycle comes the idiot."
-Theodore Forstmann, quoting Warren Buffett
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Source:
The Credit Crisis Is Going to Get Worse
BRIAN M. CARNEY
INTERVIEW JULY 5, 2008
http://online.wsj.com/article/SB121521029377229405.html
Tuesday, September 23, 2008 | 02:30 PM | Permalink
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Leftback:
Are you trading in and out of index puts ? Or do you just buy/hold ? How far out of the money ? ( If you don't mind, thanks)
Dave b
Posted by: Daveb | Sep 23, 2008 2:37:44 PM
Republican Marcy Kaptur is too honest,
http://www.youtube.com/watch?v=S27yitK32ds
I think she needs your support to stay in office...
Posted by: jack | Sep 23, 2008 2:38:16 PM
In this administration, there are lots of idiots.
Posted by: JL | Sep 23, 2008 2:42:58 PM
Ah, Teddy Forstmann of Barbarians at the Gate fame. Gone are the days when Wall Street was Wall Street and people took responsibility for their actions.
Barry - I must raise this. I watched parts of the Senate hearing and all I heard was the bailout is needed to prevent a recession. This is utter BS. Why are we afraid of recessions? Recessions are part of the natural business cycle. I see this $700 billion bailout putting this country into an economic hole worse than the one the bailout is allegedly intended to prevent.
Posted by: CNBC Sucks | Sep 23, 2008 2:47:46 PM
Buffett is truly the Oracle. He also predicted this entire financial mess:
http://willworkforjustice.blogspot.com/2008/09/ocm-other-countries-money.html
Too bad no one listened.
Posted by: Matthew Rafat | Sep 23, 2008 2:55:02 PM
@CNBC Sucks: "Why are we afraid of recessions?" Great point.
Answer #1: It's an election year and the GOP is desperate to retain control of the WH, since they know that Congress is lost.
Answer #2: We're a country of children and can't bear dealing with bad things, in particular the fact that maybe not all of us be able to buy the newest I-Phone or flat screen TV.
Posted by: Jeff M. | Sep 23, 2008 2:56:09 PM
There is no 'I" in team guys.
Posted by: Jonathan | Sep 23, 2008 2:59:05 PM
Folks who complain about "The bailout" but loved Bush’s tax cuts have a problem. The tax cuts raised our debt trillions of dollars. This hyper-Keynsian pump-priming left us with anemic GDP numbers (whether you believe the GDP numbers doesn’t matter for this argument.)
“The rich” benefited from those tax cuts, and what do we have to show for it? Where was all the extra investment… and now you’re worried about a measly extra trillion to stabilize the banks? Clueless.
Posted by: VennData | Sep 23, 2008 3:00:03 PM
Reacting to Paulson’s Line | 12:30 p.m.
Inside the hearing room, snide laughter greeted Mr. Paulson’s line, “This is all about the American taxpayer.”
Posted by: Comrade Smith | Sep 23, 2008 3:00:40 PM
Let's bail out the idiots, why don't we?
Posted by: DL | Sep 23, 2008 3:00:54 PM
We're already IN a recession. This rhetoric demonstrates one of two things: how out of touch he is or how stupid he thinks we are.
Posted by: karen | Sep 23, 2008 3:05:13 PM
Apologies that this is off-topic, but answering a question:
@ dave b: I'm no expert, but since you asked, I trade mainly sector and index ETFs. I am not trading puts but I hold a small amount of far out of the money puts, just in case of Armageddon™. I think of it as a lottery ticket.
Nobody knows what's going to happen, not even Barry, or even Steve Barry, and certainly not Dennis Kneale, but if I was forced to choose between different scenarios I would guess that due to a variety of interventions we will bump down the stairs in a slow Japanese-style descent, with alternating bouts of deflation and reflation, rather than having a 1987-style event. I know that BR and others think that we could see SPX 800-900 as a possibility before this is over.
The puts are in case I am wrong. Again this is all complete conjecture and guesswork but I am thinking more in terms of 2009 than tomorrow.
Your thoughts?
Posted by: leftback | Sep 23, 2008 3:08:20 PM
Privatize profits, socialize losses.
Speaking of idiots...nevermind. My rant would take too long, and it just ain't worth it anymore.
Posted by: worth | Sep 23, 2008 3:08:24 PM
Paulson says
"You have to remember, these are not all weak or troubled firms that own mortgage-backed securities. A lot of them are very successful banks and investment houses that have done very well, have been responsible, are holding performing assets that have value. They were not necessarily irresponsible players, and so you have to be careful about how you deal with them." So why help them? If they get to keep profits for the smart things they did, shouldn't they take the losses for the dumb things? Or is this to just pump up profits and keep the market inflated?
Posted by: Paul | Sep 23, 2008 3:09:11 PM
This snippet from an article in th e Asia Times gives the lie to the "idiot" theory. They aren't idiots; they're smart crooks.
Contrary to what the Bush administration says, it is not the case that banks' troubled mortgage assets cannot be sold in the private market. Those are the so-called "Level III" assets that banks say they cannot value. But that is only a dodge that the banks use to postpone taking losses. There is a ready bid for these assets from hedge funds, in multi-hundred-billion-dollar size. The trouble is that the market bid is 25% to 30% below the prices that banks carry these assets on their books. Traders at Wall Street boutiques who specialize in distressed securities say that US regional banks regularly make discreet offers to sell private mortgage-backed securities (not guaranteed by a federal agency) at prices, for example, of 75 to 80 cents on the dollar. Hedge funds bid, for example, 55 to 60 cents in return.
Calling the financials idiots may make you feel better but you are a fool if you let them get away with this 700 billion dollar heist.
Posted by: AGG | Sep 23, 2008 3:09:14 PM
Paulson: Give me 700 billion.
Senate: How will this work? Can you give us specifics of any kind?
Paulson: Trust me.
That's it. That's the plan. Paulson won't back down and Bernanke is deferring to Hank, who is used to getting his way.
Congress will go along but if they don't extract at least a few ounces of flesh then they've missed the only chance they have to call Paulson's bluff.
And we'll all get it in the end. Double entendre intended.
Posted by: The Original DC | Sep 23, 2008 3:13:01 PM
Cramer plays the role of both the imitator and the idiot. When he sees what's "working", he jumps on board. As the trade implodes, he either praises himself for having sold, blames others for his losses or ignores the situation at his convenience.
Posted by: Eric | Sep 23, 2008 3:16:41 PM
http://www.FedUpUsa.org
is finally getting some traction.
Karl Denninger is going to be on NBC Nightly News with Brian Williams tonight...
If he can refrain from using the term assrape the anti-bailout (as currently written) forces might get some more traction!
-cash for trash? JUST SAY NO!
Posted by: brion | Sep 23, 2008 3:19:13 PM
From Seeking Alpha: In The Midst of an Extreme Black Swan
Posted by: dwkunkel | Sep 23, 2008 3:21:57 PM
This entire episode is just one more fear inducing power grab, a swindle by any other name. God knows we can't have a contraction, that might squeeze a rich person or two. And it always leads to those wasteful social programs. Ya give money to those dirty peons and they start making all those middle class noises.
Too bad all the hedge fund runs will thin out the new rich instead of the old money, we will have to wait for the Obama Brigades to shake down those leeches.
Posted by: tulsatime | Sep 23, 2008 3:24:53 PM
And here's some more:
On rare occasions, the bank seller and the hedge fund buyer will meet in the middle, although very few transactions occur. Although many banks are desperate to sell, they cannot accept the offered price without taking losses over the threshold of mortality, for write-downs of this magnitude would destroy their shareholders' capital. Investment banks typically hold about $30 of securities for every $1 of capital, so a 3% write-down would leave them insolvent. Lehman Brothers classified 14% of its assets as Level III at the end of the first quarter; Goldman Sachs was at 13%. Why is Lehman bankrupt, and Goldman Sachs still in business? If Secretary Paulson, the former head of Goldman Sachs, had not proposed a general bailout last week, we might already have had the answer to that question.
For the Paulson bailout to be helpful to the banks, it must buy their securities at much higher prices than the private market is willing to pay. Otherwise it makes no sense at all, for the banks could sell at any moment to the hedge funds. But that is a subsidy to private banks, administered at the whim of the Treasury Secretary, without oversight and without the possibility of legal recourse.
Some Democrats in Congress are asking for some form of oversight, but it is hard to imagine how they might use it, for a Treasury with $800 billion to spend would constitute the whole market bid for low-quality mortgage assets, and would set whatever prices it wished. Professionals with years of experience set prices on these securities with great uncertainty. How would an overseer determine if it had set the correct price? And if the Treasury decided to bail out one bank (say, Goldman Sachs) rather than another, how would the overseer judge whether that decision was judicious, politically motivated, venal, or arbitrary?
Opposition to the Treasury plan is disturbingly thin. Bloomberg News on June 21 quoted the Democratic chairman of the Senate Banking Committee, Christopher Dodd, saying, "I know of nobody who is arguing over the amount of money or even about that the secretary ought to have the authority to purchase these toxic instruments, these bad debts."
Why the taxpayers of America would allow their pockets to be picked in this fashion requires a different sort of explanation than one finds in economics textbooks.
Posted by: AGG | Sep 23, 2008 3:25:27 PM
Buffett is a philosopher, which is why he is a great investor, but he is also an imitator, which happens to be a strength because he imitates the best that others have to offer (i.e. Graham)...
"There are three different kinds of brains, the one understands things unassisted, the other understands things when shown by others, and the third understands neither alone nor with the explanations of others. The first kind is most excellent, the second kind also excellent, but the third useless." ~ Niccolo Machiavelli
Posted by: Kent @ The Financial Philosopher | Sep 23, 2008 3:27:05 PM
leftback @ 3:08:20 PM
“I would guess … we will bump down the stairs in a slow Japanese-style descent, with alternating bouts of deflation and reflation, rather than having a 1987-style event … we could see SPX 800-900 as a possibility before this is over”.
I agree with all of the foregoing. All the more reason to go slow on the bailouts.
Posted by: DL | Sep 23, 2008 3:29:34 PM
I guess Gramm and Greenspan were the Innovators? Is there something innovative about deregulation and handing out money to anyone with a signature with a casual disinterest regarding their ability to pay it back?
The Imitators must be the folks who got rich selling this junk.
The idiots are either Paulson, Bush, Bernanke OR the rest of us if we bail them out.
Posted by: Pat | Sep 23, 2008 3:31:38 PM
AGG,
with this: "Why the taxpayers of America would allow their pockets to be picked in this fashion requires a different sort of explanation than one finds in economics textbooks." No doubt, it's a key reason why the old course of "Political Economy" was cleaved in two.
and, also, I've been meaning to say: "Way to keep your eye on the ball."
Posted by: Mark E Hoffer | Sep 23, 2008 3:39:38 PM
