The Financial Mess - Great Article

[Dottore]

These two op/ed pieces are very good.

From today's NYT. By Michael Lewis.

Worth printing out and reading.


http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?em


http://www.nytimes.com/2009/01/04/opinion/04lewiseinhornb.html?em

[911Rob]

Thanks, will do.

[Seahawk]

Thanks for posting...I am a big fan of Michael Lewis.

This point resonates:

Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices. Stock prices go up and down: let them. An absurd number of the official crises have been negotiated and resolved over weekends so that they may be presented as a fait accompli “before the Asian markets open.” The hasty crisis-to-crisis policy decision-making lacks coherence for the obvious reason that it is more or less driven by a desire to please the stock market. The Treasury, the Federal Reserve and the S.E.C. all seem to view propping up stock prices as a critical part of their mission — indeed, the Federal Reserve sometimes seems more concerned than the average Wall Street trader with the market’s day-to-day movements. If the policies are sound, the stock market will eventually learn to take care of itself.

[Dottore]

Originally Posted by Seahawk

Thanks for posting...I am a big fan of Michael Lewis.

This point resonates:

Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices. Stock prices go up and down: let them. An absurd number of the official crises have been negotiated and resolved over weekends so that they may be presented as a fait accompli “before the Asian markets open.” The hasty crisis-to-crisis policy decision-making lacks coherence for the obvious reason that it is more or less driven by a desire to please the stock market. The Treasury, the Federal Reserve and the S.E.C. all seem to view propping up stock prices as a critical part of their mission — indeed, the Federal Reserve sometimes seems more concerned than the average Wall Street trader with the market’s day-to-day movements. If the policies are sound, the stock market will eventually learn to take care of itself.

I'm also a big fan of Lewis. He has a great gift for cutting through BS and describing complex issues concisely.

I also like the bit you cited.

[jyl]

I have not read the articles, and I will. But there is a feedback loop between the markets and the economy, and it is a stronger loop when financial institutions are so over-extended and over-leveraged. If stocks and bonds plunge hard enough, that in itself will drive financial institutions over the edge, and when financial institutions collapse that will cut off credit that non-financial companies and consumers need to operate. The financial and real economies can spiral downward.

The Fed and Treasury were (still are) trying to slow that feedback loop and allow the necessary de-leveraging to happen in a more controlled, less panicked way. It is not a coincidence that the real economy really took a dive in October after Lehman was allowed to collapse.

I think the history books for 2008 will record that in that year the US govt was faced with an accelerating global financial crisis, which unchecked would have ended in a broad collapse of most of the world's major financial institutions and a rapid repeat of the 1929 crash and subsequent Great Depression on a worldwide scale. The situation was beyond the personal experience of any living regulator, investor, or economist. However, the new Fed chairman was one of the world's experts on the Great Depression and the new Treasury Secretary was willing to take big bets. The US govt as well as many other govts took rapid, radical, and costly actions to stabilize asset values and support financial institutions. These actions included many expensive mistakes, both in what was done and what was not done. But by the end of 2008, the global financial system had been stabilized and the world was in a severe recession but not a depression.

Hopefully the history books for 2009 will record that the severe recession ran its course and the world, particularly the US, emerged to at least modest recovery in 2010. We'll see. All we know right now is that the world's govts have managed to force a pause in the negative spiral.

[nut11]

Should be required reading for every congressional member. Solid common sense recommendations. Talk about blatant revolving door abuses...

87 blk coupe

[Dottore]

I don't often do this, but this piece deserves a bump.

[304065]

zzzzz.

Lewis still atoning.

He's so far outside what is actually happening, still beating the TARP I drum. That is a thousand years ago as far as the market is concerned, why do you think they went to direct equity infusions? And why would Lewis recommend that the taxpayer come in at the bottom of the capital structure? Oh wait he's not an investment banker. . .

[nut11]

Seems like someone's feelings are hurt by Mr. Lewis... Don't imagine you are in the industry.

87 blk coupe