I will repeat my comment from ultrabrown here:
One day in not too distant future Goldman Sachs will rule all of us. History, Treasury Sec, neel, Ex Head of NYSE Euronext, current head of nyse euro next, John Thain, ex whitehouse chief of staff, Wachovia CEO, Clinton treasury secratary, NJ governor, Governor of Italian central Bank have all worked at Goldman.

Hmmm... it would be interesting to see an interview between Ali Velshi and Neel.

Vikram Pandit at Citibank, and now Kashkari - how come the Indians get called when the damage is done?

he even looks like paulson

he even looks like paulson

...things that make you go hhhmmm....

1 · umber desi said

I will repeat my comment from ultrabrown here:
One day in not too distant future Goldman Sachs will rule all of us. History, Treasury Sec, neel, Ex Head of NYSE Euronext, current head of nyse euro next, John Thain, ex whitehouse chief of staff, Wachovia CEO, Clinton treasury secratary, NJ governor, Governor of Italian central Bank have all worked at Goldman.

a few things anecdotes:

1. they hire talent. a friend of mine, who's a goldman alumni, madea mid-career move to GS and they hired him even though they had nothing for him to do. He got sent around to various departments looking for a project.

2. there very accessible. my brokers daughter works at goldman and says everyone has access to top management. i once cold-called the head of research and he called me back that day. not his sec. him.

3. politics and intellectual pursuits are encouraged. i think they stole this from the IT/VC world, realizing ibanks were loosing talent to this less formal, more bohemian world, they loosened up a bit.

Manju,
I agree with your points number 2 and 3. It is good to keep a watch for where the friends in high places are.

speaking of politics, i don't know if obama was planning to save the keating 5 until the end all along, but now he's just wacking mccain with it. he's broken out and now he's looking to close the deal it seems. what luck. the mccain scandal just happens to thematically // the financial crisis.

all mccain got left is bill ayers. great issue normally, but no one cares when the economy's tanking.

its official. supporting the bailout is the desi position.

Then again, often the only thing bigger than a government amplified problem is the government created solution.

Please. You libertarians can never give it up. Phil Gramm who is on your team (libertarian, atleast fiscally) created this monster with the unregulated CDS market. It is a 54.6 trillion market according to Forbes and although it is basically an insurance policy they did not want it to be a regulated security and hnce came up with this term swap. And just like naked shorts the fact that for a small premium you could buy a swap without actually holding the underlying security lead us into this disaster.

He looks like Paulson. But I know he's really desi because his name sounds like Cash and Carry

its official. supporting the bailout is the desi position.

Manju, are you going to have to defend this?

Kolmogaurav, shouldn't u be using the handle "Mandelbrot" during this times?

12 · Amrita said

Manju, are you going to have to defend this?

its certainly ugly. but times like this call for unprincipled libertine libertarians like myself. it may very well be true that we'd be better off if the market sorted this out, but i honestly don't have the balls to sit patinetly and see what happens. so welfare for the rich to save the rest of us it is. yikes.

No, not your personal thoughts and feelings, Manju--I meant saying Desis all are fer. Psychological and all.

10 · Nara said

Please. You libertarians can never give it up. Phil Gramm who is on your team (libertarian, atleast fiscally) created this monster with the unregulated CDS market. It is a 54.6 trillion market according to Forbes and although it is basically an insurance policy they did not want it to be a regulated security and hnce came up with this term swap. And just like naked shorts the fact that for a small premium you could buy a swap without actually holding the underlying security lead us into this disaster.

this is a key point it seems but its very hard to untangle. who precisely stands to gain from the short. i know goldman did but they just bought enough to cancel out their long positions (ie using cds as an insurance policy). you'd assume fannie and freddie did the same but yet we're bailing them out to the tune of 200bill. surely, they didn't use cds to go even more long on the mortgage market?

presumably there are hedge funds out there who are benefiting but i can't for the life of me figure out who. all the biggest players appear to be getting wacked, or maybe thats b/c the banks can't pay up.

i find it hard to believe there are many big money pure speculatios out there, funds making purely directional bets without any arbitrage or insurance angle, knowing the nature of institutional investing; but i'm very curious.

15 · Amrita said

No, not your personal thoughts and feelings, Manju--I meant saying Desis all are fer. Psychological and all

oh, that was just me making fun of identity politcs.

oh, that was just me making fun of identity politcs.

Laughter is the best medicine or what?

That guy is so intense looking in the top picture it felt NSFW.

I hope Neel's credibility is strong enough to weather the imminent downfall of his mentor's, who is now known as the man who burnt the Thanksgiving turkey but is still being allowed to cook for Christmas.

>>Neel comes across as a very bright, articulate technocrat who crisply enumerates where we stand, where he wants to take us, and why.

Could not find anything on the web as to what Neel's code of ethics is based on - and that's what the angry, huddled masses will be scrutinizing him for. We're really not in a Credit crunch or an economic Hurricane. We're in an Ethics crunch. There were tons of very bright, articulate technocrats in Frannie, Bear etc, but look where they took us.

>>Vikram Pandit at Citibank, and now Kashkari - how come the Indians Kashmiri Pandits get called when the damage is done?

Oh I don't know... Maybe losing their homeland makes them more stoic and helps them to process crisises like most of us cannot?

>>Phil Gramm who is on your team (libertarian, atleast fiscally) created this monster with the unregulated CDS market

Consider this episode as a jewellery heist. You could point some of the investment banks as the one who cut through the door or the one who cracked open the safe. But Govt's Frannie was in charge of the getaway car and disposing off the loot for cash in a manner that nothing could be traced back to them.

M. Nam

Forgot an important point...

>>A Desi Can Save Us

Nobody can actually save us. All this means that now Neel is an extremely important part of the Plunge Protection Team. He will play an instrumental role in ensuring that there is an orderly decline of the markets (GDP, Stock markets) to mid-1980's level (where this whole mess actually began).

I feel for those middle class folks who are retired or are close to retirement. What this means is that those folks will have to plan to work until their very last day on this ball of dirt.

M. Nam

Here is the link:

http://www.indiansformccain.com/

how come the Indians get called when the damage is done?

but i honestly don't have the balls to sit patinetly and see what happens. so welfare for the rich to save the rest of us it is.

25 · Hitin said

The guy not only has a HUGE ($700 bn) responsibility, but also will now have to fight the "brown" stereotype...

from the http://coalregionvoice.blogspot.com/2008/10/neel-kashkarido-you-know-this-man.html

---- We just might need a rocket scientist to bail us out. Being a Goldman man and Paulson man, I have my reservations who will be bailed.

Is the English translation for Kashkari, Cash and Carry?----

http://ftalphaville.ft.com/blog/2008/10/06/16682/kashkari-whats-in-a-name-an-age-an-affiliation/?source=rss

interesting to read comments by everyone on GS. They do hire brains, I'll give you that. Then these brains get to work on making sure they create products, not to fit the clients needs, but anything that can make GS money while giving no consideration to the counterparty. I will never buy anything GS is selling unless I approach them with it first. Even then, I am very careful to leave no room for error or "misinterpretation" by GS. I don't trust anyone in a position of power coming from GS- just how they are wired (and how I am wired after years on Wall Street)- desi or no desi

presumably there are hedge funds out there who are benefiting but i can't for the life of me figure out who. all the biggest players appear to be getting wacked, or maybe thats b/c the banks can't pay up.

I think Dinakar Singh and Citadel (to a lesser extent) took a beating but there are plenty of smaller hedge funds who made a killing. You cannot blame them . They played by the "rules". It is the leverage ratios and the other lack of regulation that needs to be blamed.

The G in the GSEs bothers the libertarians. Initially they blamed the CRA and the community organizers who promoted it so that they can tie this to Obama.That did not work. WSJ editorial page is still trying to create a "private competitor" to Fannie and Freddie. I remember WSJ editorials telling us that with the new CDS market, Fannie and Freddie were redundant.

Consider this episode as a jewellery heist. You could point some of the investment banks as the one who cut through the door or the one who cracked open the safe. But Govt's Frannie was in charge of the getaway car and disposing off the loot for cash in a manner that nothing could be traced back to them.

Question for the brain trust: raise your hands - who's considering buying stocks right now? Is there an optimistic soul amongst you?

I feel for those middle class folks who are retired or are close to retirement. What this means is that those folks will have to plan to work until their very last day on this ball of dirt.

bess: >>who's considering buying stocks right now?

I would certainly consider buying stocks of companies that make pitchforks. Companies that make stout wooden sticks that can be used as torches are certainly worth looking into, as are enterprises that make good, thick nylon ropes that can support a man's weight.

>>Is there an optimistic soul amongst you?

Huh? Optimism was the problem! Optimism that house prices would continue to go up, Optimism that credit would be present forever, Optimism that interest rates would stay low, Optimism that stocks would go up forever, Optimism that gas prices would stay 99c/gallon...

What the world needs is a strong decade-long dose of pessimism and a lack of confidence.

Communal living? That will be only for those who are lucky enough to be not homeless.

M. Nam

30 · MoorNam said

I would certainly consider buying stocks of companies that make pitchforks. Companies that make stout wooden sticks that can be used as torches are certainly worth looking into, as are enterprises that make good, thick nylon ropes that can support a man's weight.

wow such enthusiasm for the good ol' boyz dayz.

What the world needs is a strong decade-long dose of pessimism and a lack of confidence.

chinese are optimistic but they have high savings rates. don't paint with such a broad brush; america needs to live within it means. it did until the 1990s, and the past wasn't an era of pessimism. mass psychology tends to overshoot; there are opportunities in taking advantage of this irrational tendency. gdp per person vs. year.

btw, is it just me, for does that headshot have a demonic quality to it?

What the world needs is a strong decade-long dose of pessimism and a lack of confidence.

there are opportunities in taking advantage of this irrational tendency

Eh. The free market was never free.

But anyone who still feels that way, well I've got a bridge to sell ya...

I would certainly consider buying stocks of companies that make pitchforks. Companies that make stout wooden sticks that can be used as torches are certainly worth looking into, as are enterprises that make good, thick nylon ropes that can support a man's weight.

What the world needs is a strong decade-long dose of pessimism and a lack of confidence.

btw, is it just me, for does that headshot have a demonic quality to it

burt?

Kashkari is every bit the crook Paulson is and should not be celebrated here.

burt?

37 · razib said

burt?

Lloyd Blankfein kinda looks like Earnie.

Oh I don't know... Maybe losing their homeland makes them more stoic and helps them to process crisises like most of us cannot?

Dalai Lama for Treasury Secretary in an Obama administration?

Yes! The Buddhist path to abundance. No optimism needed just develop generosity, cultivate contentment, be honest, and be mindful.

>>Dalai Lama for Treasury Secretary in an Obama administration?

Isn't the Treasury Secretary required if there is, you know, a Treasury to run?

Dalai Lama for the Head of Department of Depression, Panic Attacks and Sleepless nights!

M. Nam

Can you please read the articles you cite (at least the reputable ones)?

But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.

For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy.

Since Fannie Mae wasn't an agency of or owned by the U.S. government, this leaves your argument that this economic situation can be reduced to "governmnet" based on pressure from Congress to help low income and minority homewoners. This, as far asI can tell, you're saying, is the root cause of a simultaneous recession, a popping real estate bubble, and a credit crunch based on poor risk analysis of assets and massive margin buying of risky assets, much of which is debt being resold and not clearly marked as bad.

Not exactly a compelling, comprehensive argument, since you ignore two of the three factors that are mentioned in the article (notably, "competition" and poor but perhaps inevitable choices by management) and the numerous other issues not mentioned in the article that have nothing to do with Fannie Mae and little to do with mortgages at all (like the triumph of market fundakmentalism and the policy changes that wrought). On the other hand, it does have the merits of implicitly being both racist and classist at once, a pretty offensive thing to trot out at a time like this. But perhaps not surprising given that that's how pro-rich ideologies have to be sold in electoral democracies (see Atul Kohli) ;)

I'm left at a loss from your explanation at how how a global economy built on mass consumption in wealthy countries functions without rising wages and with increasing inequality and financialization of capital in the United States? In my universe, it's credit expansion (over decades and at every level) and holding prices low to make up for stagnating or falling wages (for nearly 40 years!). Combined with political influence, it produces deregulation of the financial markets, predatory lending practices, movement of manufacturing to China, Bangladesh, etc. But this regime eventually has to come to an end because it becomes more and more disconnected from the productive economy (i.e. it's a superbubble) precisely because its so powerful that it can change the rules on which it was supposed to be operating.

Probably not wholly explanatory and there are probably mistakes since I'm not trained in this but it's at least a starting point to finding a big-picture answer BECAUSE IT TRIES.

14 · Manju said

times like this call for unprincipled libertine libertarians like myself. it may very well be true that we'd be better off if the market sorted this out, but i honestly don't have the balls to sit patinetly and see what happens. so welfare for the rich to save the rest of us it is.

Heh. Times like this.

44 · Dr Amonymous said

I'm left at a loss from your explanation at how how a global economy built on mass consumption in wealthy countries functions without rising wages and with increasing inequality and financialization of capital in the United States? In my universe, it's credit expansion (over decades and at every level) and holding prices low to make up for stagnating or falling wages (for nearly 40 years!). Combined with political influence, it produces deregulation of the financial markets, predatory lending practices, movement of manufacturing to China, Bangladesh, etc. But this regime eventually has to come to an end because it becomes more and more disconnected from the productive economy (i.e. it's a superbubble) precisely because its so powerful that it can change the rules on which it was supposed to be operating.

Take yer fancy book learnin' somewhere else, commie elitist!

6 · Manju said

they hired him even though they had nothing for him to do. He got sent around to various departments looking for a project.

Good thing big government doesn't have a monopoly on bureaucratic waste. If that guy was working in an Indian post office you'd be complaining about how public sector corruption is holding the country back.

32 · razib said

gdp per person vs. year.

That proves nothing.

Three Reasons to Scrap GDP

Here are three reasons why we should scrap Gross Domestic Product as the key headline metric for analyzing the health of an economy:

1. Life is more than what happens at the office. Myopically focusing on GDP headline numbers skews our sense of what it means to have a healthy economy, and when we use GDP figures to assess the quality of life and strength of our society, we are minimizing or ignoring other extremely important variables. Domestic labor, volunteer work, and other forms of unpaid labor are not tracked by GDP, yet they are extremely important aspects of any economy. And the well-being of a country cannot be inferred solely from the measurements of its consumption and production: life expectancy, infant and maternal mortality, education, literacy, and public health are just some of the crucial variables that are ignored by the GDP formula.
2. A strong economy is a sustainable one. A high GDP does not necessarily indicate a sound economy, since GDP does not measure the long-term sustainability of visible growth. A country may be in the midst of an asset bubble (think housing, tech stocks), may be over-exploiting its natural resources (oil, mining, logging…), or may have a very low savings rate and/or misdirected investments; and thus will show an artificially high GDP number. What’s the point of measuring growth if we can’t tell whether that growth is sustainable over the long or even medium term?
3. Oil spills, prison cells, and dead smokers are not positives for our economy. But then why are those things counted as positive contributors to growth? Robert F. Kennedy said it better than we ever could: “The gross national product includes air pollution and advertising for cigarettes and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the people who break them. GNP (a slightly different but related measure) includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm, and missiles and nuclear warheads… it does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials. It measures everything, in short, except that which makes life worthwhile.”

This just in.

44 · Dr Amonymous said

Since Fannie Mae wasn't an agency of or owned by the U.S. government, this leaves your argument that this economic situation can be reduced to "governmnet" based on pressure from Congress to help low income and minority homewoners.

i don't think he "reduced" it to government, but rather he said governemt "amplified" the situation b/c of their long held implicit backing of F&F. F&F achieved a size (having a hand--either thru owning or thru their insurance programs--in 1/2 of all US mortgages, meaning they have like 6trillion on the line!!) that would've likely been impossible without their various government backing, subsidies, and privileges. F&F bonds traded like they were govt guaranteed so underwriters desperately wanted their backing.

would subprime mortgages, generally considered the trigger to this mess, exist without F&F? sure. But would the problem have achieved the scalability it did w/o them? private companies surely would've tried but its doubtful. we probably would've seen something like the tech bubble in that case, as vinod argues.

but the problem goes beyond subprime as the housing bubble affects all mortgages (and subsequently all credit). the bubble rocked the loan to value ratios of F&F good mortgages, and their insurance of them ended up to be more leveraged than the most highly leveraged hedge funds (i think this is were the accounting fraud comes into play, but i'm not sure). this is what led the govt to worry about them becoming insolvent.

govt intervention via f and f clearly distorted the market. certainly purely private companies of that size would've been considered dangerous, so ones that are government sponsored are even more so. this was crony capitalism, a sort of American license raj. i don't know what % of the blame they should take, but given that we're bailing them out to the tune of 200bill, it seems likely to be rather large.

50 · Manju said

would subprime mortgages, generally considered the trigger to this mess, exist without F&F? sure. But would the problem have achieved the scalability it did w/o them? private companies surely would've tried but its doubtful. we probably would've seen something like the tech bubble in that case, as vinod argues.

Are you all going to crawl into some kind of underground bunker and drink whiskey and gripe under your breath about government regulation and Fannie Mae for the next 30 years? It's absurd and clearly ideologically motivated to start talking about fannie mae- insultingly so actually. Is everything equivalent to everything else in these conversations? Can I just blame Lehman brothers for having an affirmative action policy and blame the whole thing on them (without even knowing if that's true or even trying to honestly figure it out?)? Or can I just make some shit up, like a secret conspiracy of goldfish and dolphins that secretly planned the speculative bubble so that global warming would never be solved and they could one day roam the earth?

Yours is the perfect analogy - vinod's entire argument is looking at the trigger (and that in a ideologically skewed, racist, and classist fashion), but not the bullet, the gun, the hand that pulls it, who got shot, or how the whole thing works in concert and why. Not much of a way to solve a murder mystery.

I'm gonna go watch the market crash now - enjoy your fiddles.

...i don't think he "reduced" it to government, but rather he said governemt "amplified"...

So F&F somehow engineered the asset bubble using their GSE status? They were just playing the game they were thrown into. Play it, they are accused of moral hazard, don't play they are accused of being an inefficient govt bureaucracy. Firms a fraction of their size got bailed out, I don't see how we could avoid this if they were a private player.

51 · Dr Amonymous said

It's absurd and clearly ideologically motivated to start talking about fannie mae- insultingly so actually.

you can't look at the 2 largest mortgage institutions, 2 institutions with their hand in a whopping $6trillion worth or loans, with approximately 20-30% stake in subprime, famous for giving $$ to politicians, with an accounting scandal to boot, with access to government privileges, loans, subsidies, etc and responsible for 2 of the largest single bailouts in history? i know, must not use specifics to obscure the big picture. its the big picture that matters.

Yours is the perfect analogy - vinod's entire argument is looking at the trigger (and that in a ideologically skewed, racist, and classist fashion), but not the bullet, the gun, the hand that pulls it, who got shot, or how the whole thing works in concert and why. Not much of a way to solve a murder mystery.

please. you solved the mystery before you even knew of the murder. so you don't care about debating because your mind is made up. looking at evidence that may exonerate the defendant risks allowing the one you're so sure is guilty to go out and commit another crime.

a href="http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act">Gramm,Leach, Bliley and Bill Clinton. Cauldron boil and superbubble,

52 · voiceinthehead said

Firms a fraction of their size got bailed out, I don't see how we could avoid this if they were a private player.

well, its a concentration of power argument, voice. this makes things more dangerous, more likely. certainly pro-regulation activists understand that even in regards to purely private companies, perhaps especially.

but F&F, since they were so tightly regulated and the bush admin did call for an investigation, shows the limits of regulation as well. would regulators have caught this? the ones that did (the accounting) were blocked by congress. would regulators really be wise enough to know when there's a bubble, when firms are over-leveraged, when the financial models are not accounting for a black swan event when the people with $$ in the market don't know either?

bubbles are so obvious in hindsight, but when we're in the middle of them its really just human psychology, ie "Extraordinary Popular Delusions and the Madness of Crowds"

Phil Gramm, James Leach, Bliley and Bill Clinton. Cauldron boil and superbubble, sorry y'all.

13 · razib said

Kolmogaurav, shouldn't u be using the handle "Mandelbrot" during this times?

Mandelbrot!

Rockets... Finance... both succeptible to spectacular flame-outs.

Seems like you can't have any big project these days without a suitable desi boy at the whip.

this makes things more dangerous, more likely

bubbles are so obvious in hindsight, but when we're in the middle of them its really just human psychology, ie "Extraordinary Popular Delusions and the Madness of Crowds"

...bubbles are so obvious in hindsight...

they now need to change the name to "Brownman Sachs". I wonder if Neel's mom sighed and said "at least my other son graduated from medical school"?

finally, i hope that Neel could one day use his high profile and shed light on the tragedies happening in Kashmir.

Is this what Neel crafted or will inherit ?

From IBD Editorial
And just what did this rescue package contain — in addition to money for our distressed financial system, that is?
Well, the makers of wooden arrows for children came out as big winners in the larger package, as that small industry got $2 million in tax benefits.
Meanwhile, auto racetrack owners sucked a $100 million tax break into their intake manifold and domestic wool fabric producers spun $148 million in tax relief.
As should be expected, companies developing politically correct solar and wind power were heavy favorites. They will get roughly $15 billion in tax breaks, 10 times as much as businesses dealing in fossil fuels — even though the simplest way to ease our current energy crisis is by drilling for the billions of barrels of oil we have here in the U.S. but which Congress has kept out of bounds. An additional $8 billion in relief will go to the victims of natural disasters. It's a shame that the recovery legislation was weighted down with extras, particularly that $10 million credit that is intended to help businesses defray the costs of storing the bicycles their employees pedal to work, and the nearly $500 million in tax breaks for movie companies that produce films here in the U.S

bubbles are so obvious in hindsight,

Not correct. Tons of economists did mention about the Real Estate bubble. To begin - Dean Baker & Robert Shiller come to mind.
It was Greenspan & Beranake - the ones supposed to look out for everyone - failed to recognize the bubble.

For the pro-regulators here is an argument that puts the blame partly on Big govt. regulation for the current crisis -

From IBD editorial

In 1977, President Carter and a Democrat Congress created the Community Reinvestment Act mandating that banks must meet the credit needs of everyone in the banks' community, including uncreditworthy borrowers. It was done for a good social purpose and had the greatest intentions — expanding home ownership. And, through the 1980s and into the 1990s at least, it seemed to work. However in 1995, President Bill Clinton imposed more and stronger regulations and performance tests. These coerced banks into significantly increasing their loans to low-income borrowers in economically-troubled communities, or face possible fines and expansion restrictions.
These new rules encouraged banks (is it so ?) to bundle their risky subprime loans together with prime loans and re-sell them in packages to other financial institutions, thereby freeing the original lenders from any further risk.... So what's the big lesson to be learned here by the public? That this financial crisis was the result of yet another Big Government program that had great intentions but created devastating unintended consequences that hurt millions of people

Manju

bubbles are so obvious in hindsight, but when we're in the middle of them its really just human psychology, ie "Extraordinary Popular Delusions and the Madness of Crowds"

Can't believe this nonsense. Many did not buy a house, or invest in the stock market because they believed that we were in a bubble.. This was clear for years {people ought to stop reading the garbage put out by the economist's ($5/barrel of oil) columnists and begin to read from people who have crediblity.}

There were literally dozens of columns from Krugman alone Here are some of them

Predicting a nightmare housing bubble situation right after 9/11

Krugman in 2001
Fear Itself

Here's my nightmare: America's recovery from its current slump, whenever it comes, is tentative and short-lived, because the business investment that drove our boom in the 1990's remains stagnant. Eventually the housing bubble bursts and we have another slump; then we have another weak recovery, this time driven by deficit spending, but that, too, fades out. Eventually we look around and realize that it's 2009, and the economy still hasn't fully recovered from the slowdown that began at the end of the previous decade.

At the start of the bubble in 2002
Dubya's Double Dip?

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

More and more people are using the B-word about the housing market. A recent analysis by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000
If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort.

Warning of adjustable-rate mortgages and advising people not to use them in 2004.
Questions of Interest

Just two months ago, Mr. Greenspan went out of his way to emphasize the financial benefits of adjustable-rate, as opposed to fixed-rate, mortgages. Let's hope that not too many families regarded that as useful advice.

Noticing the begining of the end. And the scale of the crisis to come
Running out of bubbles

Remember "Dow 36,000"? Robert Shiller, who argued against such rationalizations and correctly called the stock bubble in his book "Irrational Exuberance," has added an ominous analysis of the housing market to the new edition, and says the housing bubble "may be the biggest bubble in U.S. history"

That Hissing Sound

This is the way the bubble ends: not with a pop, but with a hiss....
... Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong...

we all knew how it ends, but then if we are honest is'nt it true that we all knew how it was going to end and we just wanted to take advantage of it while it lasted? Well it now has ended and main street deserves to suffer.

Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
-- H. L. Mencken

59 · voiceinthehead said

That's proof by assertion. Nothing in this crisis would change, if we replace F&F with half a dozen (or more) private companies(EPDMC). Given the size of asset bubble, without the accounting scandals and over leverage they would be bailed out a tad bit later. F&F would be nowhere in the Top five reasons behind this crisis.

well, how is this not proof by assertion? 6 private F&Fs wouldn't have an implied govt backing, so a huge chunk of bonds wouldn't trade as if they're guaranteed, would they? 6 separate F&Fs would increase the possibility that one of them would recognize an asset bubble. Their power over congress would also be dispersed and government would have less power to mandate them to take risks.

Maybe if people didn't believe price reflected all the available information...

if americans actually believed this there wouldn't be any stock picking, would there?

1.

It was obvious to AG.

It was Greenspan & Beranake - the ones supposed to look out for everyone - failed to recognize the bubble.

Hey, who's right here!?

For the pro-regulators here is an argument that puts the blame partly on Big govt. regulation for the current crisis -

Follow any economics blog to see how much this has been debunked

There are the Desis who save.
And then the Desis who cave.

http://www.cnn.com/2008/CRIME/10/06/california.murder.suicide/index.html

DizzyDesi, Suraj, and voiceinthehead:

re: Bubbles

the existence of people who see an irrational market doesn't negate the mass psychology of bubbles. the internet bubble, dutch tulip craze, 1920's stock market, etc all had prominant naysayers.

i have no doubt, however, that you 3 wise man all bought credit default swaps and are typing your comments from your 3000acre montana ranches.

@ 53 · Manju [snip

Shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.

But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans.

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.

“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”

Then Mr. Mozilo offered everyone a breath mint.

Investors were also pressuring Mr. Mudd to take greater risks.

On one occasion, a hedge fund manager telephoned a senior Fannie executive to complain that the company was not taking enough gambles in chasing profits.

“Are you stupid or blind?” the investor roared, according to someone who heard the call, but requested anonymity. “Your job is to make me money!”

Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.”

Make a f@#king argument, don't just sit there and regurgitate the koolaid they gave you at some pseudolibertarian blog and then call me names. You have to account for all three of these factors, not just "government" (whatever the f@#k that means).

Does this sound primarily like an ideology of government intrusion into the economy was leading the charge? Does using that explanation help us undersatnd why this situation occurred? Does it help us understand where the money came from to issue all this credit" does it help us understand how speculation became so widespread? Does it help us understand why highly leveraged buying became common? Does it help us undersatnd why the ratings agencies didn't do a good job? Does it help us understand why institutions that were "too big to fail" emerged, necessitating (allegedly;) bailouts? Does it even help us understand how nonbanking institutions were able to enter into the market to offer mortgages to people? Does it help us undersatnd the timing?

And then move to the general to explain how the food crisis, how the oil price rise, how the recession, and the other economic factors that are making life miserable right now and have been for several years occurred. Then you can come back to me and talk to me lilke I'm an idiot.

Make a f@#king argument, don't just sit there and regurgitate the koolaid they gave you at some pseudolibertarian blog and then call me names. You have to account for all three of these factors, not just "government" (whatever the f@#k that means).

i have accounted for factors other than government, repeatedly, and i didn't call you names. you're the one trying to stop a conversation about a certain factors.

Does this sound primarily like an ideology of government intrusion into the economy was leading the charge?

sounds like a mixed economy. crony capitalism. profit motive mixed with government power.

And then move to the general to explain how the food crisis, how the oil price rise, how the recession, and the other economic factors that are making life miserable right now and have been for several years occurred. Then you can come back to me and talk to me lilke I'm an idiot

yes, i know. you want to talk of about the big picture, the interconnected system thts surely at the root of this. anything that counters this narrative, this ideology, must be denounced as bigotry. never mind how your precious big picture has terrorized so many communities the world over.

Prior to his career in finance, Mr. Kashkari was a R&D Principal Investigator at TRW in Redondo Beach, California where he developed technology for NASA space science missions such as the James Webb Space Telescope.

Worked on NASA Projects and was an engineer in college? I think our economy is in good hands. More government institutions should be turned over to people with these kinds of resumes. ;)

Dr Amonymous: Make a f@#king argument, don't just sit there and regurgitate the koolaid they gave you at some pseudolibertarian blog

Manju: i have accounted for factors other than government, repeatedly, and i didn't call you names.

not the bullet, the gun, the hand that pulls it, who got shot, or how the whole thing works in concert and why. Not much of a way to solve a murder mystery.

please. you solved the mystery before you even knew of the murder.

Is it a bad sign that, when I heard this story on NPR today, I immediately thought of Vinod and Abhi?

73 · Camille said

Is it a bad sign that, when I heard this story on NPR today, I immediately thought of Vinod and Abhi?

No.

I imagine both Vinod and and Abhi are daydreaming about exchanging business cards with Neel Kashkari.

Who hasn't seen the man-crush dance at desi weddings before?

Yeah right. As I recall, that super sophisticated plan was: "Give me $700,000,000 in untraceable and unauditable funds or you will never see your economy again".

Was he also the source of all of Mr.Paulson's penetrating insights over the past 18 months as he repeatedly claimed that the problem was solved, overblown, non-existent or all of the above?

75 · central texas said

As I recall, that super sophisticated plan was: "Give me $700,000,000 in untraceable and unauditable funds or you will never see your economy again".

That was $700,000,000,000 they were talking about. And as Dipanjan noted in another thread, they really wanted $1,000,000,000,000.

But whether anybody named is actually a crook or not, the best sheriff is a former (and reformed) gangster. How else are you going to know all the mischief they were up to?

That said, while regulators are getting the blame, and 'farsighted' 'single-handed' economists are getting the, er, credit - it is also true that virtually all investment banks turned simple mortgage backed securities into complex unregulated securities that, in an ideal world would have been hedging devices for the sophisticated investor - but sold them to all - including school board fund managers. Regulators could have done little if people themselves were choosing unregulated securities over regulated ones. To be sure, investment banks hard-sold these derivative securities, and then, for a 'small fee', turned around and 'insured them'.

When all this is over, among other things that have to happen - these opaque derivative securities ought to be more strictly regulated.

>>these opaque derivative securities ought to be more strictly regulated.

No - because it's impossible.

Most people are not aware as to how the securities industry operates, and think of it more as a medicinal field and want an FDA like agency to oversee the financial industry. For eg: Let's say Merck's R&D department comes up with a cure for skin cancer. They have to submit a patent and conduct extensive trials and submit them to the FDA for approval. The process could take years, but since the patents hold, and skin cancer is around to stay, this methodology of regulation causes minimal damage.

It would be disastrous to apply this method of regulation to the securities/derivaties industry. Let's say, on April 1st, Pleasantville municipal department wants to issue Munis to add an extention to their elementary school by September 1st. They offer some assets, and call for tenders. Let's also say that Merrill has a Pension fund, who wants to invest a portion into Muni Bonds. At this time, they need to quickly come up with a match for both their clients needs, and use derivaties for their hedge. And they need to do this by April 10th, or Goldman will steal the client.

At this time, do you think it makes sense for them to tell an FDA like agency what they're doing and get their approval? Some of these are so complex that this Government agency would have hire talent from outside to decipher them (and those who can do this would never work for the Government for 1/10th the pay). Every time a new product comes out, the agency would have to scramble for talent. And do you expect the Government to get back to you in a week's time? The elementary schools kids will have to sit in overcrowded class rooms for a couple of years!

It's too much regulation that caused this mess, not to mention too much credit.

M. Nam

77 · MoorNam said

Most people are not aware as to how the securities industry operates, and think of it more as a medicinal field and want an FDA like agency to oversee the financial industry.

Great point Moornam.... brings to mind this very interesting, recent interview from Warren Buffett -

Mr. BUFFETT: Well, [Fannie & Freddie are] really an incredible case study in regulation because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.

QUICK: Mm-hmm.

Mr. BUFFETT: And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they went--wrote 100 page reports, and they said, 'We've looked at these people and their standards are fine and their directors are fine and everything was fine.' And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was that after it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn't have a word in there about themselves, and they're the ones that 200 people were going to work every day with just two companies to think about.

FWIW, I fully agree that *more* regulation of Freddie/Fannie was needed. But, what Buffett does a great job of pointing out is a very relevant, real world example of public choice at work.

Many of the folks decrying the fall of capitalism are fluent in the language of "market failure" but I fear that not enough are fluent in "governance failures". (or perhaps, think that all "government failures" merely stem from having Republicans in sight).

20 · 20 · MoorNam on October 6, 2008 02:02 PM · Direct link · “Quote�(?)

I hope Neel's credibility is strong enough to weather the imminent downfall of his mentor's, who is now known as the man who burnt the Thanksgiving turkey but is still being allowed to cook for Christmas.

>>Neel comes across as a very bright, articulate technocrat who crisply enumerates where we stand, where he wants to take us, and why.

Could not find anything on the web as to what Neel's code of ethics is based on - and that's what the angry, huddled masses will be scrutinizing him for. We're really not in a Credit crunch or an economic Hurricane. We're in an Ethics crunch. There were tons of very bright, articulate technocrats in Frannie, Bear etc, but look where they took us.

>>Vikram Pandit at Citibank, and now Kashkari - how come the Indians Kashmiri Pandits get called when the damage is done?

Oh I don't know... Maybe losing their homeland makes them more stoic and helps them to process crisises like most of us cannot?

>>Phil Gramm who is on your team (libertarian, atleast fiscally) created this monster with the unregulated CDS market

Consider this episode as a jewellery heist. You could point some of the investment banks as the one who cut through the door or the one who cracked open the safe. But Govt's Frannie was in charge of the getaway car and disposing off the loot for cash in a manner that nothing could be traced back to them.

M. NamMoorNam said

Kashmir

Boston_Mahesh wrote: Actually Vikram Pandit is *NOT* a Kashmiri. He's a Marathi.

yglesias:

UPDATE: As a proud Jewish-American, I can’t help but think that only a short time ago they would have put a Jewish person in charge of this operation. I think we may look back on this week as the time when Indian-Americans, widely dubbed the “new Jews� for a long time now, fully took their place in the sun.

Manju - FWIW, you can do your thang ... but one of my general rules here is to ignore folks who basically argue that you're ignorant. There are enough smart, respectful folks out here who'll constructively disagree and not insult you in the process....

Desi, please.

70 · Manju said

Make a f@#king argument, don't just sit there and regurgitate the koolaid they gave you at some pseudolibertarian blog and then call me names. You have to account for all three of these factors, not just "government" (whatever the f@#k that means).

i have accounted for factors other than government, repeatedly, and i didn't call you names. you're the one trying to stop a conversation about a certain factors.

Does this sound primarily like an ideology of government intrusion into the economy was leading the charge?

sounds like a mixed economy. crony capitalism. profit motive mixed with government power.

And then move to the general to explain how the food crisis, how the oil price rise, how the recession, and the other economic factors that are making life miserable right now and have been for several years occurred. Then you can come back to me and talk to me lilke I'm an idiot

yes, i know. you want to talk of about the big picture, the interconnected system thts surely at the root of this. anything that counters this narrative, this ideology, must be denounced as bigotry. never mind how your precious big picture has terrorized so many communities the world over.

A summary:

1. There is a hgue credit crisis on wall street, which begins, at latest, the summer of 2007 or earlier. The whole crisis is framed in terms of the "subprime mortgage market" rather than how these bad assets were traded in a poorly regulated fashion by massive enterprises which the taxpayers are now being asked to bail out. The government initially does next to nothing.
2. The crisis gets worse and worse and major banks fail. It eventually hits the point where it enters the popular imagination becaue the treasury secretary asks for $700 billion with no oversight after the administration has done virtually nothing of substance for a year to address the problem.
3. There is a huge public outcry that taps into a lot of populist rage and the ideolgoical underpinning of finance capitalism (free market fundamentalism) is seriously threatened (i would argue dead, but apparently it seems we still have a few weeks left judging from these posts and your replies to me).
4. Many people, from Nouriel Roubini to Paul Krugman to IMF economists try to figure out why this happened, look at comparative examples, comment on the necessity and/or effectiveness of schemes. Most of them find multiple factors at play and find some responsibility with deregulation and poor management of rents. Personally, I would also add that the fact that wages have stagnated for 40 years or so led to the need for credit (see above).
5. At this point, libertarians and others who hold on to the free-market fundamentalist ideology find two institutions that are government associated, and focus on how government intrusion in the market to direct loans to poor people and low income minorities which replicates the original focus on the subprime scandal in terms of blaming the victim.

However, if anyone calls attention to this trend - or even pattern - , we are "ideological" or not "Respectful." Having a temper is one thing - and I fully acknowledge that I can be less than civil. But are these really times and circumstances in which civility on a blog with this kind of conversation is what's most important? particularly with respondents like Manju who will twist the arguments, selectively reply, use pinpointed button pushing, etc. to largely make no point at all but simply draw out the conversation further and further from any analytical argument until it devolves into something equivlanet to "well do you like chocolate? Yeah i like chocolate."

I chose no, because you're going to have kids reading this stuff and they're going to be brainwahed just like you and I and everyone else who grew up in the U.S. was in the 1980s and 1990s. maybe a strategic error-- satire is usually more effective than engaging with people who are fundamentally uninterested in connecting their stories about the world to what happens in the world. So, I will transform accordingly...

Regardless of whether you agree with his policy recommendation, Neel comes across as a very bright, articulate technocrat who crisply enumerates where we stand, where he wants to take us, and why.

Technocrats? Godless killing machines. Don't trust 'em, never have. Once you enter the government, the stench oozes on to you. Like that commie Henry Paulson. Why didn't they just do what they did last time when there was a crisis - they should have had a secret meeting with executives of huge CEOs run by Dick Cheney - you know, let the market decide things.

"personally, I would also add that the fact that wages have stagnated for 40 years or so led to the need for credit"

This is the heart of the problem. Wage increases in the mid twentieth century allowed the American middle class to reach peak levels of prosperity (the FORD worker in the 50s who lived in a paid for house and sent three kids to college). The war has always been between the elites and the middle class. A middle class that steadily demanded more out of life than being wage slaves (too bad those days are gone) which directly threatened the hegemony of the elites. Well I guess it seems the elites have won (for now)

84 · glass houses said

"personally, I would also add that the fact that wages have stagnated for 40 years or so led to the need for credit"

This is the heart of the problem. Wage increases in the mid twentieth century allowed the American middle class to reach peak levels of prosperity (the FORD worker in the 50s who lived in a paid for house and sent three kids to college). The war has always been between the elites and the middle class. A middle class that steadily demanded more out of life than being wage slaves (too bad those days are gone) which directly threatened the hegemony of the elites. Well I guess it seems the elites have won (for now)

Yes, it's the latte drinking elites at the New York times and the rest of the liberal media are the ones who have won. I mean, they're trying to take away our freedom and turn us against each other with all this talk about "bailouts" and "regulation" and "credit crises." I mean, who cares if some people get more money than other people and it destroys the economy - that's what makes us American. Well, that, and giving $700 billion to rich people.

I chose no, because you're going to have kids reading this stuff and they're going to be brainwahed just like you and I and everyone else who grew up in the U.S. was in the 1980s and 1990s.

Personally I like disagreeing with Manju. He can be good-natured and witty about it and I like chocolate.

85 · bess said

I chose no, because you're going to have kids reading this stuff and they're going to be brainwahed just like you and I and everyone else who grew up in the U.S. was in the 1980s and 1990s.

Dr. Am, the kids reading SM will be alright in spite of being exposed to Manju's twisted thinking.
Are you so interested in Manju's thoughts because you find his to be the prevalent view around you? If so, I understand your passion. But I've been reading something other than the WSJ op ed page and getting my news through sources other than Fox and I find there are many who express views similar to yours.

Personally I like disagreeing with Manju. He can be good-natured and witty about it and I like chocolate

No, it's because it takes things that I think are important and turns them into idle parlor conversation. I've realized that somewhere along the way, the conservative movement in the u.s. adopted postmodernism and thinks it can say whatever it wants and "facts" don't matter. I'm sure it's fun, but when the entire financial system is melting down and globally billions of people are affected (and have been increasingly for over a decade), I would rather that someone pointed out that you can't just spin all the time and conceren troll. I just did it the wrong way here, but I'm not sorry, because I think the dialogue was constructed that way beyond my will (see my first comment and where we ended up).

I dislike vinod's thoguhts because free market fundamentalism (apparently except for the bailout ;) was seen as a plausible set of ideas for too long - and that I was surrounded with for a long time- I don't live in the U.S. anymore. He also has some rightwing pomo stuff going on too - in the use of identity politics to mask a basic and fundamental class-driven politics.

What drives me insane is the combination of the two, with the knowledge that my mom's retirement account might evaporate because of similar arguments replicate at the highest levels of power. But it's okay...I'll let suresh talk to them from now on.

i like chocolate too :)

It's too much regulation that caused this mess, not to mention too much credit

Nice try. Too much credit, yes not too much regulation.

Now your example for lack of a better word is ridiculous. Even us commie pinkos do not want evey transaction to be regulated. That is like asking FDA to approve each bottle of Tylenol. What we need is regulation at an aggregate level.

1. if you want to bet the GDP of the US on a single transaction you will not be allowed to unless you have atleast 100$ capital.
2. If you want to hedge your bet it is ok but there is no hedging involved if you do not own the underlying security. So borrow the security before you buy a CDS. btw CDS is an insurance policy and can be regulated by the state insurance commissions.
3. if you are a rating agency and you want to rate a security you better not have any underwriting interest with that company.

It is ok if your hedge fund friends make less than a billion dollars a year if in the process the country's ecomnomy is protected. Although prices have gone up recently I hear you still can eat well for this kind of money.

The following was actually posted on another blog. Who knows if there's any truth to this, but if so, it puts a different perspective on all the accolades posted here.

I actually know this person. Imagine my surprise when I saw his scary eyes staring me down online.

He and I have a mutual friend. We were at an event last year. I cannot be more specific, but it is true. A few of us sat outside that evening, to chat. My Significant Other and I joined him, his wife, and another couple. Oddly, they were at 2 tables, segregated by gender. The women talked weather. The guys talked politics.

Kashkari, a diehard ultra-conservative, immediately starts dogging Hillary Clinton. He said “I’d never vote for her because I don’t think women should be president.� Verbatim. My SO told me this.

My SO defended women’s rights, but Kashkari wouldn’t have it. He insisted women should never be leaders. Kashkari’s own SO said earlier, that although she had a career, “I basically follow Neel around wherever he goes.� Verbatim. Meaning she’d uproot her job whenever he felt like moving on. I thought that was interesting as well.

Kaskhari then said global warming doesnt’ exist. He said wind energy is stupid. And he would look up things on his Blackberry whenever my SO said something, to prove him wrong.

Because he didn’t like non-conservatives, or anyone with an open mind, or apparently even those who believe in gender equality, he was angry with my SO. He later went to our mutual friend and said my SO had talked about being abducted by aliens! Yes, Neel Kashkari - head of $700B bailout, said this, in an attempt to attack someone he disagreed with.

This is the person the GOP wants to manage your money. I assume sooner or later, he may run for office. Now THAT would be a scary day.
Comment by Friend of a Friend - October 6, 2008 at 6:18 pm

Nara,

With words like "ridiculous", "your hedge fund friends", "you still can eat well", you are begining to sound more like the doctor on this board.

>>What we need is regulation at an aggregate level.

And what I am saying is: If you remove credit, and the backing of GSE's - you won't need to regulate anything. People will self-regulate, because their own money is at stake. Once the Government took on risk, people gambled with other people's money. And once people have to pay 50% down to own a home (as it should be) due to lack of credit, they will not specultate.

Apparently, in the early 80's only 20% of the US population had access to a credit card (as oppposed to 70% now). And that's what we'll get to - verrry quickly.

M. Nam

Opacity is not usually productive anyway, except for the few with special lenses, but the whole notion of bundling and securitizing loans where the underlying collateral is an assorted bunch of private dwellings of random groups of people beset with outrageous medical bills from accidents and illnesses and insane legal bills from divorce is not only inhumane but downright stupid.

If you remove credit, and the backing of GSE's - you won't need to regulate anything

What abot the equity bubble? No GSE was involved although credit in the form of margin accounts was a definite factor.
What about the bailout of LTCM ? I know credit was involved but no gevernment entity was involved.

I think greed is the underlying reason and since that cannot be quantified or regulated we would have to go up one level and regulate what we can. We cannot engineer a perfect system and neither should we try. We all know some people tried and the results but some sensible regulation is warranted.

Moornam: If you remove credit, and the backing of GSE's - you won't need to regulate anything

Nara: What abot the equity bubble? No GSE was involved although credit in the form of margin accounts was a definite factor. What about the bailout of LTCM ? I know credit was involved but no gevernment entity was involved.

You could eliminate a sort of financial bubble by eliminating credit (carloans, education loan, homeloans, etc.) by not allowing folks to use those instruments to make future plans...but the need to have $$ now based on future expectations is pretty powerful and is the basis for all sorts of black markets, money lenders, etc. through out time. So, credit is inevitable and thus, so are bubbles.

The key thing that made mortgages/CRA/F&F bubble diff is that neither the $5T dotcom bubble nor the $5B bust of LTCM involved govt backstops/mandates and thus subsequent taxpayer $$$'s buying up the dubious assets others were banking on.

Burst bubbles are a fact of life anytime there's speculation about the future. We've all laid down plans and had expectations about future events (not just $$ but also family, relationships, etc.) that just flat out don't pan out. It's just the way the world works

Granted. But it is the artificial bubbles created by analysts and the rating agencies that bother me. Most individual and small time investors like me read analysts reports and some financial statements to buy and sell securities. If we do not have confidence that this analysis is not biased because of other activities that the "agencies" employing these analsysts are involved with, there is a huge confidence risk in the whole investment system. To restore confidence we need tougher regulation not the current chinese walls.

To restore confidence we need tougher regulation not the current chinese walls.

I would disagree with this statement. To restore confidence, you need a system that is more open and transparent, not necessarily with more or less regulation. Transparency is an enemy to both big businesses that aren't honest or government bureaucracies that are ineffective.

Burst bubbles are a fact of life anytime there's speculation about the future. We've all laid down plans and had expectations about future events (not just $$ but also family, relationships, etc.) that just flat out don't pan out. It's just the way the world works

I think it depends on what kinds of risks that you take for creating products or innovations. Even in scientific R&D one makes innumberable attempts (sometimes with vague ideas) and only a few succeed. Somebody pays for this extravaganza with the hope of big future payoffs. In the case of the financial industry, were the risks and financial products, that created the bubble economically sound or dubious/manipulated ? If it is the former then who are the (direct and indirect) beneficiaries of the success/profits ? If only a narrow segment benefits then the liability (during failures) cannot be uniformly distributed and burdened on the non-beneficiaries. Dubious and manipulated risks/speculations indeed need better regulation besides better governance.

85 · bess said

I like chocolate.

oooooh...i just got it. You like things that are bad for you. That's the nicest thing anyone's ever said to me.

Here's Valleywag on Mr. Kash & Karry.

Manju, are you really a guy?

97 · Amrita said

Manju, are you really a guy?

people are always asking me if i'm for real

Who knows if there's any truth to this, but if so, it puts a different perspective on all the accolades posted here.

You like things that are bad for you.

97 · Amrita said

Manju, are you really a guy?

people are always asking me if i'm for real

Bwahaha!

"Transparency is an enemy to both big businesses that aren't honest or government bureaucracies that are ineffective."

So then we just don't get transparency :) simple, problem solved.

I thought I was the only one crushing on Kashkari until I saw the following post on New York mag:
http://nymag.com/daily/intel/2008/10/fyi_we_are_so_going_to_be_obse.html

FYI We Are So Going to Be Obsessed With Neel Kashkari

Remember when John McCain plucked Sarah Palin out of the tundra obscurity and made her his running mate, and then everybody was immediately like, "but we don't know anything about her!" And then after like two days suddenly we knew more about her and her family than we ever wanted to know? Well, that's basically what happened this week with Neel Kashkari, the new interim assistant Treasury secretary who was appointed by Hank Paulson. Paulson chose Kashkari to head the Office of Financial Stability, which basically means he's going to handle the congressionally approved bailout and figure out how to spend that $700 billion dollars. But nobody knew this Paulson protégé because he had been quietly working for Paulson on the crisis at the Treasury, and before that he was a mere V.P. at Goldman Sachs. So then the media panicked (the public was obviously reassured by his efficient haircut and confident eyebrows), and we learned all sorts of things about him in a short period of time. For example:

• He "lives in the pleasant Washington, D.C. suburb with wife, Minal, 32, and their enormous brown shaggy Newfoundland dog, Winslow — named after former Browns star tight end Kellen Winslow." [NYP]
• Prior to his career in finance, Mr. Kashkari was a R&D Principal Investigator at TRW in Redondo Beach, California, where he developed technology for NASA space-science missions such as the James Webb Space Telescope. [Treas.Gov]
• He grew up in Stow, Ohio, an Akron suburb. His mom and dad are a retired pathologist and an award-winning engineer, respectively. Kashkari himself studied engineering at University of Illinois, Urbana-Champaign. [WSJ]
• Last year, he and Phillip Swagel, assistant secretary for economic policy, crafted a “break the glass” proposal — an emergency tool that envisioned the Treasury buying bad loans and other assets. [Muckety]
• He likes AC/DC and Rush. [Gawker]
• His family is from Srinagar in Kashmir, where there was once a neighborhood named after the Kashkari clan. People in the area still remember his grandfather Sudarsan, but the neighborhood was dismantled in 2000 to make way for a new bridge. [Indian Express]

See how that works? It moves so quickly from useful knowledge to bizarre trivia.

6 · Manju said

1·

a few things anecdotes:

1. they hire talent. a friend of mine, who's a goldman alumni, madea mid-career move to GS and they hired him even though they had nothing for him to do. He got sent around to various departments looking for a project.

2. ***** there ****** very accessible. my brokers daughter works at goldman and says everyone has access to top management. i once cold-called the head of research and he called me back that day. not his sec. him.

3. politics and intellectual pursuits are encouraged. i think they stole this from the IT/VC world, realizing ibanks were ***** loosing ***** talent to this less formal, more bohemian world, they loosened up a bit.

Learn some English. i thought desis were supposed to be spelling bee champs and good at English.

They are very accesible.
Losing Talent.

once you learn how to speak properly, then come around and start twisting facts. Sheesh.

103 · Brown said

Learn some English. i thought desis were supposed to be spelling bee champs and good at English.
They are very accesible.
Losing Talent.
once you learn how to speak properly, then come around and start twisting facts. Sheesh

Brown:

Your right. Mispellings are unacceptible, even if there unnoticable or just an ocassional occurence. But I do do this alot, so your criticism is definitally constructive.