You should read these things this week:
Must read - Cliff Asness is exceedingly coherent in this tome on the causes of the crisis and his displeasure with the Administration's reaction. I will probably devote a full post to this letter in the near future.
Say something stupid and hurtful, but simple and with a compelling villain, long enough and I guess it becomes our society’s version of truth (again, the “narrative”). Bankers (and by this I mean Wall Street in general) are certainly guilty of acting irresponsibly and aiding and abetting the bubble, but assigning them sole blame is ridiculous. This is an Agatha Christie novel where everyone is the murderer.
David Brooks: "The Populist Addiction"
"It’s easy to see why politicians would be drawn to the populist pose. First, it makes everything so simple. The economic crisis was caused by a complex web of factors, including global imbalances caused by the rise of China. But with the populist narrative, you can just blame Goldman Sachs.
Second, it absolves voters of responsibility for their problems. Over the past few years, many investment bankers behaved like idiots, but so did average Americans, racking up unprecedented levels of personal debt. With the populist narrative, you can accuse the former and absolve the latter."
The FED certainly tried to cover up details of the AIG bailout. via Barry Ritholtz.
"FRBNY staff member James Bergin e-mailed several other FRBNY staff:
“I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals – too many counterparties, too many lawyers and advisors, too many people from AIG – to keep a determined Congress from the information.”
"But then I read that the FHA is about to set much tougher standards for FHA mortgages—they plan to require borrowers with a 590 credit score to put down at least 3.5% downpayments. As Tyler Cowen recently argued, you knew Congress wasn’t serious about global warming when they refused to make Americans pay more for gasoline. And I would add that you can be sure that the populists who want to “re-regulate the banking system” aren’t serious when all they can do is talk about 3.5% downpayments for bad credit risks. It is so much more fun to bash big banks."
Via Barry Ritholtz: On the phenomenon of investment professionals watching CNBC
“Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical doctors were watching General Hospital…”
MISH revisiting an old concept - you can't spend your way out of a popped credit bubble
"Mistakes of 1937" did not sink the US back into depression. The plain fact of the matter is: It is virtually impossible to spend ones way out of a popped credit bubble.
Do not mistake Federal spending for a recovery. Indeed this "recovery" is a mirage. There can never be a "clear recovery" financed by debt when the problem is excess debt in the first place. Logically the idea is nonsense.
In 2003, Greenspan had a choice:
1 - Take a hard recession now
2 - Take a depression later
Greenspan chose the latter.
All stimulus did back then was create housing and debt bubbles. Then it crashed anyway. Now supposedly the cure is more spending?"
MISH: Chicago accelerates tax collections in an effort to stay solvent.
Dubai Debt Crisis Halts Building of World's Largest Indoor Mountain Range. Yep - that one IS from The Onion.