Should Wall Street Have Saved Itself?

On the way in from doing a CNBC spot early (early) this morning I heard a Cato Institute commentator on NPR suggest that critics shouldn't be blaming ex-Fed chair Alan Greenspan for inflating a bubble. Better, he argued, would be to blame Wall Street itself, which should have anticipated the real estate bubble, credit crisis, etc.

That is awfully naive. Because not only did Wall Street know there was a bubble, it embraced it, the same way it did the Nasdaq bubble of the late '90s. It did? You bet -- it had to.

Shorting the bubble would have been disastrous; avoiding the real estate sector would have had your results trail your competitors disastrously.

Creating an environment where financial services companies had to take big risks to maintain parity, and then blaming the banks for doing what they had to do to pacify shareholders, is just plain silly.

Comments

[vboring]

yeah, look at BRK, which chose to sit out both the tech bubble and the housing bubble. their shares aren't worth the paper they were printed on.

oh, wait.

sarcasm doesn't translate to text well, but that definitely was sarcastic.

[vboring]

some poorly run institutions choose to compete with each other to be the most idiotic for their own backwards reasons.

they choose to do it. nobody forced their hands.

[Phil G.]

Boys will be boys, and all that?!
So how did Goldman stay out of it, and stay insanely profitable?

[Purl Gurl]

“...some of the people who struggle the most are high-IQ sorts, with a tendency to over-think trading decisions.”

- Paul Kedrosky

Paul currently comments on Wall Street,

“...blaming the banks for doing what they had to do....”

Typical of a PhD type to over-think mocking parody. Your sarcasm is sorely appreciated by this PhD type, also out of the University of California, but not the sun tanned surfer, party hard campus down south, your San Diego campus. No, I am up here at our traditional straight laced conservative right-wing farmer agricultural campus, Riverside.

As you know, PhD types typically have not a cow lick of common sense. You have some common sense. I have my share of common sense. Your common sense is displayed through your frequent sarcastic articles aimed at mockery of the powers that be; sometime during the course of your life you learned to question societal dogma.

My common sense originates from being born penniless, ignorant and bare foot on a rural Oklahoma farm, literally on our farm. We were richly poor. Life on our farm could not be better although we had no car, although electricity, telephone and television did not come to our farm until the late Sixties. We never went hungry, well, almost never. All of our needs were provided through farming. A good life, there were even years our family was able to save up a few hundred bucks over the course of a year.

Personally, I would rather still be a farmer than a PhD type over-thinking my stock trading.

My Choctaw elders taught me about life, pride and integrity. Grandpa, an Anglo, taught me about being fiercely honest, usually by taking a switch to my bare butt.

We bartered a lot corn for socks, boots, coveralls along with pots and pans. Sometimes we sold corn to our local community. Grandpa taught us, after leveling off a bushel of corn, to add two quart Mason jars of corn to maintain our family reputation for fierce honesty. When we sold a gallon of raw milk, we always tossed in a pint of fresh cream. A dozen eggs from our farm counted fourteen. Behind Grandpa’s back, we always gave a couple of free quart Mason jars of white lightning to our local sheriff in exchange for his overlooking our still which we operated far off in a pine forest on our farm land. We played the survival game fair and square although Grandpa never knew we were bootlegging. Grandma knew, though.

Wall Street has no common sense. Wall Street is engaged in a business of selling empty bushel baskets with a promise of filling those baskets with corn, sometime in the future. Surprises me how many people will buy empty bushel baskets based only on a promise of future rich rewards.

This is what Wall Street leveraging is all about; selling empty bushel baskets of promises. Maybe this is just we Okie farmers have a bit more common sense than to buy empty bushel baskets, even if we do drink white lightning.

I do not know. Reckon I figure the old fashion way of doing business is the right way. Folks around our farming community always came to our farm to buy crops, milk, cream and salted pork knowing they would enjoy a really good bargain, along with enjoyment of swapping lies and swapping tall tales, along with swapping a blackberry pie for a gallon of our raw milk.

Wall Street has no common sense, has not enough sense to toss a few handfuls of corn into their empty bushel baskets so naive and gullible traders will think they are receiving something in exchange for their easily and soon parted money.

Yes, Wall Street should save itself and Wall Street is to blame for these financial crises which plague us like blood sucking ticks and chiggers back on our Oklahoma farm. Wall Street should grow some corn to show off, to sell, to take to the general store to barter. Wall Street simply has not a cow lick of common sense; their heads are empty bushel baskets.

What do I know? Heck, I am just an ornery Okie farm girl who likes to sip white lightning while telling really tall tales about my wild Choctaw lifestyle. Well, I have sense enough to keep my doctorate degree buried under reams of paper in a bedroom closet so none will think me to be a PhD type who has not a cow lick of common sense.

I also have sense enough to fill up a bushel basket with corn until overflowing. I am honest.


Okpulot Taha
Choctaw Nation

[atlasapple]

RE: vboring

I remember Buffet and BKR looked at with disdain during the height of the internet bubble. They were as being behind the curve. Those who dissed BRK were wrong of course but they are still getting a billion dollar bailout after booking billions in profit from 2003 - 2006.

The lesson is simple, make money steady and slowly like BRK or be reckless enough to ensnare the sheeple and get out when the s&#t hits the fan.

TBTF is the new version of a early 1900's trusts; inevitable without regulation and destructive to capitalism in the end.

[Martin dugard]

Kedrosky,

You're losing you mind! Your comment make no sense at all. I hope you are joking becasue you're starting to sound like a charlatan. Maybe that's what happens when you retire to early.

[dbulkley]

Interesting point, but should we not then judge homeowners/borrows by the same logic - just to be fair?

[special1person]

The Cato Institute firmly believes that it's OK to let the Wolf guard the Chicken coop.

Now, they blame the chickens!

[SGK]

This bubble, as the one before it, are perfect examples of the herd mentality that defines Wall Street - "..if the guys next door are doing it and making a ton of money at it, we need to do it too...!" However, Main Street colluded to a large extent by demanding and accepting 120% LTV, Interest only, variable interest rate mortgages it never had a realistic chance of paying back and by overloading on revolving credit debt to the tune of $3,000,000,000,000 in the last 4 years. What's different about this bubble is that it was largely made possible by exotic, off-balance sheet financial vehicles and derivatives that were created by mathematicians and statisticians (yes, many of whom were PhDs) and were little understood; and the government (Congress, Fed, SEC) were instrumental and complicit in allowing this to happen. Now that the genie has vacated the bottle, we can't get him back in....

[Omaha-29]

Its just greeds guy & gals.....those making money had no need to stop the dance

[honestly_think]

I still do not understand how this financial trouble will end. I see a great danger just because there is a huge government debt and it is growing. Fed is pumping money to boost wallstreet but may cause an inflation. Personal debt is also growing. Where do you see a buffer which may reduce next recession shock and lead us to recovery?