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Alex Cook is a graduate of the University of North Carolina, where he studied economics. In college he founded Tar Heel Business, a print and internet publication focused on business and economics. Alex now writes for frontieroutlook.com, where you can read about macroeconomic trends and... More
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  • Too much mediocre financial journalism on the crisis

    This is why I don’t watch TV news much anymore, and why I only read a few publications. TIME Magazine blogger Stephen Gandel has an article about the Financial Crisis Inquiry Commission, and I take serious exception to his article. Here’s why.

    You can read the full article here to know what I’m talking about: What Caused the Financial Crisis? Still 22 Possibilities.

    I will give relevant quotes, with my commentary below.

    The head of the Financial Crisis Inquiry Commission, Phil Angelides, stopped by the office this morning. I think the idea of this commission is a very good thing.

    Ok, why?

    I continue to feel that something wrong happened in the run up to the financial crisis that was not just the result of a group miss-think but actual bad actors, and without a commission with subpoena power to get to the bottom of things it is likely that we will never have real regulatory reform and will probably start seeing CDOs of CDSes (you don’t want to know what these things are, but look it up if you like) again real soon.

    I don’t want to know what CDOs and CDSs are? If I don’t want to know that, then I am unqualified to be having this discussion. We need to elevate the level of discourse on the crisis beyond the “Goldman Sachs is the root of all evil” trope. Secondly, I’d argue that seeing CDSs (credit default swaps) again is not necessarily a bad thing. Capital requirements are needed, but you do not need to banish them entirely–although this line of argument really deserves an article of its own.

    [Angelides] doesn’t have a heck of a lot of resources. And he has got a good current example of that. The report that was released on what caused Lehman to fail cost $38 million to produce. Angelides’s total budget: $8 million. He’s got to figure out not just what caused Lehman to fail but the entire financial system.

    I could have just told you what caused Lehman to fail for free–but you can also give me $38 million if you want; I won’t mind! Lehman failed because they took on 30-times leverage on assets that disguised their risk, but were not truly low-risk assets. Maybe I should get in on some of these Congressional studies; I’d only charge $37.9 million to undercut the market, and I’d come up with basically the same conclusion in half the time.

    And while I agree, despite what Fuld and some other ex-Lehmanites are saying , that you can say what was being done at Lehman was probably either accounting or disclosure fraud, it is hard to say it was a cause of the financial crisis.

    Lehman is now reportedly under criminal investigation for fraud that Stephen mentions–but that said, I don’t think any serious economist blamed Lehman for creating the crisis (although it was on the tip of the iceberg). This shouldn’t be presented like a bold new revelation.

    Of course, it is certainly true that there is more than one factor that lead to the financial crisis.

    Sorry, this is news?

    Look, let me help save the Angelides commission a lot of time and taxpayer money. Forward them my post “What real financial reform looks like“, and you are free to pay me $38 million for this study, but you don’t have to.

    The short story on what caused the crisis:

    • The Federal Reserve pumped in excessive monetary supply after the tech bubble
    • Mortgage brokers over-relaxed lending standards and gave mortgages to people who should never have qualified
    • Credit ratings agencies, who are supposed to be the alarm bells to excessive risk, were rubber-stamping debt that was truly toxic as AAA

    We need some more intelligent discourse on these issues. Articles like this TIME blog post water down the issues, likely so that an ordinary person without an economic background can understand them, and hence keep their readership (and advertising revenue) high.

    That’s a problem though and not a virtue. These issues are indeed complex, but we need people to get educated on them. How less likely would the financial crisis have been if more Americans were financially literate and realized that they probably should wait on getting that mortgage?

    Real, non-watered down financial journalism and education is what we need, and unfortunately the mainstream press is not delivering.

    -Alex Cook



    Disclosure: None
    Mar 17 8:54 PM | Link | 1 Comment
  • Is Michael Lewis's book really anything new?

    Touted on 60 Minutes and all the major news shows is financial writer Michael Lewis’s new book The Big Short, which chronicles short sellers who saw the subprime collapse coming. I haven’t read it yet, and frankly, I’m not sure if I will. I don’t mean disrespect to Lewis, but this isn’t news.

    We have known about people who saw the crisis coming for some time, with names like John Paulson, Peter Schiff, and Nassim Nicholas Taleb. Is this book really anything new, or is it just the first book on the crisis to go mainstream?

    I did catch a few minutes of Lewis’s interview on 60 Minutes, and he seems more intelligent than most of the mainstream writers so far (i.e.: no more tinfoil-hat Goldman Sachs conspiracy theories), but I just don’t see how this is anything new.

    If it educates the public about the financial system, that’s great, but I’d recommend first reading The Black Swan by Nassim Nicholas Taleb instead–a book written in 2007 that actually predicted the crisis and wasn’t just a tale after the fact. I’ll probably pick up a copy of Lewis’s book when it hits the library just to see what he says.

    -Alex Cook

    Mar 16 3:21 PM | Link | Comment!
  • Sunday Briefing on March 14

    New revelations about Lehman Brothers, and more political talk about health care in the United States. Here is a recap of last week, and a preview of the market moving events for next week.

    Market moving events next week:

    Monday March 15: Treasury International Capital report and Industrial Production report released.
    Tuesday March 16: Housing Starts report released. FOMC Meeting Announcement. Deutche Bank, and FactSet Research Systems release earnings.
    Wednesday March 17: Purchaser Price Index report released. BMW Group, and Nike release earnings.
    Thursday March 18: Consumer Price Index report, and Jobless Claims report released. Dassault Aviation, Embraer, FedEx, and Gamestop release earnings.
    Friday March 19: Allianz, and Perry Ellis release earnings.

    Analysis

    The theme to watch this week will be government and political activity. The FOMC will be announcing policy decision on Tuesday, and there has been dissent among the Federal Reserve presidents on how to proceed. Some have been calling for rate increases, although none have happened as of yet. Another critical event to watch are developments on Obama’s health care plan, which may or may not come to a vote this week. Details remain sketchy and reports seem to change every hour, but this will be a must-watch story.

    Another very interesting story to watch will be the possible criminal inquiry into Lehman Brothers, for perhaps illegally concealing losses.

    Recapping last week

    World events

    Taliban, HIG infighting leads to split in Afghan insurgency in the North.

    Hezb-I-Islami surrenders to authorities.

    France criticizes US on air force tanker deal, calls it protectionism. The US Air Force was deliberating between a Boeing design and a design by Northrop Grumman and EADS (parent company of Airbus), and ultimately decided on the Boeing design.

    War-like violence flares up again in Mexico.

    Macro events

    Economists see Fed rate hike in 6 months.

    Nearly half of Americans have less than $10K for retirement, according to a financial blog.

    Dem house whip: not enough votes for Obama’s health plan.

    Micro events

    Fraud charges loom for Lehman Brothers

    Abu Dhabi is future base for News Corp: Murdoch

    Cisco unveils $90,000 network router to lure carriers

    Continental Airlines open to merger talks, according to CEO

    Current market stats

    TED Spread: 0.1051
    3-month Libor: 0.2572

    S&P 500: 1,149.99
    FTSE 100: 5,625.65
    Nikkei 225: 10,745.77
    Hang Seng: 21,026.92

    Oil: 80.82
    Gold: 1,101.50

    Euro/US Dollar: 1.3741

    Best attempts at accuracy were made at 10:46 PM Pacific Standard Time on Sunday, March 14. These stats are for informational and educational purposes only, and no liability is assumed for inaccurate information.

    -Alex Cook



    Disclosure: None
    Mar 15 1:49 AM | Link | Comment!
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  • New blog post. The best news from last week: Positive CPI. http://bit.ly/9ybhlm
    Aug 15, 2010
  • just found out he passed the Level I CFA Exam!
    Jul 26, 2010
  • New blog post: A crisis wasted - Why the financial reform bill doesn't get the job done. http://bit.ly/cACvUd
    Jul 19, 2010
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