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The End of the Financial World as We Know It
- tortilla 18y agocontinued at: How to Repair a Broken Financial World http://www.nytimes.com/2009/01/04/opinion/04lewiseinhornb.html http://www.nytimes.com/2009/01/04/opinion/04lewiseinhornb.ht...
- davi 18y agoArticle summarized by this quote from it: "... nothing has been done to change that, or any of the other bad incentives that led us here in the first place." The headline is a little misleading.
- swombat 18y agoFlagged, not hacker news.
- tptacek 18y agoI hearby declare anything written in whole or in part by Michael Lewis to be Hacker News. May God have mercy on your soul.
- eru 18y agoI'll try digging up his shopping list.
- pg 18y agoI thought this paragraph in the guidelines was clear enough, but I've added another sentence to make it more explicit: "Please don't submit comments complaining that a submission is inappropriate for the site. If you think something is spam or egregiously offtopic, you can flag it by going to its page and clicking on the "flag" link. (Not all users will see this; there is a karma threshold.) If you flag something, please don't also comment that you did." http://ycombinator.com/newsguidelines.html http://ycombinator.com/newsguidelines.html
- swombat 18y agoFunny. Most of the time when I make this comment I get 5+ upvotes just for it, because I generally make it quite accurately on articles that are judged not desirable by others too (and the article is usually killed soon after). I'll refrain from making it in the future if it hurts your HN experience, so this will be my last comment on the topic. I still maintain that this article is irrelevant to this site, btw. This is reddit/r/business material - i.e. grandiose, inflammatory politico-financial opinion pieces that will result in no significant change of anything whatsoever, but get lots of upvotes and a plethora of comments that look like they make a lot of sense (until you read the response to each comment and find that someone else is making just as much sense with the exactly opposite view). Imho, this is a fantastic waste of this site - and I shall continue to flag this kind material whenever I find it. Edit: I'll just add that on occasion even this kind of post that you appear to dislike does generate a useful outcome, e.g.: http://news.ycombinator.com/item?id=417744 http://news.ycombinator.com/item?id=417744
- mhartl 18y agoThese oligopolies [the rating agencies], which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it. We've heard a lot in recent months about how the current crisis proves that "unfettered capitalism" doesn't work and that libertarian political philosophy is (intellectually) bankrupt. Libertarians, we are told, are running scared. The quote above is one small example of why this claim is rubbish. The banking and financial sectors have been heavily regulated for at least 70 years; this has created the kind of cartel virtually impossible to form in a free market. And what happened to the SEC is so common it has a name: regulatory capture, the capture of the regulatory agency by the special interests of the industry being regulated. There's plenty of blame to go around: the global financial crisis has many causes. Laissez-faire capitalism isn't one of them.
- russell 18y agoLaissez-faire capitialism doesn't exist outside of flea markets. Reality is that many industries are monopolies or effective oligarchies: banking, telecommunications, insurance, pharmaceuticals... The idea that these companies working in heir own self interest will counterbalance each other is nonsense. That's why we need regulation. The problem occurs when the regulated do the regulating, whether by infiltrating the government, bribing congress, or actually writing the laws. And I will acknowledge that there is and has been a more than adequate supply of bad regulations. Also we need vigorous antitrust enforcement so that the failure of no one company can bring down the economy. AIG come to mind, but also the telcos, oil companies, and Rupert Murdoch,
- ivankirigin 18y agoConsumers regularly counter act companies. Brands are so valuable that companies fight to protect them. The best examples of monopolies are almost exclusively backed by government regulation. For the examples you site about companies too big to fail: firstly no company is too big to fail. Secondly, those industries would be more competitive without regulation, subsidies, the SEC, and the FCC. Finally, it makes your whole comment hold less weight when you single out Rupert Murdoch while commenting on an open forum on the internet. Communication and broadcasting tools have never been more competitive and free.
- fallentimes 18y agoNo matter what the government (or anyone) does, the same process will repeat itself over and over again. http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania
- InVerse 18y agomaybe. it would be interesting to see what trends occur in vastly different cultures than the western individualistic, self-centered one. for example, the Great Law of the Iroquois states, "In our every deliberation, we must consider the impact of our decisions on the next seven generations." i am completely ignorant of Iroquois economy and lifestyle otherwise. nonetheless, the optimist (or perhaps sci fi reader) in me imagines a (near?)-future in which people are motivated not simply be money, but also by joy, inclusiveness and sustainability. the effectiveness of rules depends on cultural context (or complete domination of free will).
- bwd 18y agoActually, I think a slightly different process will appear each time. Different enough that people will not recognize it for what it is except in hindsight. Since regulation is most effective as a reaction to a problem, perhaps we should accept that there is very little we can do to stop these sorts of things and concentrate on preparing ourselves to weather the storms when they appear.
- fallentimes 18y agoThe best indicator? "This time it's different." -1980's Leverage Buyout Craze (RJR Nabisco) coupled with junk bonds -Dotcom Bust -Day trading -Too much leverage (Long Term Capital Management and repeated today) -Mortgage back securities -People making 50k per year buying 500k homes
- lowkey 18y agoWhat an incredible year and a great article. It's hard to imagine a scenario where 12 months ago I would have imagined an editorial in the New York Times with the title, "The End of the Financial World As We Know It."
- thomasmallen 18y agoIt's called "yellow journalism." This crap sells right now, and the major news outlets are all over it. Remember all of the "dirty bomb" fearmongering a few years ago?
- gruseom 18y agoI agree with you in general but disagree about this piece. I think it's much better than you describe, for two reasons: Lewis is a fabulous writer, and the article is more truth-telling than fear-mongering.
- mtw 18y agoyou need this kind of articles to change the system, make sure senators or entrepreneurs see the problem and act upon it.
- thomasmallen 18y agoHyperbole and invective are the domains of politicians who use them to great effect. No need for it in a balanced press (wishful thinking).
- ashu 18y agoSo, apparently (according to the article), the bond raters are paid by the bond issuers. How in the world is that not a conflict of interest? There must be some "pro" for the financial world being this way?
- tphyahoo 18y agoThe pro is, if you are an insider, your ass is subsidized by everyone else. So, it is cost effective to lobby, bribe, and generally deal underhandedly to get that subsidy. Times like the recent bailout is when your investment in underhandedness pays back handsomely.
- chubbard 18y agoI completely agree. How can anyone look at this fact and not see it as totally undermining the intent of bond raters?
- ctkrohn 18y ago<i>Richard Fuld, the former chief executive of Lehman Brothers, E. Stanley O’Neal, the former chief executive of Merrill Lynch, and Charles O. Prince III, Citigroup’s chief executive, may have paid themselves humongous sums of money at the end of each year, as a result of the bond market bonanza. But if any one of them had set himself up as a whistleblower had stood up and said "this business is irresponsible and we are not going to participate in it," he would probably have been fired. Not immediately, perhaps. But a few quarters of earnings that lagged behind those of every other Wall Street firm would invite outrage from subordinates, who would flee for other, less responsible firms, and from shareholders, who would call for his resignation. Eventually he’d be replaced by someone willing to make money from the credit bubble.</i> And yet that's exactly what upper management at Goldman and JPMorgan did. Goldman never bought massive quantities of ABS CDOs for portfolio. Chase never originated a single option ARM. Not all of Wall Street was so cravenly focused on short-term profits.
- bilbo0s 18y agoIs this a joke? Uhh ... you do realize Blythe basically INVENTED the CDS right? Maybe I am misunderstanding what you are trying to say, but ALL of the big investment firms were in on this. In fact, the system would not have failed if any one of the investment banks had not played their role. If you are a quant we can get into arguing the fatal flaw of uncleared counterparties. But from my perspective when everyone is a counterparty, and EVERYONE was, there is nowhere to run when things go bad. Could you clarify what you mean for me please? Incidentally, the quote is correct, the heads of everyone from Bear to Goldman would have been summarily dismissed if they had failed to play their roles. All because of the 'innovation' of one, as it turns out, not so bright quant at JPMorgan. Astounding isn't it?
- ctkrohn 18y agoI wasn't talking about CDS, and I am aware that Blythe Masters is credited with inventing the CDS while at JPM. I think it's still too early to tell if CDS are good or bad on the whole. Ultimately, they're just insurance contracts, which have been around for hundreds of years. But that's another discussion. I'm talking specifically about subprime. JPM and Goldman explicitly decided at the very highest levels of management to remain uninvolved in certain areas of the subprime mortgage market. Chase did originate subprime loans, but it did not securitize them and for a long time, did not make a market in subprime bonds. Chase also stayed away from certain areas of alt-A lending, in particular option ARMs, which have become one of the most toxic forms of mortgage debt. Also, JPM didn't purchase billions upon billions of subprime bonds and subprime-backed CDOs, like Merrill, UBS, Citi, and other banks did. That's why JPM has taken "only" $6bn in writedowns over the past 18 months, vs. over $30bn each for Citi, Merrill, and UBS. And yet Jamie Dimon remained CEO of JPM through the mortgage lending boom, despite staying away from its most lucrative areas. You might find the following article interesting: http://money.cnn.com/2008/08/29/news/companies/tully_jpmorgan.fortune/index.htm http://money.cnn.com/2008/08/29/news/companies/tully_jpmorga...
- kuniklo 18y agoPhase 4, "Winter": http://en.wikipedia.org/wiki/Decline_of_the_West#Phases_of_rise_and_decline http://en.wikipedia.org/wiki/Decline_of_the_West#Phases_of_r...
- jderick 18y agoIt seems clear to me the SEC has failed as an institution. I tend to agree with the author that the revolving door policy whereby ex-regulators become bankers for the banks they were previously regulating is no longer acceptable.
- pclark 18y agoIt's the end of the world as we know it. God bless REM
- jhancock 18y agoarticle summary: the world is full of sheeple.