Tavakoli gives a great analysis, and points out this was a bi-partisan let-down. She explains Bush's role, Franks, Dodd, investment banks, rating agencies, Congress, mortgage lenders, investors, Paulson, Geithner, Bernanke, the SEC and more. It is long, but worth it. She also adds notes here saying that it is up to the DOJ to determine whether actions were illegal. In the clip she talks about securities fraud, but not specific charges, if any, that might be levied against specific individuals. http://www.tavakolistructuredfinance.com/CSPAN.html <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/WA20Am0pwtA&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/WA20Am0pwtA&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>
"Excessive regulation" not nearly a great a problem as the consequences of free-wheeling recklessness run amok. Personally, I'd like to see "regulation so tight, they need a note from their mama to crack a fart"... that'd be better than what we've been through and face in the near term. Did we all forget... "An ounce of prevention is worth a pound of cure"?
Nice Post Greg. I did not watch the entire video but she did a nice a job of recapping some of the reasons why we are where we are right now. Any one new to economics that is looking for an better understanding this is a nice take. Most of the smart money had seen this coming many years earlier but as with anything, timing is everything. I would add to this that the governments attempt to get these distressed home owners to refi at a much lower rate will ultimately fail because most of these people are upside down and you could give them a 0% interest rate but the math still will not work. Thats the problem. We will still having a housing issue for quite some time and if unemployment does not reverse you can see how easily everything will get much much worse, simply because there are more people that will have more trouble paying their mortgage. There was an intersting article a year ago talking about distressed home owners who were able to re-fi and 77% of them went back into being classified as distressed within 12 months of their lower re-fi. This whole part of the re-fi and the government stepping in to artificially prop up the bond market will just prolong the inevitable because if the math doesnt work from Day #1 its not going to work on Day #365. Sure they can keep it up there for a little while just like Im sure you have seen in a lot of the currency markets but in the big picture you cant force it. It wont work... Thanx again for the post Greg
I read her book, a little bit silly in the constant references to the old fart Buffet, but otherwise she knows her stuff
We agree she knows her stuff, and she debunked some of the hokum pushed by younger guys including some Goldman alums, Taleb (she says the models are flawed, all models are flawed, but that was not the root cause of this problem), Blackrock and more. This is an incredible story in the FT. Fed is targeting -0.5% interest rates. Tavakoli also says that inflation is the great destroyer. FDIC deposit insurance meant we didn't have to bail out banks to protect depositors; we bailed out the banks' other creditors with public money. Once the deleveraging ends, we'll have to worry about inflation combined with crushing debt: http://www.ft.com/cms/s/0/23b62bfc-338b-11de-8f1b-00144feabdc0.html?nclick_check=1 Fed study puts ideal interest rate at -5% By Krishna Guha in Washington Published: April 27 2009 03:00 | Last updated: April 27 2009 03:00 The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve's last policy meeting. The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation. A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent. Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn (â¬885bn, £788bn) increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases. The assessment that the US central bank needs to provide stimulus equivalent to a substantially negative interest rate is unlikely to have changed ahead of this week's policy meeting. The Fed is not likely to embark on any substantial new programmes at this meeting, in large part because it will not have downgraded its economic forecasts since the last meeting. Indeed, Fed officials may see the risks to the economy as a little more balanced than they were in March, though policymakers probably still see these risks as overall weighted to the downside. This could set the stage for a more detailed discussion of the framework that will ultimately govern the Fed's exit strategy. There is, though, a small but intriguing possibility that the Fed could follow the Bank of Canada in setting out an explicit timeframe over which it expects to keep short-term rates at virtually zero. While this novel strategy is likely to at least provoke debate within the US central bank, which has shown itself willing to adopt measures first deployed elsewhere, many policymakers would probably be wary of adopting the Canadian approach, following their own unsatisfactory experience in providing guidance on interest rates after the dotcom bubble burst. Others may feel the Canadian approach would be ineffective as it may not be seen as credibly binding the central bank's future decisions. Still, many Fed officials expect they may well keep rates near zero for another 18 months to two years and some might see value in making this more explicit. Ben Bernanke, chairman, sees the massive expansion of bank reserves caused by the Fed's unconventional operations as already providing a way to assure the market that the Fed will not be in a position to raise rates for quite some time to come. The last meeting saw the Fed buy long-term treasuries for the first time in decades. The large initial impact of the move on markets is no longer visible, but officials think the policy was reasonably successful. Previous staff analysis suggested the $300bn purchase would reduce the yield on 10-year treasuries by 25-35 basis points, and officials think the rate today is about this much lower than it would have been if they had not started buying. Further purchases are possible, particularly if the Fed again downgrades its economic forecasts. The staff analysis comparing unconventional operations to interest rate cuts suggests more might be needed anyway. However, policymakers are likely to watch how financial conditions respond to the already-authorised interventions before deciding whether to step up much further. <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/WA20Am0pwtA&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/WA20Am0pwtA&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>
omg I can't believe this developed into a 2200 hit thread... I haven't watched the video, but can guess what it's about. Dubbya, a lone and visionary genius standing against the proponents of Democratic fallacies that would push the country over the tipping point, but no-one would listen. Awesome... Maybe that's why he became spiteful and sullen, regressing to the emotional state of an angry 6 year old from 2001 onwards... BTW: I'm almost universally opposed to every "value" on the Democratic party platform, just to addsome context. I'm not a pro Democrat. I'm an anti-defend-G.W.-retroactively-by-compiling-out-of-context-snippets kind of person.