21–30 of 72 posts
93% isn't bad luck. 93% is fraud.
Earlier quoted context omitted.
Not that I think everything was above-board, but to be fair, these are hugely correlated instruments: it's not reporting 93% of all AAA debt tanked, but 93% of all AAA-rated derivatives of subprime mortgages. Given the subprime-mortgage crash, it's not surprising that everything tied to subprime mortgages uniformly tanked too. The way an AAA-rated derivative of a subprime mortgage could exist to begin with was via "t…
but to be fair, these are hugely correlated instruments That makes them more risky, not so? How did they get the AAA rating then?
There is some argument to be made that an awful lot of sophisticated investors didn't recognise before the crash that there was such a high level of correlation, so to some extent we're talking with the benefit of hindsight at this point. With hindsight it seems obvious that these bonds were doomed, but without the benefit of what we now know, how much should the ratings agencies be blamed for not recognising the risks?
Krugman fails to mention that this is the corrupt fallout from his cheerleading in 2002 for low interest rates in order to create a housing bubble to fill the void of the .com bubble ! "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." - Krugman 2002 http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...
Now I don't understand what your motive is - but your quote is taken waaay out of context... Original quote: "The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on…
Krugman like all Keynesians thinks bubble booms are good and recessions are bad. He fails to mention the artificial carry trade in gold that central banks set up in the 90s to push gold prices down and stock prices up. Central banks at this time also promoted derivatives to create the illusion of low inflation by soaking up the price rises due to commodity speculation.
He also does not mention the FED money printing in the 30s to artificially support the pound and stop the draw on gold from London. Could this have had something to do with the boom then ???
The moral of the story is don't let the government and central bank 'run' your economy. All they can do is make bad guesses and try and cover up reality.
Panama has done without a central bank for a hundred years and look at the state it is in: http://www.costaricapages.com/panama/blog/wp-content/uploads... Who 'runs' their economy ??? Who prints their money ???
93% isn't bad luck. 93% is fraud.
It's more likely underpaid raters at Moody's and S&P being intimidated by overpaid traders at Goldman Sachs and Deutsche Bank. I'm reading "The Big Short" (highly recommended), and it puts all of this and the current GS hearings in the right perspective.
Headline is inaccurate, it's 93% of subprime-backed mortgage securities.
Earlier quoted context omitted.
but to be fair, these are hugely correlated instruments That makes them more risky, not so? How did they get the AAA rating then?
The bonds would typically be a composite of loans from all over the US. So the argument was made that even if (say) California's housing bubble crashed then only a small fraction of your bond would suffer losses as the loans made in other states would be ok. Thus the banks claimed that these were uncorrelated safe investments and the rating agencies agreed to rate them highly. There is some argument to be made that a…
I would have expected someone to do some due diligence and find out what all of this business was actually based on.
Some guys from Lehman Brothers did some actual research (i.e. they went and talked to the sales guys selling these mortgages) and concluded that it was all going to end in tears. At according to:
http://www.amazon.com/Colossal-Failure-Common-Sense-Collapse...
Krugman fails to mention that this is the corrupt fallout from his cheerleading in 2002 for low interest rates in order to create a housing bubble to fill the void of the .com bubble ! "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." - Krugman 2002 http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...
Now I don't understand what your motive is - but your quote is taken waaay out of context... Original quote: "The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on…
"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. "
Krugman is just repeating the same "insufficient demand" theory of recessions that Keynesian economists are using today.
Earlier quoted context omitted.
Now I don't understand what your motive is - but your quote is taken waaay out of context... Original quote: "The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on…
The way I read it is that Krugman is quoting someone to support his argument for ultra low interest rates. Krugman like all Keynesians thinks bubble booms are good and recessions are bad. He fails to mention the artificial carry trade in gold that central banks set up in the 90s to push gold prices down and stock prices up. Central banks at this time also promoted derivatives to create the illusion of low inflation b…
Let me guess - you also believe that Fascism and Nazism are right-wing ideologies?
EDIT: I'm no economist (barely an amateur wiki-economist): but as far as I know (read, heard) Keynes actually argued that money supply management should be "mechanically" managed - without central banks and officials who are corruptible and fallible.
Earlier quoted context omitted.
The bonds would typically be a composite of loans from all over the US. So the argument was made that even if (say) California's housing bubble crashed then only a small fraction of your bond would suffer losses as the loans made in other states would be ok. Thus the banks claimed that these were uncorrelated safe investments and the rating agencies agreed to rate them highly. There is some argument to be made that a…
I wonder if anyone from these rating companies ever bothered to talk to the people actually buying these mortgages - i.e. the people the whole crumbly edifice was based upon. Or indeed how they were being sold. I would have expected someone to do some due diligence and find out what all of this business was actually based on. Some guys from Lehman Brothers did some actual research (i.e. they went and talked to the sa…
The most honest thing the agencies could have done was refuse to rate them. But that probably wouldn't have gone down very well with their clients.
When people say they will act one way and have financial incentives to act another, expect them to follow the financial incentives. Appropriate regulation can help for a bit. But unfortunately the regulated party has incentives to provide incentives (such as contributions to political campaigns) to gain control of the regulations. This leads to regulatory capture that then renders the regulations ineffective. In a pe…
