Is This Why People Trusted Madoff?
Tag: Financial Crisis
“The Great Disruption”
— when both Mother Nature and Father Greed have hit the wall at once — “The Great Disruption.”
“We created a way of raising standards of living that we can’t possibly pass on to our children,” said Joe Romm, a physicist and climate expert who writes the indispensable blog climateprogress.org. We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.
“We are taking a system operating past its capacity and driving it faster and harder,” he wrote me. “No matter how wonderful the system is, the laws of physics and biology still apply.” We must have growth, but we must grow in a different way. For starters, economies need to transition to the concept of net-zero, whereby buildings, cars, factories and homes are designed not only to generate as much energy as they use but to be infinitely recyclable in as many parts as possible. Let’s grow by creating flows rather than plundering more stocks.
via Op-Ed Columnist – The Inflection Is Near? – NYTimes.com.
Globalization Retreating
“The collapse of globalization . . . is absolutely possible,” said Jeffrey Sachs, a noted American economist. “It happened in the 20th century in the wake of World War I and the Great Depression, and could happen again. Nationalism is rising and our political systems are inward looking, the more so in times of crisis.”
Tom Friedman Is Worried
I’m worried. We’ve just elected a talented young president with many good instincts about how to propel our country forward, extend health care to more people, make our tax code fairer and launch a green industrial revolution. But do you know what I fear? I fear that his whole first term could be eaten by Citigroup, A.I.G., Bank of America, Merrill Lynch, and the whole housing/subprime credit bubble we inflated these past 20 years.
I hope my fears are exaggerated. But ask yourself this: Why couldn’t former Treasury Secretary Hank Paulson solve this problem? And why does it seem as though his successor, Tim Geithner, won’t even look us in the eye and spell out his strategy? Is it because they don’t get it? No. It is because they know — like Roy Scheider in the movie “Jaws,” when he first saw the great white shark — that “we’re gonna need a bigger boat,” and they’re too afraid to tell us just how big.
The Formula That Killed Wall Street
In the mid-’80s, Wall Street turned to the quants—brainy financial engineers—to invent new ways to boost profits. Their methods for minting money worked brilliantly… until one of them devastated the global economy.
via Recipe for Disaster: The Formula That Killed Wall Street
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Why The US Won’t Become France
Travel from America to Europe, try a bit of shopping or dinner in a restaurant, and the first thing that strikes you is the chronically lackadasical attitude to service. It’s what Brits call a “job’s worth”—as in that’s more than my job’s worth so I’m not going to lift a finger to help you—attitude. It could not be more different from the business culture here.
It is commonly reported, though never actually confirmed, that George W. Bush complained to Tony Blair that the problem with the French is that they didn’t have a word for entrepreneurial. (If it’s true, don’t we miss him for it?) Myth or not, there is substance in Bush’s critique. This nation of immigrants is more go-getting and individualist than their European counterparts. Many had to have the independence of spirit to get here in the first place and that drive has dictated their attitude to business.
From a policy point of view, America is far more likely to follow Sweden, which nationalized troubled banks in the early 1990s, cleaned up their balance sheets, and then auctioned them off again.
What Are Those “Toxic Assests” Worth?
From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)
Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi.
The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.
via FT.com / Markets / Insight – Insight: Time to expose those CDOs.
USA – The Great World Hope
Johns Hopkins University foreign policy expert Michael Mandelbaum in his book, “The Case for Goliath.
” When it comes to the way other countries view America’s pre-eminent role in the world, he wrote, “whatever its life span, three things can be safely predicted: they will not pay for it; they will continue to criticize it; and they will miss it when it is gone.”
A senior Korean official remarked to Tom Friedman
“No other country can substitute for the U.S. The U.S. is still No. 1 in military, No. 1 in economy, No. 1 in promoting human rights and No. 1 in idealism. Only the U.S. can lead the world. No other country can. China can’t. The E.U. is too divided, and Europe is militarily far behind the U.S. So it is only the United States … We have never had a more unipolar world than we have today.”
Yes, many Asians resent the fact that Americans scolded them about their banking crisis in the 1990s, and now we’ve made many of the same mistakes. But that schadenfreude doesn’t last long. In random conversations here in Seoul with Korean and Asian thinkers, journalists and business executives, I found people really worried: Could it be, they ask, that the Americans don’t know what they are doing, or, worse, that they know what they are doing but the problem is just so much bigger than anything we’ve ever seen?