[Via The Interpreter] Italian journalist Federico Fubini went to Davos and surveyed finance market wizards and banker types about the origins of the Global Financial Crisis. The result? They’re not taking much responsibility, and were much comforted by the “Black Swan” hypothesis:
The audience seemed to enjoy the idea that the current crisis is a “Black Swan,” a very unlikely, though possible, event. The alternative view is that of a train driven full speed into a wall. Thinking that way requires one to ask who was in the driver’s seat, and just maybe recognizing one’s own fingerprints on the wheel.
Elsewhere: SocProf.
Related post: dk.au on Black Swan events.
As a Western Australian, I love that term ‘Black Swan’.
Is that anything like a Black Cockatoo, mighty Bird of Paradise?
Na. It’s all the fault of the socialists because they didn’t take over and regulate.
OT, but speaking of masters of the universe, thanks to Pharyngula, do a search at Whitepages for “Magic shop” in QLD.
You’ll probably need to be quick.
No, it’s not their fault. It was my fault. Sorry ’bout that. I promise I’ll never create a multi-trillion dollar market bubble based on false credit again.
What a fucking crock!
They don’t eliminate agricultural protectionism for 30 years and then they don’t use anti-trust effectively for 30 years and then they illegally invade resource rich regions while blocking the free movement of social-capital!
What the fuck do these morons expect!
This is much less some ‘ black swan’ than some perfectly foreseeable failure…as in ‘ those who make revolutions half-way dig their own grave…’type of terminal failure. And good riddance to this ‘ black death’. Good riddance to Austrian economics, Marxism and pretty soon even democratic-socialism. Don’t let the door hit yr butt on the way out.
Every time you say you dont believe in fairies, a fairy dies.
If you build it, they will come.
Ya gotta have faith.
etc
Those independent, resourceful, flinty-eyed, innovative financial-types had nothing to do with it. It was just random glitch in the system. Nobody saw it coming.
The operation was a success, but the patient died. Und So Weiter…
The gall of these people is astounding.
“If you tell a lie big enough and keep repeating it, people will eventually come to believe it.”
So reassuring to see that the elite are still going large.
And you all know how unregulated the banks are. Oh – wait… – and Australia is one of the less regulated banking environments in the world.
Try also adding in the Corps Act, related legislation, the ITAA and all of the State regulation (the UCCC for example). Throw in the ASX rules for those that are listed and you have a wonderful little pot.
Wake up guys and stop imagining that banks are some sort of capitalist Nirvana. I have worked in and with banks day in and day out for nearly two decades. Until you actually know how the intrusive and (at times) brain dead regulatory framework affects what banks do and how they operate I suggest you stop kidding yourselves that it is somehow a de-regulated paradise out there for the Banks to do as they want.
If it was “perfectly foreseeable”, Professor Rat, then the regulators that you seem to think should have more control must have been asleep at the wheel they have given themselves.
I see no reason why they should be handed a bigger wheel.
Good grief! Even that jolly Mr Greenspan has admitted that the “creative accounting” went on for much too long.
Steering wheels on trains have limited efficacy.
Allowing for the inaptness of the metaphor, fingerprints alone do not indicate the state of mind of the person who made the prints.
That person may have deliberately tried to crash the train, or was recklessly endangering the train, or was trying desperately but ineffectually to stop the train, or could have stopped the train but got hold of the controls too late.
All of these possibilities imply liability, but very different forms of liability.
Perhaps trains should be banned.
AR, not everyone’s arguing for a bigger wheel. I merely ask for regulators who aren’t beholden to a government dominated by ideologues who believe less regulation is always better. And for regulations that generally ensure that when risks taken bankers and financial firm leaders go wrong the fallout on innocent bystanders is minimised.
Katz,
If you are going to use metaphors (which I presume you are) I suggest you try to make it relevant or at least understandable.
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wizofaus,
Dealing with regulators on a regular basis as I have had to do in the past you very quickly understand that they are beholden to no one – least of all the Ministers. The powers they are given by the legislation and associated regulations are very broad (up to and including the ability to take over the management of any ADI without recourse). They are already at least as powerful as you imagine they should be in some idealised world of yours – and probably more so.
Ministers, as the ones in both the previous and current governments have shown, do not understand banking. They will almost uniormly defer to the regulators.
The problem is that, in many ways, the actions of the regulators seem designed to maximise the impact on external parties.
Banks take risks. It is that simple – unless you want to live in a Graham Bird paradise where depositing money in a bank means that the physical cash (or gold or something else) is actually held and never lent out, meaning that instead of interest you will have to pay fees to make a deposit. The vast majority of the time those risks are well controlled and everyone wins – depositors get their deposits safeguarded and (often) some interest, shareholders get dividends, bankers get paid and borrowers get the funds they need at a price they are willing to pay. Occasionally they get it wrong.
In Australia it has been over 70 years since a single depositor has lost a single cent (or pence – and even then it was minimal) through putting money in an Australian ADI. That is a stunning achievement. How much more protection of “innocent bystanders” could you possibly want?
It wasn’t my metaphor AR. I was pointing out the inadequacy of the metaphor in the article linked in the post. (I trust you did read the article).
Ahh, now I understand. The writer of the piece was using a mixed metaphor. I thought you were running with mine. Beg pardon [tugs foelock].
Think nothing of it AR.
The more important issue is what kind of liability, if any, did different actors have in failing to avoid the crash. You may remember that I was taken severely to task on LP some time ago for suggesting that our entire system was facing collapse.
Though I must admit that I underestimated just how serious and pervasive the collapse has been. In short, I liquidated much, but not all and am now suffering the consequences, notably SunCorp.
Sorry, Katz – but what has collapsed? The collapse of some or even most prices in a market does not mean the market has collapsed – or are you using the common, journalistic, prose that require hyperbole?
The point I’d make is that it is almost beside the point whether the so called MOU are to blame. Self interest and the desire to improve one’s financial position are pretty basic human motivations. They aren’t going anywhere. The important thing to recognise about the GFC is that the incentives within the financial and regulatory systems allowed those basic motivations to threaten the stability of financial systems. It is those incentives to load up on and underprice risk during good times and dump and overprice risk during bad times that need to be corrected by more effective regulatory and supervisory practices. The roots of the GFC are complicated and cannot be reduced to the decisions of a few people. Macro imbalances (enormous capital flows from Asia to the US), lax monetary policy, ineffective regulation and supervision, regulatory arbitrage, and financial innovation all played a role. Australia has been hit more by its exposure to the rest of the world than the failures within our own system – though there have been some here as well.
Andrew is right though to highlight that regulation itself can be the root of problems within the financial system. There are major information asymmetries between regulators and financial institutions. Even well intentioned governments often don’t understand the consequences of the regulations they impose. Remember, the government that designed the ETS is the same government that you want to design a foolproof financial regulatory and supervisory system.
Exactly, LO. A lot of the argument I have with people advocating more regulation is that they do it in the abstract – “There ought to be a rule against it”, rather than actually looking at how that will actually affect anything.
The long thread with GMB on fractional reserve more or less ended with me badgering him to tell me how he would actually do what he proposed. His answer was only “Let me and a hand-picked team do it”.
Having the idea of a perfect set of regulations and attempting to actually frame them are two very different tasks. Having dealt with most of the better and alot of hare-brained ones over the years I would dread almost any more and can be almost certain they would be counter-productive.
Some of them are brought in with the best of intentions, but the road to Hell is paved with the intentions and then papered over with the regulations.
True. And I assume that long-term survival should also catch people’s attention.
So how do we explain the dismissive attitude of the MOU to the informed warnings which go back at least 3 years? There is something more than reasonable self-interest at work here.
Self interest is eating until you are full, because you are not sure when your next meal will be… Not choking down everything you can grab and then throwing half of it back up.
The shadow banking system has collapsed.
The bad debts that major players in that system have contracted threaten to cause the entire US and several European banking systems to collapse.
The toxic debts that arise from that collapse have not yet been completely quantified. It is likely that those debts exceed 100 trillion dollars, in other words, US GNP x 9.
The market in those instruments has collapsed.
But according to AR, so long as two individuals meet to swap home-grown carrots for home-grown radishes, the “market” hasn’t really collapsed.
AR should look forward to good times, because it is likely that there will be a boom in home-grown carrots and radishes.
Glad we have put in a new vege garden out the back then, Katz.
.
Any source on the 100 trillion figure – or was it just attached to the bottom of that carrot?
“Whenever Two or more are gathered in it’s name…” We have to believe.
Take it easy Katz. The free market is an irresistible force of nature. Or maybe it’s like grandpas axe. No matter how many transplants it has, no matter how many bits are replaced (at the taxpayer’s expense), the market is steadfast.
Until further notice.
With those veggies AR you may be tomorrow’s MOU.
I thought you may have pulled that figure from somewhere. That’s fine – just put the carrot back.
.
mars08,
A market is what happens when people interact freely. A market collapses when people stop interacting. That has not happened here.
You are correct, AR
People are still interacting, shares are still being traded. Goods and services are still being sold. Credit is still available. So it’s not a total collapse.
I’m just concerned about those “believers” who tell me it’s just cyclic and that the market will self adjust so it never grinds to a halt.
I’m worried for two reasons… the astounding amount of PUBLIC money being absorbed the the “self-healing” PRIVATE sector.
And the notion that, because the health of the economy is cyclical, it’s going to be ok. Sort of like the meme that some commentators tried to push in explaining away global warming as entirely natural. Sure it was, until ham-fisted human intervention (our short-sighted self interest) amplified those cycles. At some point that cycle will cause us a lot of suffering.
The market has not been pure and unmolested for a very long time. The arrogant, ham-fisted clowns on Wall St have made sure this “cycle” will be interesting.
Well, it sure is grandpa’s axe.
mars08,
I would agree – the market has not been pure and unmolested for a long time. I would put the last date they were unmolested as being at about the time the markets of Ur and Sumer were first subject to theocratic interference. The situation has not improved much, if at all, since then. Those who believe that they can make force people to be more logical by imposing rules and stopping them from doing what they choose to do without hurting everyone else still seem to have the same basis for that belief.
As for the clowns on Wall Street I would add in the arrogant, ham-fisted clowns on Pennsylvania Avenue (both ends), at the Fed, the SEC, the OCC, the FDIC, the State based regulators, etc. etc. etc.
Oh – and read this from a regulator.
Then there’s the difference between the SPIRIT and intent of the regulations, and how they are (or are not) enforced.
To simply look to regulations for salvation is as risky as trusting the “free market” to regulate itself.
mars08,
At least in a market I have control over my own actions. Throw in the arbitrary power of a regulator and who knows what the results will be.
Not so sure about that, AR.
I reckon you’ve only got “conrtol” over your own actions to the extent that the bigger players in the market allow you to have. We don’t have as many choices as we think we have. Everything depends…
mars08,
So you believe that you are strait-jacketed by big corporations? You must be upset when you see the big corporations selling stuff at the local markets.