From Pater Tenebrarum's latest blog entry:
The extensive global division of labor, record global trade and capital flows, just-in-time inventory management and instant communication have seemingly conspired to instantly transmit an economic shock wave across the world. Note however that the difference to economic downturns of the past is only in the speed of transmission – the truly large busts have always gone global, only the lead and lag times may have been slightly different.
I think Taleb would add that the increasing complexity of the global game increases risk and the possibility of catastrophes happening in corners of the system which are unwatched and ignored not to mention the unintended but enormous global consequences of these small catastrophes. The LTCM fiasco was the prime example, a wake up call which was not heeded.
The fraud inherent in the zeal to create ever more 'accurate' sophisticated mathematical risk models based on past experience is enormous. Many very smart people, e.g., Das, Buffett, Roubini, Taleb, etc. - urged a backing away from these fraudulent models; it is a wonder that no one in a position to make a difference listened to their sage advice.
This fraud was created by the one undeniable and eternal quality of the human race: greed, the source of all evil and the precursor of everything that goes bad. Once the quant models 'verified' the safety of the insane things which were being done - despite having learned a forgotten lesson during LTCM - greed was given a free rein. Leveraging into the stratosphere was finally validated despite the one undeniable thing these quants have learned and which a precocious 4th grader can tell you: leverage is great on the way up but a b***h on the way down, in proportion to the amount of leverage involved.
Was it a game of "Screw it, we'll get paid, we won't pay the piper so live for today, make your fortunes now boys" or was it sheer stupidity?
I have a hard believing that Harvard Ph.Ds who are otherwise quite intelligent and their experienced and savvy trader counterparts had no idea that the leverage which was being created could turn deadly. This was surely known at the top. At the middle, I suppose it doesn't matter since the 28 year old was happy to nail down a couple of million a year regardless of the source.
Who cares if it was sheer stupidity or a terrible unpunished crime. Let them all rot in hell.
May the Paulsons and the Bernankes of the world who have not a clue on how to fix things also rot in hell, esp. Paulson and his arrogant three page plan giving him sole discretion on to allocate $700 bn of our money. The irony in giving him so much power over how to give more junk to a junkie is startling.
The worst offender was clearly Greenspan, however. The Maestro of Doom, the Choreographer of Chaos. My shame and guilt would be so severe I would have to be placed on suicide watch if I were him. |
