Felix, Festus, Agrippa, and Paul
Show Me Your Oddballs

Alan Greenspan and the Financial Black Hole

As the Large Hadron Collider in Geneva was about to become operational, dire warnings appeared on the internet. Scientists had been salivating about their Collider for the longest time. At last they’d be able to simulate conditions from the Big Bang and learn…..well, all kinds of things about physics. But worrywarts fretted that these wise ones would instead open up black holes right here on terra firma….and swallow up everything! Two fellows in Hawaii even filed a “cease and desist” lawsuit, but the far away European scientists pooh-poohed it all. Not to worry, they said, any results of their tinkering would be at the subatomic level. Nonchalantly, chuckling at these unscientific nutjobs, they flipped the switch….and half the world’s wealth promptly vanished into a financial black hole! The week ending Oct 10 was the worst week for U.S. stocks since 1914  [!]

SIR - Can it really be a coincidence that within weeks of the Large Hadron Collider being switched on for the first time a financial black hole has appeared in the universe? - Barclay Price, Edinburgh     (letter to editor: Economist)

And from the Yahoo question board:

How did the Large Hadron Collider cause the biggest stock market crash in History?

Apparently taking this for a serious question, people wrote in to say that 1929 and 1987 had seen larger single day crashes, that the market slide had begun a year ago, and that real estate and bank shenanigans, not physics, has caused the meltdown. And besides, like all new projects, the Collider didn’t go online as scheduled, but glitches and difficulties kept it under repair from the start.

But let these apologists say what they will….it was those infernal scientists! They can’t leave well enough alone. Always have to mess with things. Just like when my son used to work the car window up and down, up and down, and I’d tell him not to because he was going to break it. And do you know what happened? Exactly…..and I was out the cost of a new window motor. Of course, breaking a car window motor is not as serious as destroying the entire worldwide financial system, but the principle is exactly the same and I wasn't happy.

In the aftermath, Alan Greenspan testified before Congress:

“We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures. You, importantly, represent those on whose behalf economic policy is made, those who are feeling the brunt of the crisis in their workplaces and homes. I hope to address their concerns today.”

This is the same Alan Greenspan whose voice to the financial community used to be like that of God, the only difference being that God knew what he was talking about. Not that Mr. Greenspan wasn’t bright and competent and all…..it's just that it took only a single flaw to bring down a whole lifetime of work. As chairman of the Federal Reserve Bank, he’d issue statements at least once a month when setting interest rate policy. He’d make the statements incomprehensible….it was almost a game. He’d rehearse them in his head. If they could be understood, he'd rework them. Finance people would strain to discern his real intent, but of course, the task was impossible….by design. Far from becoming fed up with such obscuration, they took it all for brilliance! I mean, any street person would recognize a con-job in two seconds flat, but the bankers hailed it as wisdom from on high. After all, they were making tons of money. Did anything else truly matter?

Mr. Greenspan’s successor, Ben Bernanke, is more straightforward. Mr. Greenspan himself became that way addressing Congress. He dropped the smart-alecky double talk. His words were clear. And not very pretty.

“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment. Fearful American households [not to mention….which he didn’t…the rest of the world] are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds, and increased job insecurity. All of this implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in 401Ks, but in the value of their homes as well.”

No more smug cuteness building indecipherable word castles. For, alas, “those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself particularly) are in as state of shocked disbelief.”

Then Mr. Greenspan discusses what triggered the collapse: factors involving CDOs, already discussed here.

And…

“It was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.”

Note the absolute failure of the best and the brightest - the cream of the crop of human experts. A Nobel Prize was awarded, for crying out loud, for the economic model that would subsequently ruin us all! This was the not work of con men, but of the most learned, the most highly educated (the most profit-driven?) persons of society. And the final admission is staggering: nobody thought to test the model outside of partytime - “a period of euphoria.” Nobody thought that the real world might be different than the party world!

Isn’t there some scripture somewhere about how you can’t trust “nobles” as far as you can spit?

Do not put your trust in nobles, nor in the son of earthling man, to whom no salvation belongs.
 His spirit goes out, he goes back to his ground;
       In that day his thoughts do perish.   Ps 146:3,4


And doesn’t this validate how Jehovah’s Witnesses don’t bow and scrape and slobber over today’s higher education?Instead they extract from education the ability to make a living, while drawing on other sources for wisdom.”

After his statement, the House Committee grilled Mr. Greenspan for awhile, forcing him to admit:

“I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works. That’s precisely the reason I was shocked…I still do not fully understand why it happened, and obviously to the extent that I figure it happened and why, I will change my views.”

I was going to offer up some feeble joke about how the flaw he didn’t reckon on was the Hadron Collider. But I won’t do it. The whole mess is too serious and sad.

********************

Tom Irregardless and Me     No Fake News but Plenty of Hardship

Defending Jehovah’s Witnesses with style from attacks... in Russia, with the ebook ‘Dear Mr. Putin - Jehovah’s Witnesses Write Russia’ (free).... and in the West, with the ebook ‘TrueTom vs the Apostates!’ (free)

Comments

Ed Hughes

Tom, Sheep and Goats,

The present debacle that the United States finds itself in is in part attributed to the honorable Alan Greenspan. He is just one of many that will not face even an official reprimand for the part they played in destroying more wealth in this United States than has been created in the last 10 years. This has devastated many an unsuspecting individual who had been led to believe his house would continue to appreciate and his 401K was as safe and as dependable as the tide, and unfortunately it is not over yet. This hard working individual who was probably reared to believe that the system of Free Enterprise and Capitalism would allow him to achieve what most folks felt was the American dream.

Unfortunately the American dream had been tampered with by certain individuals and organizations to the point where one could think they were part of that American dream with out meeting the prerequisites for a house such as, no down payment, no collateral, and maybe not even a job. Is it any wonder that a system that is supposedly based on checks and balances, and failed to keep up those standards would fail?

We had no money or even the prospect of having any when I was a youngster, but we faced the flag and said the Pledge of Allegiance every school day and were given all the details in Civics classes about what a great country the United States was, and how Free Enterprise, Capitalism and our Democracy would keep us thriving forever. I still think with all my heart that these things are still true, but before we can make more headway in the proper direction we will have to eliminate many things that have altered the path to that American dream and insure that only those that meet rigid requirements, as we had when I applied for my first home loan are the norm.

I again do not have a verse of Scripture to encourage or baffle folks that might read the words I am trying to get by the moderator, but I do trust that those of you out there that read this blog know that I hope you all will recover from this financial downturn that has developed.

Respectfully,
WMM

Screech

A big part of why those responsible were so successful is that most people in the US have become accustomed to accepting what someone that they perceive as educated says without question.

For example, if you question a teacher in school about some matter related to their class, you are likely to get some sort of reprimand.

In short, our education system teaches us to focus on learning our small piece of the pie and trust that others will do the same.

Now, the people who are suffering most are those who are not educated in financial matters. They trusted what someone in a suit told them was true; that house prices always go up and that they can refinance into a fixed rate when the value of their home goes up. Very few questioned the premise of rising home values.

The bottom line is: people wanted a house, someone told them they will get them a bigger house for no money down and low monthly payments. The part that was not sufficiently communicated was: pray that your home keeps increasing in value because otherwise your payment will change like your credit card payment.

Now the people who couldn't afford to maintain their home, much less furnish it, got hit with payments higher than they could afford. They stopped paying credit cards, then car loans, then their mortgages. The mortgage companies said, "sorry, we won't make any changes." Then eventually forclosed. The mortgage company couldn't sell the property without a deep loss, and then they noticed that it was happening a lot, and housing prices fell because of the foreclosure sales (why pay $300,000 for a home that you could buy for $190,000?).

We know what happened from there. The bottom line is that people are taught that education is valuable for obtaining a job, but not that it can help them avoid huge messes in their personal lives. If people in general were better educated, perhaps more would have questioned the sales people better, and made different choices. Instead, we trusted them as we would trust teachers. oops.

Ed Hughes

Screech,

Good point there, if you question the teacher you generally end up suffering the consequences. My family has had more than one controversy with teachers and administrators and I do not recall winning in the end on most of them. Most of the time the teacher would just wait until the last report card and then it is get even time. Of course, I was a teacher for the Navy for 8 years and taught in a private school for about 8 years also, so I am aware of many of the problems that occur, and the way teachers might feel they should never be contradicted by a student.

You found the weak spot in our society; and it is education. We here in South Carolina have a high school graduation rate of about 54% and many that do graduate can not read at a 6th grade level. There is no way that the average person in this state can understand a legal document, and then sign those same documents because Mr. in the suit said it was ok .

The problem has been located, but what is the solution to the problem. It is not the teachers, the schools, the fast talking financial advisor, or any other folk that these unenlightened children may be swayed by; it is the parents that have the direct responsibility for the conduct, education and social awareness of their children, while they are children. If parents will do their job these children would be more educated and be able to cope with the problems they will face in later life. It is just discipline, plain and simple. If you have children you owe it to them to form them into responsible individuals that when you turn them loose they will not be a burden on society.

Respectfully,
WMM

Screech

Absolutely I agree. Parents are the most responsible. I have worked hard to instill in my kids the value of obtaining a well-rounded education, even in things they don't like, because it will give them a more firm foundation for all of life.

My girlfriend is a teacher in a Title 1 (poor) school and she is doing all that she can to show these kids that whatever they want to do with their life (apparently there are 25 future professional basketbal and football players in her class alone) they need to be well educated. I believe that she is starting to get through to them based on their improving standardized test scores...

Ed Hughes

Screech,

The young folks of today do not seem to understand the value of a well rounded education as we did in past times. I live in South Carolina where only 54% of the children graduate from High School and that leaves a bunch of folk’s way behind. As you say, if they can’t play basketball or football they will be nothing. I will add one other thing, being in a rock band enthuses some of them as well. I do not know when children lost the desire to be the best they could be, but even when I did not know that I did not know, I still felt that it was my duty to myself to be the best that I could be, whether it was school work, digging ditches, shoveling manure, or standing at general quarters during the Cuban Missile Crisis on a Navy destroyer. If your girlfriend can motivate her students to understand the value of education she has generated by her own drive, power that a lot of teachers seem to lack today. Her students will owe her a large debt of gratitude in the future.

Respectfully,
WMM

tom sheepandgoats

Two years ago in Rochester City District the graduation rate was 39%. During that year the then-superintendent was named National Superintendent of the Year! Perhaps that says it all?

Bill in Detroit

Detroit wins! We graduate 25% of the males and only slightly more of the females.

Although my wife and I will make our final house payment in a few weeks, many of our friends live in fear of losing theirs -- not because of stupid mortgages, but because of lost income.

Times is tough.

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