Michael Lewis, the author of Liar's Poker, has an interesting article about how short sellers couldnt understand why the investment banks were offering them to short their derivative sales until the short sellers realized the banks needed short sales in order to perpetrate the fraudulent long transactions they were selling. Link is:
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boo m#page1
I'll throw in one other off-the-wall suggestion on the holdback of further bail-outs at present: they can't sell enough bonds. The Chinese, Saudis, etc. may have told them that they're not in the market. The Chinese, for one, have decided to use what's left of the US$ credibility to finance their huge infrastructure, public-works projects. paul spencer
"--use what's left of the US$ credibility to finance their huge infrastructure, public-works projects."
Paul, to fail to prop up the bond zombie will immediately trash that cred. The time frame would seem to favor converting cash held into commodities, real estate--real-world assets- while keeping the corpse moving enough to sustain the illusion. But that's an awful lot of real assets. Who could miss a movement that size? How could it be hidden? Look there, I think. Capitalism searches out the darkest corners of human potential, and mainlines them.
Sinclair Lewis reportedly noted that "it is very hard for a man to understand something if his livelihood depends on him not understanding it." I guess that the essence of the bull mentality is: "Don't look a gift horse in the mouth." It seems that the vast majority of the players are simply incapable of attempting such a feat.
I recall my mortgage broker in Los Angeles indicating that some of the real estate appraisers in the local market could generally be relied on to meet or exceed the proposed sale price with their estimate of value. If you did not do so, the sale might fail and repeat business would dry up. The nature of the compensation system guaranteed that Gresham's law would come to prevail regarding the intrinsic worth of the estimates.
I suspect that one has to have been knocked around a bit in order to be able to see such things. Else it is too easy to go along in order to get along.
The bit about short sales enabling the continuation of the market illustrates the importance of personal interest and profit to understanding a transaction. To the short seller, he wants to sell short because he thinks it is going to tank. To his counter-party, his short sale is the equivalent of printing another security certificate with a slightly reduced face value. He assumes it won't tank. The dependence of the market on conflicting assumptions is probably why it is so tricky to understand. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they'd be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn't expect was that any future reader would look on my experience and say, "How quaint." I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, "I hope that college students trying to figure out what to do with their lives will read it and decide that it's silly to phony it up and abandon their passions to become financiers." I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea. Somehow that message failed to come across. Six months after Liar's Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They'd read my book as a how-to manual.
I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, "I hope that college students trying to figure out what to do with their lives will read it and decide that it's silly to phony it up and abandon their passions to become financiers." I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.
Somehow that message failed to come across. Six months after Liar's Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They'd read my book as a how-to manual.
Great. Chilling. Capitalism searches out the darkest corners of human potential, and mainlines them.
