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What an amazing article.  I recall several instances in the spring where Steve Eisman's pronouncements were shown  wry appreciation by Alan Abelson, my favorite columnist in Barron's.  Financial services company CEOs regarded him as the Devil incarnate.  The truly amazing thing about him, Meredith Whitney and the others mentioned in the article is that the only defense Wall Street had for their devastating insights into the fraudulent nature of the entire "securiturization" business was that it hadn't yet collapsed.

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.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 19th, 2008 at 01:38:56 AM EST
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