By Edward Angly, copyright 1931
Lines of the Times (Again)
Now everybody will get to work.
—Alfred P. Sloan,
President, General Motors,
OCTOBER 27, 1929.
Recent developments have fortified the optimism with which business men regard the prospects for 1930.
—The Guarantee Trust Co. Survey,
DECEMBER 30, 1929.
Happily, we have now turned our backs upon the events of this unfortunate episode.
—Paul M. Warburg,
Federal Reserve Board,
JANUARY, 1930.
Following my visits to a number of cities in the last sixty days I have reached the conclusion that this is going to be a good business year.
—E. G. Biechler,
Frigidaire,
JANUARY, 1930.
Present conditions point to a fairly short period of depression. By next July those businesses which are run scientifically will have reached a stage on a level with the normal of last year. By the next October those businesses will be back to an activity actually higher than last year, and much higher than the preceding years.
—Dr. Rupert S. Tucker,
Economist, American Foundation Corp.,
MARCH 26, 1930.
There is no reason for people to get their wind up.
—Sir Josiah Stamp,
Governor of the Bank of England,
JUNE 19, 1930.
The economic maladjustment of this period will without a doubt be ironed out before many months have elapsed.
—Dr. W. Randolph Burgess,
Federal Reserve Bank of New York,
JUNE, 1930.
Prophecy is a vain thing and I have no wish to join the ranks of the prophets, but I cannot believe that this country of ours, with its huge consumption and its enormous capacity, can long remain in a state of depression.... I believe... that we have turned the corner.
—P. E. Crowley,
President, New York Central R.R.
JUNE, 1930.
It would surprise many to know how good business is right now.
—Arthur Reynolds,
Chicago banker,
JULY 12, 1930.
The general slump in business, in my opinion, has been greatly exaggerated.
—R. W. Woodruff,
President, Coca-Cola Co.,
AUGUST, 1930.
If we all buckle down to our jobs, prosperity will be back again before we realize it.
—Adolph Zukor,
Motion picture producer,
AUGUST 31, 1930.
I certainly am optimistic regarding this fall.... There may soon be a stampede of orders and congestion of freight in certain lines and sections.
—Roger W. Babson, SEPTEMBER 11, 1930.
FREIGHT CAR LOADINGS
Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sept. Oct. Nov. Dec.
1930 92 89 87 86 84 84
1931 82 80 80 80 79 77 76 72
UNLEASHING ’IM
Costello in Albany News
OCTOBER, 1930
It would be foolish for any man to predict when the business lull will end, but we will all wake up some morning and discover that business is good.
—George M. Reynolds,
Chicago banker,
OCTOBER 1, 1930.
New York TimesNOVEMBER 10, 1927.
Irving T. Bush, head of the Bush Terminal Co., returned yesterday on the White Star Liner “Homeric” after spending three months in Europe, during which time he visited England, France, Germany and Russia studying business conditions. He said that as a result of his observations he was convinced that the United States was the most prosperous nation in the world and was independent of all other nations because it was economically reliant only on its own production.
“The future destiny of America is in our own hands, and is not dependent upon other nations,” he said.
—
Irving T. Bush
OCTOBER 4, 1930.
What the world needs today is an economic disarmament conference.... We are thinking internationally.
—New York Evening World
Bush—DECEMBER 28, 1930.
Irving T. Bush, president of the Bush Terminal Company, predicted yesterday that in another year the financial depression will have run its course and that a decided improvement, world-wide in scope, will be seen. Mr. Bush made his analysis of business conditions for the new year at the request of a group of Boston business men.
“Fundamental business conditions are about at bed-rock,” he said.
—New York Herald Tribune
Bush
“The outstanding development in Europe today is the evidence of returning confidence shown by business men. In England, where difficulty was experienced last Fall in getting business houses to take extended leases on properties, the number of long-term leases is now on the increase. Except France, where the depression started only a short time ago, the European countries all appear confident that an upturn in general business is imminent.”
—New York Times,
JUNE 14, 1931
Bush
BERLIN CLOSES BOERSES;
BIG BANK FAILS
—Part of 4-col. headline,
New York Times,
JULY 13, 1931.
Bush
Central Banks Agree to Help Reich;
Act After All-Day Meeting at Basle;
German
Bank Runs Bring 2-Day Closing
—4-col. headline,
New York Times,
JULY 14, 1931.
Bush
Great Britain Suspends Gold Payments Today;
Closes Stock Exchange. German Boerses Shut
—Part of 5-col. headline,
New York Times
SEPTEMBER 21, 1931.
Bush
TRADE BODY PLANS
TO ATTACK PROBLEM
BARNES ANNOUNCES CALL FOR
CONFERENCE IN WASHINGTON
WITHIN TWO WEEKS
_____________
To Loose “Key Logs of Jam”
_____________
BUSINESS WILL BE FOSTERED THROUGH
ORGANIZATION FOR THE EX-
CHANGE OF
INFORMATION
New York TimesWASHINGTON, Nov. 21 (1929)—Julius H. Barnes, Chairman of the Board of the Chamber of Commerce of the United States... has been asked by President Hoover to create an executive committee from the groups of industrial leaders who met with the President today and from trade associations of the country, “to assist in expansion of construction and maintenance of employment....”
—
CHAIRMANJulius H. Barnes,
DECEMBER 16, 1929.
The progress of America can be halted for brief spaces only, if at all.
Barnes—DECEMBER 12, 1929.
A return of the credit market and business activity will perhaps be slow during the first half of the coming year, but conditions will obtain their regular equanimity before the year is out.
—Address at Economic Club Dinner, New York
Barnes—FEBRUARY 18, 1930.
Ten million more persons are at work now than were employed in 1921. This in itself helps to explain the checking of this business recession in so short a time.... The stock of the deflation in security prices has largely been absorbed in three months. The danger of a long depression appears fairly over, with every evidence of early renewal of the normal onward march....
—Statement
Barnes—MARCH 16, 1930.
To the business men of America, the spring of 1930 marks the end of a period of grave concern. They have now weathered the worst of the storm which came in the wake of last autumn’s crash on the stock market.... American business is steadily coming back to the normal level of prosperity....
—Article, “Business Turns the Corner”
Barnes—MARCH 30, 1930.
We realize... that we have not yet done a thoroughgoing job in the accumulation of comprehensive and accurate data concerning business in general.
—Article
Address before Bureau of Advertising, AmericanBarnes—APRIL 24, 1930.
American business... is achieving a restored stability by a philosophy peculiarly its own, and through methods probably effective in no other country and no other era.
—
Barnes—NOVEMBER 2, 1930.
Last fall America was faced with the dislocation of its great industrial and financial machine. It seemed as if the panic shock of falling security values could be offset by a better general knowledge of actual facts and their dissemination from responsible sources. That was the theory on which the Business Survey Conference adjusted itself. The conference assumed that we were a reasonable, educated people; that, informed of actual facts, business judgment would conduct industry intelligently, and that the orderly every-day habits of our people could be preserved. Since last December a new force has come into play. It was the fall of commodity price levels throughout the world.
— New York Times
Barnes—NOVEMBER 7, 1930.
Tariff walls erected too rapidly by European nations and the demonetizing of silver by Great Britain were the two chief causes of the world depression.
—Address in New York City
DECEMBER 17, 2008
“It’s always human nature,” said Mr. Lin, who lost his job at Merrill last summer and now works at RRMS Advisors, a consulting firm that advises investors in troubled mortgage investments. “You want to pull for the market to do well because you’re vested.”
—New York Times
CHAIRMANReed Smoot,
APRIL 18, 1931.
One of the most powerful influences working toward business recovery is the tariff act which Congress passed in 1930.
—New York Times
Smoot
TRADE AND WORK
NEAR RECOVERY
BARNES REPORTS
—New York Herald Tribune, DECEMBER 15, 1930.
Smoot
TRADE UPTURN
IS WORLD-WIDE
BARNES REVEALS
—New York Herald Tribune,
MARCH 2, 1931.
Smoot
BARNES DROPS
TRADE SURVEY
ORGANIZATION
—Washington dispatch,
SEPTEMBER 8, 1931.
Charles E. Mitchell,
CHAIRMANSEPTEMBER 20, 1929.
There is nothing to worry about in the financial situation in the United States
—Statement on sailing for Europe.
Mitchell
BERLIN, Oct. 8 (1929)—In an optimistic interview prior to his departure for London, Charles E. Mitchell today declared that despite the New York stock market break “the industrial condition of the United States is absolutely sound and our credit situation is in no way critical.”
—New York Times
Mitchell—OCTOBER 15, 1929.
Although in some cases speculation has gone too far in the United States, the markets generally are now in a healthy condition. The last six weeks have done an immense good in shaking down prices. Many leading industrial securities are now at levels which would have been considered perfectly sound and conservative even by the standards of ten years ago.
The market values have a sound basis in the general prosperity of our country. All the basic industries are doing satisfactorily and unless something unforeseen occurs, should continue to do so. I cannot see anything, such as some people are warning us of, to check that continued expansion.
—Interview cabled from London
STOCKS MOUNT SHARPLY,
ENDING MARKET GLOOM
—OCTOBER 22, 1929.
Mitchell
Arriving home today from Europe, Charles E. Mitchell expressed the belief that the recent decline in the stock market had gone too far “in certain important directions.”
—News item, OCTOBER 22, 1929.
Mitchell
FAVORITES CRUMBLE UNDER
NEW POUNDING, BANK
RALLY FAILING
—New York Evening Post,
OCTOBER 23, 1929.
Mitchell—OCTOBER 23, 1929.
The decline in stock market prices has carried many issues below their true value.
—New York Times
Mitchell
WORST STOCK CRASH
STEMMED BY BANKERS
—New York Times,
OCTOBER 25, 1929.
Mitchell—OCTOBER 25, 1929.
I am still of the opinion that this reaction has badly overrun itself.
Mitchell
NATIONAL CITY
EMPLOYEES GET
STOCK RIGHTS
— Headline, DECEMBER 4, 1929.
Mitchell
OVER-THE-COUNTER QUOTATIONS
Dec. 4, 1929 Oct. 2, 1931
Bid Asked Bid Asked
National City 221 225 50 50 1/2
Dr. Julius Klein
JANUARY 10, 1930.
The stock market crash affected approximately only 1,000,000 persons, the speculative element.
Klein—MAY 21, 1930.
Business is gradually but unmistakably coming out of the depression....
Klein—SEPTEMBER 26, 1930.
There seems to be a fairly good chance that the United States will be out of the current economic depression by the end of October.
—Address to Half Million Club
Klein—DECEMBER 31, 1930.
We may confidently expect unfavorable corporation reports from various industries, but it must be borne in mind that these reports will refer to conditions which are behind us and will have little relation to actual conditions at the time they are made public. They should not be allowed to set up any fictitious pessimism.
Following the publication of these reports during the opening months of the new year, conditions will steadily improve all along the business front.
Klein—MARCH 19, 1931.
The long decline has at last been halted.
Klein—JUNE 9, 1931.
The depression has ended. The valley usually runs across six or seven months. If history repeats itself, this means that in July up we go.
—Speech to Radio Manufacturers’ Association, Chicago
Klein
At the fag-end of a year and a half of business trials, the value of a vacation as, a reconstructive expedient is indisputable.
Klein—AUGUST 15, 1931.
Radio will prove to be the most important factor in bringing about the return of normal business conditions and prosperity in the United States.
Col. Leonard P. Ayres, VICE PRESIDENT
This is truly a new era in which formerly well-established standards of value for securities no longer retain their old significance.
—AUGUST 15, 1929.
Ayres
Business conditions in the United States will be poor during the first few months of 1930 but strong before the close of the year.
—DECEMBER 15, 1929.
Ayres
We appear to have reached the bottom of the business valley, but we do not yet know how wide the valley may be.
—FEBRUARY 15, 1930.
Ayres
The upturn should not be far away.
—JUNE 15, 1930.
Ayres
Business appears to be turning the corner, and industrial activity seems to be increasing.
—SEPTEMBER 15, 1930.
Ayres
It is encouraging to note that business activity is no longer slowing down.
—OCTOBER 15, 1930.
Ayres
Business is stagnant. We have men, money, materials and markets, but are unable to put them to work.
—DECEMBER 15, 1930.
Ayres
It may even prove that the worst of the depression has not yet been reached, but, nevertheless, the weight of probability is distinctly in favor of durable improvement beginning in 1931.
—JANUARY 15, 1931.
Ayres
The present indications are that we are at or near the bottom of this depression.
—FEBRUARY 15, 1931.
Ayres
There are as yet no reliable signs that a sustained recovery is getting under way.
—MARCH 15, 1931.
Ayres
Business sentiment has made a triple bottom in this depression.... Three times ought to be enough....
—JUNE 15, 1931.
Ayres
Sustained improvement in business activity is to be postponed while still further and more extensive readjustments are being effected between wages, prices, rents, production costs, distribution costs and overhead charges.
—August 15, 1931.
PRESIDENTMelvin A. Traylor,
OCTOBER, 1927.
There are grounds for the belief that there has been a change for the better in certain aspects of the business cycle as it may be expected to operate in the future in the United States. Cycles have been described as consisting of prosperity, crisis, depression and revival. Conditions have come into being which tend to soften the second or critical stage so that in the description of future cycles, we might substitute the word “recession” for “crisis.” Furthermore, we may hope that the two phases “recession” and “depression” may be rendered less disastrous in the future than they have been at many times in the past.
—Article in the American Bankers Magazine
MAY 8, 2007
Pop!: Why Bubbles Are Great For The Economy
—Daniel Gross,
title of book
OCTOBER 7, 2002
Whether done as part of the original credit decision or in response to changing conditions, these transactions represent a new paradigm of active credit management and are a major part of the explanation of the banking system’s strength during a period of stress.
—Alan Greenspan,
At the annual convention of the American Bankers Association,
Phoenix, Arizona
2008
What accounts for such low default rates? The Greenspan school of market sages points to the new credit paradigm. Securitization and new credit hedging instruments have dampened market volatility and broadened the availability of credit. In addition, private equity funds often can organize partial liquidations and restructurings much more efficiently than traditional bankruptcy courts, so defaults can be cleaned up much faster than through traditional mechanisms. All those claims are true—up to a point—but they were also true, up to a point, in subprime mortgages.
—Charles R. Morris,
The Two Trillion Dollar Meltdown
OCTOBER 23, 2008
Since the publication of [George Soros’] The Alchemy of Finance, the global economy has witnessed a long and geographically dispersed series of boom-and-bust cycles, the latest of which is currently ravaging the US economy. While episodes such as these would be perfectly recognizable to Victorian economists such as John Stuart Mill or Alfred Marshall, who referred to them as “trade cycles,” they defy modern orthodoxy, which depicts the economy in general, and financial markets in particular, as effective, stable, and self-correcting mechanisms.
—John Cassidy,
New York Times
Traylor—MAY, 1931.
Business leadership... had it read the barometer properly, should have noted the storm that was gathering and trimmed sail accordingly, but ambition for place, power and profit blinded leadership to the obvious dangers ahead and prevented the preparation of a safe harbor against the hour of storm.
—Speech before International Chamber of Commerce
JANUARY 1, 1993
NOVEMBER 8, 2008
To make matters worse, Merrill sped up its hunt for mortgage riches by embracing and trafficking in complex and lightly regulated contracts tied to mortgages and other debt. And Merrill’s often inscrutable financial dance was emblematic of the outsize hazards that Wall Street courted.
—New York Times
SEPTEMBER 26, 2005
...the vast majority of homeowners have a sizable equity cushion [which, in many cases, was hard-earned] with which to absorb a potential decline in house prices.
—Alan Greenspan
OCTOBER. 20, 2005
...a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.
—Ben Bernanke,
Federal Reserve Chairman
OCTOBER 15, 2008
The real concern is that we have is that we have got and developed in this country a very serious too-big-to-fail problem. And that problem — we’ve just recognized now in the current situation how severe it is. There are too many firms that are in some sense systemically critical. And that creates problems both for the system itself, because if one fails, it creates tremendous problems, but it also creates distortions in that market discipline will break down if everyone believes that if firm X is not going to be allowed to fail, therefore why should we monitor that firm, why should we care about what they do with the money we lend them, because we know we’re going to get it back?
—Ben Bernanke,
speech to the Economic Club of New York
2007
This created a major increase in world liquidity. Stock and bond prices, homes, commercial real estate, paintings, and most everything else joined in the boom. Homeowners in many developed nations were able to dip into their growing home equity to finance purchases beyond what their incomes could finance [as if all this is something good].
—Alan Greenspan
introduction, The Age of Turbulence
JULY 25, 2006
There should be no interference with the investment strategies or operations of hedge funds, including their use of derivatives trading, leverage, and short selling. Nor should the federal government trammel upon their creativity, their liquidity, or their flexibility.
—Christopher Cox,
Testimony Concerning the Regulation of Hedge Funds,
Before the U.S. Senate Committee
on Banking, Housing and Urban Affairs
SEPTEMBER 23, 2008
The last six months, during which the SEC and the Federal Reserve have worked collaboratively with each of the firms pursuant to our memorandum of understanding—have made abundantly clear that voluntary regulation doesn’t work.
—Christopher Cox
SEPTEMBER, 2006
The Government’s interest in this area [London Stock Exchange regulation] is specific and clear: to safeguard the light touch and proportionate regulatory regime that has made London a magnet for international business....
[Legislation will] outlaw the imposition of any rules that might endanger the light touch, risk-based regulatory regime that underpins London’s success. We remain open to overseas investment that will continue to be able to benefit from our regulatory regime.
—Ed Balls
(I’m not kidding.)
Economic Secretary to the UK Treasury, 2006-07
SEPTEMBER, 2008
Those people who think that the global market can be run without regulation, or with self-regulation, or with light-touch regulation have been entirely routed, have been entirely disproved.
—Ed Balls
2007
It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade. The worst have failed; investors no longer fund them and are not likely to in the future.
—Alan Greenspan
The Age of Turbulence
SEPTEMBER 20, 2007
I’m optimistic about our economy.
—George W. Bush
OCTOBER, 2007
By and large, in today’s regulatory environment, it’s virtually impossible to violate rules. And this is something that the public really doesn’t understand.
—Bernard Madoff
JANUARY 19, 2008
I am optimistic about our economy.
—George W. Bush
MARCH 11, 2008
We have a good deal of comfort about the capital cushions at these firms at the moment.
—Christopher Cox
APRIL, 2008
The Liberal Democrat motion has been much commented on, possibly because it reads like the storyboard for “Apocalypse Now”, or perhaps even “Bleak House”. According to the motion, we are facing an “extreme bubble in the housing market” and the “risk of recession”, and we must “act to prevent mass home repossessions”...
Fortunately for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality...
—Angela Eagle,
Exchequer Secretary to the UK Treasury
OCTOBER, 2008
Obviously, this tough economic climate creates challenges for us all. The effects of the global economic crisis have filtered down from major financial institutions to families across the country …
—Angela Eagle
APRIL 10, 2008
Spare us the meddlers
For all the problems in the interbank markets, British banks are solvent, they are still making profits and they are still paying dividends. Fingers have been burned and, hopefully, lessons have been learned. The British banking system is not collapsing and confidence will surely return.
—Ruth Lea,
Free-market champion and former Head of Policy at the Institute of Directors
OCTOBER 8, 2008
The rescue plan is bold and welcome
The banking sector, love or hate it, is a vital part of the economy and uniquely has the ability to wreck the rest of the economy. We are living in desperate times and there has been a critical need for radical, prompt measures. The government has, after some nerve-racking dithering, responded.
—Ruth Lea
2008
At Enron, Skilling created a system of strong incentives—including very large payoffs—based on his deeply held belief that business success depends on cultivating an innovative environment that spurs creativity and risk taking. Unfortunately, in its implementation, Enron’s system of financial incentives also led to a gladiator culture in which increasingly risky gambles found support, personal opportunism ran rampant, and risk management processes broke down at the most inopportune times.
...However, this compensation system included enormous incentives for executives to maximize short-term results, to expand the use of off-balance-sheet entities as a way of managing Enron’s income statement and balance sheet, and to ignore many of the values and administrative foundations required for a successful business organization.
—Malcolm S. Salter,
Innovation Corrupted,
The Origins and Legacy of Enron’s Collapse,
in the chapter The Impact of Perverse Incentives(Considering how trendy this sort of “freedom” has been since 1980, you’d think that lessons would have already been learned about the consequences!)
OCTOBER 23, 2008
What concerns me, and I have read some of your writings, is you have conceded that there was a flaw in your ideology earlier today with respect to the situation of bad actors, right? But what you haven’t conceded is I think a flaw in the ideology that suggests that the market will always punish the bad actors, or at least not allow for the fact that if you put a driver in a car and they drive recklessly, and maybe they have a car crash, it’s going to punish them and maybe they will learn their lesson.
But in the meantime, a lot of innocent bystanders can get run over. I think that’s what happened. There’s a lot of the American people out there who feel like innocent bystanders, and they have been hurt.
—Congressman John Sarbanes
to Greenspan During the Hearings
JULY 15, 2008
We can have confidence in the long-term foundation of our economy, and I believe we will come through this challenge stronger than ever before....
I think the system basically is sound, I truly do. And I understand there’s a lot of nervousness. And—but the economy is growing, productivity is high, trade is up, people are working....
... I’m an optimist. I believe there’s a lot of positive things for our economy.
—George W. Bush
JULY 16, 2008
[As Bernanke expressed realistic fears about the economy] ...President Bush, speaking a few blocks away, urged Americans to have faith in the country’s financial foundations.
—New York Times
SEPTEMBER 17, 2008
OCTOBER, 2008
—Entire Contents of a Protest Sign on Wall Street
OCTOBER 23, 2008
Mr. YARMUTH. I appreciate that, and I agree that the steps you are taking are commendable and I think they make sense. But your predecessor, William Donaldson at the SEC, he wrote a letter to Congress in 2003 and said he did have ample authority to regulate credit rating authorities because he could decertify them if he found that they weren’t doing the job properly.
So you did have authority, maybe not specific legislative authority, but you had authority to use the certification process, didn’t you?
Mr. COX. The certification process was the basis—remember, in that period there were essentially three main rating agencies and they were already there. So rubber stamping them as “certified” was rather circular and tautological. What was under development, as I mentioned earlier, was a program of voluntary compliance, a code of conduct. This was in fact being developed on an international basis.
...Make no mistake, credit rating agencies did not have a regulator, were not regulated, and all that they were going to get was volunteer. Volunteer regulation does not work. We have seen it over and over again.
—Congressional hearings
SEPTEMBER, 2007
These errors make us look either incompetent at credit analysis or like we sold our soul to the devil for revenue, or a little bit of both.
—A managing director,
Moody’s credit rating agency,
responding anonymously to an internal management survey
NOVEMBER 13, 2008
History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market.
—George W. Bush
OCTOBER 22, 2008
After meeting recently with European central bankers, [Paulson] said, “the thing that took your breath away was the extent of the problem. Look at country after country that said they didn’t have a problem, and it turned out they had a huge problem.”
—New York Times
OCTOBER 23, 2008
Most importantly, we have learned that voluntary regulation of financial conglomerates does not work.
Christopher Cox,
Testifying before Congress
copyright 2009
Importantly, unlike such prior evolutionary catalysts as the Great Depression of the 1930s and the Great Inflation of the 1970s, the Great Moderation [1985-2008] has been a long and gradual environmental change accompanied by a marked decrease in economic volatility—at least, that appeared to be the case until the 2007-2008 financial crisis. Wild swings in unemployment, economic output, inflation, and interest rates have been seemingly tamed by globalization, financial innovation, risk management, and skillful monetary policies. The tranquility of the macroeconomic environment, the gradual nature of the tectonic financial shift, and the record profits of the Golden Age all obscured the profound nature of the change and provided little urgency to even acknowledge it, not to mention adapt to it.
Similar to the aftermath of previous financial “asteroid strikes and ice ages,” those financial institutions that will survive and prosper this time around will do so by adapting to the new environment in a way that parallels the natural selection of Darwin’s biological organisms. [or maybe by being good at the whiny manipulative sophistry that would get one bailed out]
—Leo M. Tilman,
Financial Darwinism: Create Value or Self-Destruct in a World of Risk
MARCH 2, 2009
The Goal: Preserve Economic Dynamism
—heading of a section of a posting on the Financial Darwinism blog,
Bank Nationalization,
The Misnomer Du Jour(In other words, after these banks are radically mollycoddled, they, or at least the parts of them that are sold off, would propound Darwinist principles, and most people would go along with this. After all, it would encourage self-motivated achievement and, at least most of the time, consequences for failure, any failure for any reason. If even a company that’s still in debt to the government didn’t do this, they’d lose the competition.)
DECEMBER 23, 2008
Think you could borrow money from a bank without saying what you were going to do with it? Well, apparently when banks borrow from you, they don’t feel the same need to say how the money is spent.... “We’re choosing not to disclose that,’” said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.... “We have not disclosed that to the public. We’re declining to,’” Kelly [spokesman for JPMorgan Chase] said.
The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest?
None of the banks provided specific answers.
—Matt Apuzzo,
Banks Mum on Bailout Funds,
Associated Press(So this is
Financial Darwinism for bailed-out banks: selfishly not telling the taxpayers how much money the banks got from them, since this gives the banks competitive advantages. Therefore, the Bushmen deferred to them.)
copyright 2009
Given the secular nature of many forces at play, continuing pressures on static business models, and the nature of modern mechanisms according to which imbalances build up and then unwind, it is reasonable to expect that systemic financial crises as described may be a permanent feature of the new financial regime.
—Leo M. Tilman,
Financial Darwinism: Create Value or Self-Destruct in a World of Risk
These factors of the new deregulated economy that we’re supposed to just take as givens, include, “The quest for higher origination volumes amidst compressing fees and the prevalence of ‘originate, securitize, and sell’ business models that detach originators from credit risk both contribute to the loosening of underwriting standards.” Oh, poor Gordon Gekko, his fees are getting compressed, and he must quest for higher origination volumes! We must understand his desperation!
copyright 2009
ne of the other ways Wall Street funds itself on a daily basis is in the so-called repurchase agreement (repo) financing market, where a firm’s securities are pledged as collateral for funding. At Bear, the mortgage repo desk arrived at work around six-thirty in the morning. “They dial for dollars,” [Paul] Friedman [a Bear Stearns senior managing director, and CEO of the fixed-income division] said. “Our guys would borrow maybe $75 billion a day, something in that neighborhood, most of it daily. It’s not like you’re dialing strangers. You’re calling up the guy who loaned you the money yesterday and going, ‘You okay with it today? What’s the rate today? Okay, great. Thanks.’ You tweak it up and down as people need money, and you tweak it up and down as you buy or sell collateral. Basically, the vast majority of it just rolls in the normal course. It’s of course insane. In the normal world it would be insane, and in this world it’s really insane. But that was the only choice. By the way, it wasn’t just us. I guarantee you, if you went to Lehman or Goldman or Morgan Stanley right now, they’re doing most of their funding overnight. It’s just what they’re doing.”
The daily funding drama, such as it is, is usually resolved around eight-thirty each morning. And it is usually an inconsequential discussion, until the moment it’s not—and then it can be life-threatening. It would be as simple as being able to breathe one second and not being able to breathe the next.
—William D. Cohan,
House of Cards, A Tale of Hubris and Wretched Excess on Wall Street
FEBRUARY 26, 2009
Systemic risk is the risk imposed by inter-linkages and interdependencies in a system or market, which could potentially bankrupt or bring down the entire system or market if one player is eliminated, or a cluster of failures occurs at once.
—AIG,
beginning of the statement to the Treasury Department
begging for $30 billion more of a bailout,
to add to the $152 billion it had already gotten
(so AIG’s plea obviously wasn’t fatalistic about systemic risks, and neither were those who terrifiedly gave them billions of dollars of government money)
