Will Wilkinson - Latest Comments in Pre-Dawn Elephant Groping

Re: Pre-Dawn Elephant Groping

John Thacker — Tue, 09 Dec 2008 15:19:06 -0000

Will,

You should really get Randal O'Toole to write another article blaming the origins of the housing bubble (though not all the finance aspects of it) on land-use planning and supply restrictions like zoning. That would add in another important factor which was probably necessary (compare TX and NC with fast growth but no bubble) but not sufficient.

Re: Pre-Dawn Elephant Groping

Mari Dupont — Sun, 07 Dec 2008 18:26:15 -0000

I agree with Webgirrrl about bypassing the economists and going straight to the people that were making the trades, monitoring the software and rating the bonds. But strangely enough, these people aren't coming out of the woodwork to explain their side of the story. Wonder why? Af far as what motivated these traders, the best I can offer is the Portfolio piece by Michael Lewis, which provides some wonderfully appalling quotes from investment firm employees. Here's the link which I found on Reason: (http://www.portfolio.com/ne...

Re: Pre-Dawn Elephant Groping

Freddie — Sat, 06 Dec 2008 13:20:25 -0000

Elephants are perverts, and yet still I find them super cute.

Re: Pre-Dawn Elephant Groping

muirgeo — Sat, 06 Dec 2008 10:51:26 -0000

Reading the essays it's clear White and Mulligan have ideologies to protect. White uses the "place blame some where else as best you can" approach and Mulligan tries to invoke the "massive complexity making true knowledge of causal factors impossible" approach... a common Cato approach used and refined to deny climate change as well.

Black states the obvious. People don't make ridiculously bad loans unless they can make a quick profit and pass the risk up the line. MBS's are the catalyst with financial derivatives and CDO's the super-catalyst that allows the whole chain reaction to occur. Lack of regulation and cuts to regulation allowed lax loan standards, derivatives and CDO's to flourish. These occurred specifically at the direction of Wall Street and it's army of lobbyist and politicians giving in to their every whim. Meanwhile conflict of interest, more easy money, peer pressure and stampede effect caused the rating agencies to give piles of crap AAA ratings.

No long winded explanations needed unless you have a think tank with an ideological charter to uphold and a need for papers to write.

Re: Pre-Dawn Elephant Groping

Meng Bomin — Fri, 05 Dec 2008 22:00:38 -0000

I have to question whether there is One True Explanation in the sense that it is simple and intuitive. I suspect that this crisis is a result of many seemingly unrelated factors and it may be that there isn't an "essence" to distill but rather multiple seemingly unrelated essences. And it may be that the entire situation is too complicated to discover or understand. Ideology exists for a reason.

Re: Pre-Dawn Elephant Groping

GilM — Fri, 05 Dec 2008 18:37:41 -0000

I'm glad you pointed out the disingenuousness of spouting faulty analysis purely for propping up an ideology.

Re: Pre-Dawn Elephant Groping

Blakenator — Fri, 05 Dec 2008 16:36:09 -0000

I'm no economist but the crisis started when the crooks in the financial industries ran out of suckers to sell the fraud they had created to and were reduced to the prospect of trading what was left of those wooden nickels amongst themselves. Why is that so difficult to fathom?

Re: Pre-Dawn Elephant Groping

muirgeo — Fri, 05 Dec 2008 16:32:30 -0000

"Before the meltdown, a few perpetually dour forecasters saw disaster on the horizon, because they always see disaster on the horizon. Yet no one predicted the disaster we got."

Balony. The perpetrators themselves knew what was happening, as the linked memo below shows. This idea of a need for deep intellectual analysis is all about propping an ideology. This is indeed about groping about a room with the lights on and an elephant on the couch wondering what the smell is.

Deregulation of the financial industry that allowed investment and commercial banks to merge and allowed for opaque complex finacial products like CDO's and OTC derivatives explain the results. They were the catalyst that was required for bad loans to be made and passed off up the line. Warren Buffet and others predicted this catastrphe long ago.

With out these Wall Street creations the whole massive over-leveraging never happens.
And this flow diagram doesn't flow.

Watch the NOW episode
and at 18:03 mark you'll see the answer to the above question. An internal memo from a Standard and Poor's employee dated in 2006
..."rating agencies continue to create [an] even bigger monster - the CDO [collateralized debt obligation] market. Let's hope we are all wealthy and retired by the time this house of cards falters."

Tax cuts for the rich, setting up the economy so the cash and wealth flows up while the middle class flounders and then topping it off with a deregulatory environment that leaves only speculation and ponzi schemes to continue the wealth flow a little longer repeatedly, predictably results in boom and bust cycles that are ultimatly massively economically ineffecient , undemocratic and result in reduced liberties.

Re: Pre-Dawn Elephant Groping

GilM — Fri, 05 Dec 2008 16:00:34 -0000

"But since these guys are all surely hyper-rational Bayesian updaters, we’re bound to have perfect convergence by the end of the blog chat."

Only if they don't have self-favoring priors, right? Or, was that implied by their being hyper-rational?

Re: Pre-Dawn Elephant Groping

stephen — Fri, 05 Dec 2008 14:21:00 -0000

what would be totally rad is if you posted a response from this dood. being the sole arbitor rad, in my world, i know this.

http://www.winterspeak.com/...

Re: Pre-Dawn Elephant Groping

Will Wilkinson — Fri, 05 Dec 2008 13:49:26 -0000

If you would like to write a guest post, I'll post it here and then, assuming the high quality I expect, will add it to the "best of the blogs" at Unbound. Srlsly!

Re: Pre-Dawn Elephant Groping

josh — Fri, 05 Dec 2008 13:46:58 -0000

Do you want me to bite, webgrrl? Okay. What happened?

Re: Pre-Dawn Elephant Groping

webgrrl — Fri, 05 Dec 2008 13:39:59 -0000

I remain confused as to why no one seems to ask those of us on Wall St. Why ask all these distant economists, most of whom, with all due respect, don't really seem to understand our business well?

Re: Pre-Dawn Elephant Groping

joel — Fri, 05 Dec 2008 13:31:25 -0000

This post has surely made you my favourite blogger.