Wednesday, 10 December 2008

The Best of the Rest: financial crisis

During the last few weeks, I also thought about writing a series of articles about the (financial) mess we are in, and how banks and financial markets participants are irrational, irresponsible and self-serving institutions that need to be closely monitored and regulated by competent agencies, independent of governmental interference.
(Trust me, I work in the industry and I don’t take any pleasure in writing this).

But then I read a few articles and I thought there was no point in writing about something when more qualified and intelligent people have explained the issues much better than I could ever hope to do:

(By the way, I don’t mean the latest Pestowire, more on that one another day…)

In reverse chronological order:
Nouriel Roubini: on what’s coming: Bloomberg video (let’s not ignore the Bloomberg journalist quest for a “number”… and how even a man of the intelligence of Roubini falls for it like a schoolboy), and FT article. And another essay published earlier in the year.
John Kay: Or how governments “passive” ownership of banks is just storing trouble. [Link]

A conversation between Martin Wolf and John Kay on the regulation of global finance.

But most of all, I do miss the regular macro analysis of Stephen Roach at Morgan Stanley GEF.
He may have been early in his calls (tech boom, asset bubbles, current account deficit, subprime), but he was right: macro imbalances sooner or later give way to correction and because of leverage and behavioural issues, corrections in our time are more violent and unsettling than in the past.

The problem is that when your firm earns revenue by trading volatility and hyping up the market, it is very difficult to keep writing about things as you see them. What I mean is that it is an impossible situation when you have the chief economist writing articles explaining we are getting into a big mess, and your sales desks churning structured products like there is no tomorrow.

Very few people know if he was pushed or if he jumped but having Stephen Roach in China as Chairman is like having Messi playing in the reserves for FC Barcelona. I always thought that his realist bear commentary irritated his bosses and colleagues as much as his skilful if somewhat verbose writings.

The real tragedy of banking and financial markets is how talented, educated people with intellectual curiosity have been replaced with money chasing mathematicians, PhDs in astrophysics and the like whose world vision is narrower than a snake’s arsehole.

Do you want to find out how we got into this mess? Then read a few articles by Mr Roach back in the day.

Policy errors – How politicians are no help, May 2007. Shortly after this article, he was dispatched to Asia. Whether you are in an autocratic regime, in a communist dictatorship or in a free market two-party democracy, it is not wise to wind up politicians and embarrass your bosses.
Asset bubbles must burst – January 2007. For some reason, I cannot find this one in the GEF site with the original date of early January. I wonder why some articles are removed and others remain…
Original Sin – April 2005
The Asset Economy – all time favourite, sadly removed from the Morgan Stanley GEF website, June 2004. When I read this article for the first time, I finally got it.

This article by Roach (The Asset Economy) is the one that explains the origin of this crisis. Politicians and their central bankers saw fit to support asset prices as a means to increase disposable income. One asset bubble led to another until there are hardly any assets left to bubble up.
Now it’s payback time.


trabizonspor said...

Stop it! How can I carry on painting you as a complete nutcase if you post this kind of stuff?

Rab said...

Oh Terror, why do you keep going
against common sense and logic?
Why do you keep yourself
unreconciled with reason?
If only you changed your mischievous ways…

Anonymous said...

Has it occurred to you that probably ‘you’ are the nutcase?