In a market system, up and downs are inevitable. One cannot predict exactly when an up or down will happen or its impact. However, going back decades, it is plain as day to see the market cycles. However, the most recent one feels all consuming. History is in the abstract, but the current cycle feeds a level of euphoria or panic that feel unending; fed by uncertainty and doubt.
My first experience with a downturn was the market crash of 1987. That felt like a tsunami of bad news. There have been several cycles since including 1992 and the tech bubble of 2002. There is a lot written about these cycles - about the greed, about the misdemeanors and the lack of proper oversight. Two outstanding pieces from the 1987 cycle were the movie Wall Street (that made Gordon Gekko famous) and the book 'Barbarian at the Gate' that read like a thriller. They do fail a little quaint now 25 years later.
This latest cycle of 2008 feels deeper and longer and has also created a lot of soul searching. And I have been reading and learning about what happened, in addition to living in the epicenter this time around!
Here are a few works that have caught my attention so far:
Inside Job: A documentary and a polemic on how the finance (read bad) guys ruined the system. Received an oscar.
Too Big To Fail: Aron Sorkin's take on the collapse of Lehman and the bank bailout. Made into an HBO movie with an excellent cast. Best scene, when Hank Paulson the then treasury secretary goes on his knees to beg the speaker of the house Nancy Pelosi for the bailout
The Big Short: Michael Lewis of the Liar's Poker and Money Ball fame sets out to explain the origins of this crisis. What is amazing is that there were several big players calling the disaster for a while and some even bet on it and made a lot of money.
Margin Call: Another telling of a Lehman Brothers like company collapsing. Terrific turns by Jeremy Irons as the Dick Fuld character and Kevin Spacey as the world weary loyalist (who needs the money).
Crash of the Titans: When Merrill Lynch ran into the arms of Bank of America. I still have the Wall Street journal articles on when this unfolded in real time.
The Black Swan: Nasim Taleb is the most insufferable opinionated author, who endlessly wants to impress upon you that he is smart. Regardless, his black swan theme was catchy. He appears to be a one trick pony; but it is one decent trick!
Wall Street: Gordon Gekko Returns. Not as pungent as the first. But still summarizes the problem through a fictional story.
Federal Reserve: A very insightful paper by my friend Paul Willen who works at the Federal Reserve. http://www.frbatlanta.org/pubs/wp/12_07.cfm
Mary Meeker: An epic presentation by the famous Wall Street analyst on the disaster yet to come! http://images.businessweek.com/mz/11/10/1110_mz_49meekerusainc.pdf
The outlines of the disaster are clear in hindsight.
The real estate bubble in the US made the downturn far worse than an isolated bubble such as the tech bubble of the late 90s. That the entire population was involved in this elaborate self-deception of ever rising house prices fed the demand. Financial innovation such as securitization meant that this infection spread everywhere. Demand for ever higher returns let safe investments such as cash related securities as well as conservative places like pension funds started to chase risk. The insatiable appetite of the investment banks to churn out product kept the financial factories going. A governing philosophy that demanded less oversight just made matters worse.
What a cocktail! The hangover will last a decade or more - and we are living through it!
My first experience with a downturn was the market crash of 1987. That felt like a tsunami of bad news. There have been several cycles since including 1992 and the tech bubble of 2002. There is a lot written about these cycles - about the greed, about the misdemeanors and the lack of proper oversight. Two outstanding pieces from the 1987 cycle were the movie Wall Street (that made Gordon Gekko famous) and the book 'Barbarian at the Gate' that read like a thriller. They do fail a little quaint now 25 years later.
This latest cycle of 2008 feels deeper and longer and has also created a lot of soul searching. And I have been reading and learning about what happened, in addition to living in the epicenter this time around!
Here are a few works that have caught my attention so far:
Too Big To Fail: Aron Sorkin's take on the collapse of Lehman and the bank bailout. Made into an HBO movie with an excellent cast. Best scene, when Hank Paulson the then treasury secretary goes on his knees to beg the speaker of the house Nancy Pelosi for the bailout
The outlines of the disaster are clear in hindsight.
The real estate bubble in the US made the downturn far worse than an isolated bubble such as the tech bubble of the late 90s. That the entire population was involved in this elaborate self-deception of ever rising house prices fed the demand. Financial innovation such as securitization meant that this infection spread everywhere. Demand for ever higher returns let safe investments such as cash related securities as well as conservative places like pension funds started to chase risk. The insatiable appetite of the investment banks to churn out product kept the financial factories going. A governing philosophy that demanded less oversight just made matters worse.
What a cocktail! The hangover will last a decade or more - and we are living through it!
3 comments:
Though my default position is to dismiss any ‘explanations’ of the financial collapse coming from Hollywood (like the ones you mention in your blog post) as nothing more than dramatizations of DNC talking points, I did appreciate the link you provided (http://images.businessweek.com/mz/11/10/1110_mz_49meekerusainc.pdf) to Mary Meeker’s USA, Inc. – looking at the Federal Government as if it were a business; as well as the link to your friend’s Fed paper.
And so I’ll return the favor. But as fair warning, be sure to keep an adult beverage close to hand as you read it.
BTW, It’s from the terrific blog you might add to your list of must reads. It’s called Zero Hedge (thank you Dane Harvey) @ http://www.zerohedge.com/:
"Trade-Off": A Study In Global Systemic Collapse
Very cool.
I loved the Mary Meeker paper in particular - when that stuff unfolds is when it will truly hit the fan!
Let's buy some farm land!!
I found PBS' "Frontline" documentaries very informative. After watching "The Warning" (http://www.pbs.org/wgbh/pages/frontline/warning/view/) which talks of Brooksley Born and her campaign against derivatives, I found Greenspan, Rubin and Summers to be appealingly immature and naive, even though I am now a layman. (Good lord, have no regulation and the world will take care of itself? Let us shut down traffic lights then.) Although the repeal was championed by Republicans, the entire cast of Congress and the President - both sides of the aisle - should take the blame too, for repealing Glass-Steagall. Even more astonishing, they haven't re-instated it yet!
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