I watched The Leader at the U.N. today along with a couple of other "world leaders." A while back, someone (I really don't know who it was) described a meeting of the General Assembly as the clear inspiration of the bar scene from "Starwars," one of the most hilarious and absurd scenes in the history of film. The Leader did nothing to improve the organization's image. Enough political comment.
A few light years closer, they are gathering in the Steel City for what The Leader today described as the start of a new World Order. Im still going to wait until the Fat Lady sings, but I will bet that all that will come out of this is some general agreement that the way to insure that the great financial collapse will never reoccur is to limit the pay of chief executives, high producers and a whole assortment of risk takers...details to follow. In addition, the call for new guidelines for capital will be shrill. Order relating to anything else will remain for future meetings in venues--if the rest of the world has anything to say about it--more hospitable than Pittsburgh. The funny thing about all this is that even at this late date, none of these guys understands what really happened and why because to make such an effort in self-education would remove all possibility of the populist rant so popular among the politicians at this moment in time. Well, that's probably an overstatement as they aren't quite bright enough to do much else.
The fact of the matter is these guys about whom every one is screaming, are pretty conservative and though they were adopting pretty conservative models to their businesses. Now you say, "but look how high they leveraged themselves!" True, but like Long Term Capital Management 20 years before, given what they believed to be the risk the leverage taken did not appear to be excessive. The vast majority believed--truly believed--that their assessments of risk were conservative and correct. They, the best and the brightest, made for them the worst mistake possible: they were wrong. This was not some grand conspiracy to screw over the American people, this was a colosal mispricing of risk pure and simple. A brilliant exposition of this can be found in a reader's comment to yesterday's post. For the Great Unwashed out there the monolines were the MBIAs of the world. My GI Vietnamese can't get through all of the final comment but it's "Hail" to somebody or thing. Hail to Anonymous for this most instructive effort and thanks.
And so we wait for the great solution to the problem that the formulators have yet understand. But success will be proclaimed I suspect and in time we will have a new generation of financiers operating under a new set of rules only they wont be quite as smart as the old set. Those will have gone off to places were the long arm of regulation and government cannot reach them and some other industry will be better for it. Cui bono? The Pols I suppose. Don't they always?
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