Comments on: Weisberg FAIL

By: Feuding libertarians « Muse Free

Feuding libertarians « Muse Free — Mon, 17 Nov 2008 17:59:20 +0000

[...] perfect. He has, on multiple occasions, authored passionate defences of libertarianism such as this post from only a few weeks back. He has also written sentences like this: [If libertarianism is the [...]

By: Mr. Econotarian

Mr. Econotarian — Fri, 24 Oct 2008 01:50:05 +0000

I think ratings problem was the ignorance of systemic risk. CDOs came from trying to avoid random, occasional mortgage repayment and default risk. The CODs turned an anonymous risky mortgage into a less risky pool. The thought that the entire world of real estate might come crashing down and default rates rise to incredible levels were not addressed.

Ratings aren't magic crystal balls. If nuclear weapons were dropped on major cities in the US, you also would also expect systemic risk even on bonds from (pre-nuked) solid companies which are rated AAA. Of course, if you knew the nukes were in the air, you should not have rated them AAA…

The question is should Moody's have known “the nukes were in the air” regarding the housing bubble.

By: assman

assman — Fri, 24 Oct 2008 01:08:22 +0000

You should read http://www.fotuva.org/feynman/challenger-append… where Feynman describes very similar behavior leading to the Challenger disaster.

This type of behavior is not unusual. In fact it can get much worse. During the Tech bubble people actually believed in the ridiculous stories they came up with to justify stock valuations.

I think though that you can't just blame the rating agencies. The banks aren't stupid. They knew that the ratings didn't make sense. In fact I think a very large number of people have known for a very long time the ratings did not make sense. A lot of people where just fooling themselves and/or going along with the madness of the crowd.

By: Mr. Econotarian

Mr. Econotarian — Thu, 23 Oct 2008 18:50:05 +0000

The question is should Moody's have known “the nukes were in the air” regarding the housing bubble.

By: assman

assman — Thu, 23 Oct 2008 18:08:22 +0000

You should read http://www.fotuva.org/feynman/challenger-append… where Feynman describes very similar behavior leading to the Challenger disaster.

This type of behavior is not unusual. In fact it can get much worse. During the Tech bubble people actually believed in the ridiculous stories they came up with to justify stock valuations.

By: Jorge Landivar

Jorge Landivar — Wed, 22 Oct 2008 19:37:54 +0000

Sadly we've not fared as well on the economic front. A few small victories but not nearly enough….just look at the headlines.

Come now, free market ideas are now the norm instead of the exception to the norm, we have come a long way in the last 40 years,… we still have a long way to go however.

By: MarkySparky

MarkySparky — Wed, 22 Oct 2008 19:34:23 +0000

I've been a fan of Will for a few years, but the punt return paragraph has made me a confirmed groupie.

Plus, he's a fellow Iowan!

By: webgrrl

webgrrl — Wed, 22 Oct 2008 19:24:25 +0000

And from the testimony & documents released today about the rating agencies: the cow IM!

Incredible. In which two quants from Standard & Poors admit the ratings model is broken and that they don't want to rate an instrument. I suspect some gentlemen will spend quality time in jail for this. Look guys we're talking fraud here, I think. Not anyone's political philosophy.

By: GU

GU — Tue, 21 Oct 2008 19:47:37 +0000

Epic FAIL

By: GilM

GilM — Tue, 21 Oct 2008 17:14:11 +0000

Matt Welch made a pretty good reply to the Weisberg piece as well.

By: Bilwick

Bilwick — Tue, 21 Oct 2008 15:54:49 +0000

Has there ever been a time when statists didn't want the pro-freedom folks to just shut up and go away, hopefully never to return? The first Pharoah probably told the Egyptians, “That freedom stuff might have been okay when we were simple cavemen, but now you need divine beings–like me! (Weisberg could have been his Dathan: “Nyaahhh, you mugs–where's yer freedom nowwww?”) Back before that the boss caveman probably told the others, “Well, sure, freedom might have sounded good when we swinging in trees, but since that monolith showed up we need to have someone strong in charge–namely, me! 'Cause I got the biggest club!”
If the recent financial crisis had never happened, do you think Wesiberg and the other State-shtuppers would be saying, “Oh, okay-, things are going fine–I guess we don't need statism now”? Like heck they would. People who like the idea of imposing their will on others–or their masochistic dupes who like being dominated–will always be around hoping people will surrender gracefully, in hard times or good times. And when it's good times, they'll find a way to turn them into hard times.

By: B

Tue, 21 Oct 2008 14:11:57 +0000

I like how libertarians are simultaneously irrelevant and responsible for Everything Wrong with the World.

By: webgrrl

webgrrl — Tue, 21 Oct 2008 10:43:30 +0000

Yes, it seems like issues with the credit rating software, too little time to rate complex instruments (to examine a tranched CDO in 90 minutes in craziness!), a push to create revenue by getting fees from the sellers of the CDO - basically they are paying you to give ratings, that's clearly a conflict of interest right there.

Note that these issues arose only once the agencies had gone public. The investment banks and agencies used to be private companies, which meant they couldn't be pressured in certain ways, ways the agencies were clearly pressured. Maybe the old system could work only if these two vital entities remained private? That the pressures of public ownership generated the behaviors that drove them mad.

If we would issue any regulation here, it would be that instrument sellers cannot be allowed to pay agencies for ratings. The agencies have to be neutral and independent. Again, this has nothing to do with whom is Democrat, GOP, libertarian or Whig.

Weisberg just doesn't understand the business process of the market at all and so can't actually diagnose the real problem. But I find this in many commentators, actually. A lot of people are talking thru their hats without learning about the CDO business in depth.

By: GilM

GilM — Tue, 21 Oct 2008 01:49:41 +0000

Wow. Fascinating.

It seems like a major problem was that too many were reliant on the software of an agency to rate securities that were too complex to be verified independently. That, coupled with corporate political fear of delivering massive bad news as soon as it was discovered led to catastrophe. It was a giant system with single point of failure that failed.

It doesn't seem like a failure of regulation or of deregulation. Just human error, bad judgment, and people who didn't know how to value directly what they were trading.

I don't think more upfront regulation would have avoided much of this, though. Regulators and rigid rules wouldn't have been any smarter than the interested parties.

By: webgrrl

webgrrl — Tue, 21 Oct 2008 00:46:11 +0000

Um, ok, boiz. But seriously. Didn't we all stop reading Slate long ago? i mean, a loooong time ago?

Here we've talked about the seeming 4 main failure points that caused this cow to tip. One of them was the mysterious question of why the rating agencies - completely sober-sided for about 80 years - suddenly rated every piece of radioactive waste as if it were Tiffany platinum.

The Financial Times comes through. In all fairness, I detect nothing political about this point at all.