Lessons from the financial crisis (Pisani, CNBC)

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ResearchMed
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Joined: Fri Dec 26, 2008 11:25 pm

Lessons from the financial crisis (Pisani, CNBC)

Post by ResearchMed » Fri Sep 07, 2018 9:31 am

I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
This signature is a placebo. You are in the control group.

KlangFool
Posts: 9969
Joined: Sat Oct 11, 2008 12:35 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 9:46 am

ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool

User avatar
bottlecap
Posts: 5762
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Location: Tennessee

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by bottlecap » Fri Sep 07, 2018 9:53 am

I think people were acting rationally given the incentives they were given.

The fact that the bubble burst and left a number of people holding the bag doesn't prove that people were irrational. Being wrong or having bad timing doesn't mean you are irrational.

With everything going on at the time, people were acting just like you'd expect them to.

JT

P.S. I don't think people necessarily need to be acting rationally for an economic theory to be valid, but I do think that most people misconstrue the term, especially when using it in an economic context.

ResearchMed
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by ResearchMed » Fri Sep 07, 2018 9:56 am

KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
This signature is a placebo. You are in the control group.

KlangFool
Posts: 9969
Joined: Sat Oct 11, 2008 12:35 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 10:00 am

ResearchMed wrote:
Fri Sep 07, 2018 9:56 am
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
ResearchMed,

<<I agree that there were some most who "had no choice".>>

All the survey relating to the emergency fund show that most Americans have little to no emergency fund. And, the debt level is high. So, my belief is most people have no choice.

KlangFool

KlangFool
Posts: 9969
Joined: Sat Oct 11, 2008 12:35 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 10:07 am

bottlecap wrote:
Fri Sep 07, 2018 9:53 am
I think people were acting rationally given the incentives they were given.

The fact that the bubble burst and left a number of people holding the bag doesn't prove that people were irrational. Being wrong or having bad timing doesn't mean you are irrational.

With everything going on at the time, people were acting just like you'd expect them to.

JT

P.S. I don't think people necessarily need to be acting rationally for an economic theory to be valid, but I do think that most people misconstrue the term, especially when using it in an economic context.
bottlecap,

People were acting rationally when their sense of job security changes.

KlangFool

Snowjob
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Joined: Sun Jun 28, 2009 10:53 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Snowjob » Fri Sep 07, 2018 10:11 am

On reason I cant wait to be debt free

I think there is a psychological pressure that comes with having the monthly car, home, student loan etc debts on the books. Those payment terms don't care if there is a recession / job loss or not.

JBTX
Posts: 3925
Joined: Wed Jul 26, 2017 12:46 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by JBTX » Fri Sep 07, 2018 10:14 am

KlangFool wrote:
Fri Sep 07, 2018 10:00 am
ResearchMed wrote:
Fri Sep 07, 2018 9:56 am
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
ResearchMed,

<<I agree that there were some most who "had no choice".>>

All the survey relating to the emergency fund show that most Americans have little to no emergency fund. And, the debt level is high. So, my belief is most people have no choice.

KlangFool
The flip side is investments in stocks are concentrated in a relatively small / wealthier percent of the population, so I'm not sure how much of the crash was middle class people having to sell their stocks to put food on the table. I'm sure that happened, but was it really a primary driver? I tend to think not, but ultimately I don't know.

KlangFool
Posts: 9969
Joined: Sat Oct 11, 2008 12:35 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 10:24 am

JBTX wrote:
Fri Sep 07, 2018 10:14 am
KlangFool wrote:
Fri Sep 07, 2018 10:00 am
ResearchMed wrote:
Fri Sep 07, 2018 9:56 am
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
ResearchMed,

<<I agree that there were some most who "had no choice".>>

All the survey relating to the emergency fund show that most Americans have little to no emergency fund. And, the debt level is high. So, my belief is most people have no choice.

KlangFool
The flip side is investments in stocks are concentrated in a relatively small / wealthier percent of the population, so I'm not sure how much of the crash was middle class people having to sell their stocks to put food on the table. I'm sure that happened, but was it really a primary driver? I tend to think not, but ultimately I don't know.
JBTX,

Many wall street folks were laid off in the 2008/2009 great recession. So, they were upper-income folks. And, even for those that are not actually affected, they were influenced by their neighbors that were crashed and burn in their affluence neighborhood.

Anyhow, history will repeat itself. You can observe first-hand over the next recession.

KlangFool

JBTX
Posts: 3925
Joined: Wed Jul 26, 2017 12:46 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by JBTX » Fri Sep 07, 2018 10:31 am

KlangFool wrote:
Fri Sep 07, 2018 10:24 am
JBTX wrote:
Fri Sep 07, 2018 10:14 am
KlangFool wrote:
Fri Sep 07, 2018 10:00 am
ResearchMed wrote:
Fri Sep 07, 2018 9:56 am
KlangFool wrote:
Fri Sep 07, 2018 9:46 am


ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
ResearchMed,

<<I agree that there were some most who "had no choice".>>

All the survey relating to the emergency fund show that most Americans have little to no emergency fund. And, the debt level is high. So, my belief is most people have no choice.

KlangFool
The flip side is investments in stocks are concentrated in a relatively small / wealthier percent of the population, so I'm not sure how much of the crash was middle class people having to sell their stocks to put food on the table. I'm sure that happened, but was it really a primary driver? I tend to think not, but ultimately I don't know.
JBTX,

Many wall street folks were laid off in the 2008/2009 great recession. So, they were upper-income folks. And, even for those that are not actually affected, they were influenced by their neighbors that were crashed and burn in their affluence neighborhood.

Anyhow, history will repeat itself. You can observe first-hand over the next recession.

KlangFool
I agree it will happen again. It seems like we are already forgetting what happened, and collectively returning to some bad habits.

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alpine_boglehead
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by alpine_boglehead » Fri Sep 07, 2018 10:33 am

From the article:
Investors do not act rationally in a crisis. We all buried Adam Smith economics in 2008, the idea that rational actors make rational decisions, buying low and selling high. We saw that people don't do that.They panic and sell at any price. They buy high and sell low.
Ah, that old misconception. For every seller there was a buyer. Every stock sold at a low price in 2008/2009 was bought by someone else at a low price.

But I have to admit, I don't blame people for losing their nerves. Apart from the sharp rise of unemployment explained by KlangFool, the media were full of doom. At the lowest point (February/March 2009) the tune was that the economy and financial system might never recover. Even in 2010 there were stories that the beginning recovery was just a dead cat bounce.

Here's a better quote from Warren Buffet:
The stock market is a device for transferring money from the impatient to the patient

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alpine_boglehead
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by alpine_boglehead » Fri Sep 07, 2018 10:43 am

KlangFool wrote:
Fri Sep 07, 2018 9:46 am

1) Many folks have a very small or no emergency fund.
Unfortunately. It's so very unwise to not have a financial buffer (provided that you can afford to build one). If your body didn't have a biological emergency fund, you would starve to death between meals. If you don't have a financial emergency fund, the next dry spell will kill you financially.

AlmstRtrd
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by AlmstRtrd » Fri Sep 07, 2018 11:08 am

I don't understand this from the bullet points at the top of the article:

"The financial crisis started as what seemed like a minor issue — the failure of the subprime mortgage industry."

How is that "a minor issue"?

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 11:29 am

AlmstRtrd wrote:
Fri Sep 07, 2018 11:08 am
I don't understand this from the bullet points at the top of the article:

"The financial crisis started as what seemed like a minor issue — the failure of the subprime mortgage industry."

How is that "a minor issue"?
AlmstRtrd,

Hindsight is 20/20. In the beginning, the media play down the failure. This is normal. You can observe the same old stuff at almost every recession/economic crisis. It is basic human psychology. Denial is the first step.

https://psychcentral.com/lib/15-common- ... echanisms/

When the reality is too painful, folks will pretend that it does not exist.

KlangFool

P.S.: So, when everyone (Main Stream Media) tries to tell you that it is no big deal and nothing to worry about. It is a big red flag.

HEDGEFUNDIE
Posts: 647
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by HEDGEFUNDIE » Fri Sep 07, 2018 11:31 am

KlangFool wrote:
Fri Sep 07, 2018 10:00 am
ResearchMed wrote:
Fri Sep 07, 2018 9:56 am
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
ResearchMed,

<<I agree that there were some most who "had no choice".>>

All the survey relating to the emergency fund show that most Americans have little to no emergency fund. And, the debt level is high. So, my belief is most people have no choice.

KlangFool
In 2008 I was working on Wall Street at one of the largest hedge funds in the world. Minimum investment requirements were in the double digit millions, and so the LP investor base was mostly pension funds, endowments, insurance companies and a handful of very high net worth individuals.

Between 2008-2010, our assets under management dropped by 50%, even though the organic performance of our funds was flat (we were one of the few hedge funds to actually deserve our name during this period). The aforementioned institutions and HNW individuals were pulling out money at a mad rush, to the point where we had to institute our withdrawal “gates” for the first time. Those who were lucky enough to be contractually prevented from withdrawing money ended up much better off.

So yes, there was a lot of panic behavior back then, not just from the retail investor base who may have been financially squeezed, but from those who should have known better and certainly could have stayed the course.
Last edited by HEDGEFUNDIE on Fri Sep 07, 2018 11:43 am, edited 2 times in total.

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Valuethinker » Fri Sep 07, 2018 11:34 am

AlmstRtrd wrote:
Fri Sep 07, 2018 11:08 am
I don't understand this from the bullet points at the top of the article:

"The financial crisis started as what seemed like a minor issue — the failure of the subprime mortgage industry."

How is that "a minor issue"?
The arguments made at the time were:

- relatively small proportion of the mortgage market were sub prime

- losses for investors in the event of a recession, even on sub prime, would be controlled. There had not been a synchronized US housing downturn since the 1930s

- houses in places like Texas were in any case not overvalued (and, indeed, due to tightened mortgage regulation post the S&L debacle of the late 1980s, Texas had relatively little sub prime mortgage activity)

- in any case securitization and the CDO meant that the bonds were in the hands of investors who would be able to take losses in their portfolios without undue disruption - risk and return were priced by the market

- the existence of the Credit Default Swap market, thus insuring the CDO tranches for the owners, meant that risk would be absorbed by the capacity of the financial system as a whole

People were entitled to feel this was another S&L Crisis, which hit certain US states hard, probably contributed to the recession and the political defeat of a US president running for reelection, but did not have unusual systemic consequences.

If you watch The Big Short, it's only relatively late in the game that the protagonists realize that it's not only the bottom tranches of CDOs at risk and not only sub prime mortgages and the associated securities.

Even when Countrywide got into trouble, it all felt like a containable crisis. The Chairman of the Fed was a safe pair of hands and would be able to sharply cut interest rates to alleviate the problem - as the Fed had done in previous crises e.g. Allen Greenspan in 1998 (Paul Krugman at the time pointed out that Greenspan's action had largely been morale suasion - like a Civil War general he got up on his horse, and turned a rout into a rally - but it had worked).

A collapse of one chunk of the vast US housing finance system turned into a global crisis in a very brief stretch of time. Arguably a very few months. Maybe only in a few days.

It is arguable that, had Lehman Brothers not been allowed to go broke by the US Treasury (and the film "Inside Job" has a gotcha moment with a top US insolvency lawyer explaining that that the US Treasury officials had not understood the difference between American and British insolvency, and that made a crucial difference in London to the dimensions of the crisis), then the Crisis would have been firewalled to a recession in the USA and a nasty jolt on Wall Street. Arguable but I am not clear whether it is persuasive. Certainly previous crises are associated with the collapse of particular financial institutions:

- Jay Cooke & Co. in 1873
- Credit Anstalt in 1931
- The Barings Crisis of 1890

Which is first, the chicken or the egg?

What one has to consider is what is different now? Certainly "Too big to fail" is even more the case. Lehman at c. $450bn was a relatively small financial institution as these things go (but enormously interconnected).

Valuethinker
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Valuethinker » Fri Sep 07, 2018 11:55 am

HEDGEFUNDIE wrote:
Fri Sep 07, 2018 11:31 am


In 2008 I was working on Wall Street at one of the largest hedge funds in the world. Minimum investment requirements were in the double digit millions, and so the LP investor base was mostly pension funds, endowments, insurance companies and a handful of very high net worth individuals.

Between 2008-2010, our assets under management dropped by 50%, even though the organic performance of our funds was flat (we were one of the few hedge funds to actually deserve our name during this period). The aforementioned institutions and HNW individuals were pulling out money at a mad rush, to the point were we had to institute our withdrawal “gates” for the first time. Those who were lucky enough to be contractually prevented from withdrawing money ended up much better off in the end.

So yes, there was a lot of panic behavior back then, not just from the retail investor base who may have been financially squeezed, but from those who should have known better and certainly could have stayed the course.
A lot of those investors had hidden leverage.

Insurance companies automatically have leverage. Corporate sponsors of pension funds have leverage. Many of the endowments were de facto leveraged in terms of their commitments to capital calls for funds. Some sovereign wealth funds are leveraged to their national budgets - a fall in commodity prices triggers money flowing back to the national treasury.

HNWIs often have their wealth tied up in stock options or illiquid company stock (and that company may have leverage).

I agree there was panic.

But we also experienced the global margin call. A relative works in corporate treasury and it was just frightening. Institutional investors were pulling their money out of Money Market Funds post the Lehman default, and as a result they were not "rolling" their Commercial Paper holdings. Liquidity was just sucked out of the system.

Companies had Revolving Credit Facilities - precommitted multiyear funding from banks. When they tried to draw them down, the banks simply pointblank refused - producing Material Adverse Change clauses. It's going to do you no good then to litigate your banks for the next few years.

Northern Rock? The first bastion to fall (Autumn 2007)? Business model built on securitization. When that stopped, Northern Rock stopped and we saw the queues of depositors round the block. That wasn't irrational - they only had GBP 30k of deposit insurance at the time.

Iceland? Iceland was one giant margin call. The money just exited the country and the country's economy imploded.

If you were a supplier, your customers just stopped paying you. Receivables are no good to you if there's no way to collect them. End customers like retailers just did not restock items, they either found stock from other branches or did without.

So there was irrationality. But there was also plenty of rationality.

It was by no means certain that it would turn.

I do think the key moment in retrospect was Gordon Brown & Alistair Darling in the Reuters speech, when they said they would bail the banks. That in turn gave the US government the impetus to announce a bailout of its banks.

Gordon Brown was a seriously flawed Prime Minister. But a major economy and financial power, probably the 2nd or third largest financial power in the world, had at its head a man of great intelligence who understood the issues and the gravity of the situation.

It was a Churchillian moment. One which history shall remember.

It's no great speech, but it could be summarized as:

"Things are bad. They may get worse. We will do what is necessary. If that's not enough we shall do more". The British government agreed to bail out RBS and to find a solution for HBOS (a merger with Lloyds followed by a second bailout). It would inject equity into the British banks to guarantee their stability.

RBS had been something like the 5th largest bank in the world by assets. Alistair Darling, the Chancellor of the Exchequer, was told at the weekend by his Treasury officials that there would be no cash in RBS ATMs by Monday morning if nothing were to be done.

https://www.nytimes.com/2008/10/13/opin ... ugman.html

You could almost hear the engines of the Spitfires and and Hurricanes coughing to life.

It was a moment when one is reminded that courage and moral clarity can be useful virtues. That History is not yet finished with this rain soaked little isle.

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bottlecap
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by bottlecap » Fri Sep 07, 2018 12:01 pm

AlmstRtrd wrote:
Fri Sep 07, 2018 11:08 am
I don't understand this from the bullet points at the top of the article:

"The financial crisis started as what seemed like a minor issue — the failure of the subprime mortgage industry."

How is that "a minor issue"?
The subprime failure was followed by a far greater failure of prime mortgages.

JT

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Fallible » Fri Sep 07, 2018 6:13 pm

When he says investors don't act rationally in a crisis, that can refer not just to panic selling, but to poor investing in the first place, i.e., investors taking on too much risk and failing to ask themselves how much they can afford to lose in a crash, especially if they lose jobs.

And when he says, "If you wanted a front seat to the financial crisis, you couldn't have done better than the floor of the New York Stock Exchange, which is where I was in the summer of 2007 and into 2008," I think of those who had real front seats to the crisis - the millions who lost jobs, savings, and homes.

The article is a good reminder of that decade ago, but when I read the "key" questions he asks about financial markets in the future, I wonder what lessons we have learned, what progress has been made. Here are his questions that I once naively thought we would have answered by now:

"Is the financial sector too big to fail? (The answer so far is yes.) How much regulation should banks be subject to? What limitations should be placed on financial innovations that may pose a systemic risk to the markets? How active should the Fed be in deflating asset bubbles? How much scrutiny and regulation should "nonbanks" or "shadow banks" that have become important players in the financial markets receive?"
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 6:28 pm

Fallible wrote:
Fri Sep 07, 2018 6:13 pm
When he says investors don't act rationally in a crisis, that can refer not just to panic selling, but to poor investing in the first place, i.e., investors taking on too much risk and failing to ask themselves how much they can afford to lose in a crash, especially if they lose jobs.

And when he says, "If you wanted a front seat to the financial crisis, you couldn't have done better than the floor of the New York Stock Exchange, which is where I was in the summer of 2007 and into 2008," I think of those who had real front seats to the crisis - the millions who lost jobs, savings, and homes.

The article is a good reminder of that decade ago, but when I read the "key" questions he asks about financial markets in the future, I wonder what lessons we have learned, what progress has been made. Here are his questions that I once naively thought we would have answered by now:

"Is the financial sector too big to fail? (The answer so far is yes.) How much regulation should banks be subject to? What limitations should be placed on financial innovations that may pose a systemic risk to the markets? How active should the Fed be in deflating asset bubbles? How much scrutiny and regulation should "nonbanks" or "shadow banks" that have become important players in the financial markets receive?"
Fallible,

Come on. It should be obvious from the ending scene of the "The Big Short".

https://www.youtube.com/watch?v=Bu2wNKlVRzE

KlangFool

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by golfCaddy » Fri Sep 07, 2018 6:43 pm

What's fascinating to me is there's still no consensus on why Bear Stearns failed. There seem to be three theories:
1) In the FCIC hearings, the principals claimed they were the victim of an old fashioned bank run. Someone started rumors and eventually the rumors became a self-fulfilling prophecy.
2) They were too highly leveraged. The investment banks may have been the classic example of Taleb's fragile systems. In the FCIC hearings, the principals denied they were highly leveraged on assets where they had first dollar liability.
3) Their markings on MBS and other illiquid assets were BS, and it was inevitable the market would write them down. This is the Kyle Bass argument.

I started a thread in the past, which didn't get much traction.
viewtopic.php?f=10&t=239707

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by delamer » Fri Sep 07, 2018 6:55 pm

HEDGEFUNDIE wrote:
Fri Sep 07, 2018 11:31 am
KlangFool wrote:
Fri Sep 07, 2018 10:00 am
ResearchMed wrote:
Fri Sep 07, 2018 9:56 am
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational. They need the money to feed and shelter their families.

1) Many folks have a very small or no emergency fund.

2) If the unemployment lasts longer than the emergency fund, selling was the only choice.

Nothing had changed. We would see the same sort of events over the next recession. In fact, it would be worse. With the 10 years of bull market, many folks are 100/0. History will repeat itself.

KlangFool
I agree that there were some who "had no choice".
"Selling low" might not always be "irrational", and even if there is a choice.
(There could always be "lower", etc...)

There were plenty who did have plenty of choice, and still "sold low", big time.
Some wrote about it in considerable detail, and some were those we would not have expected to so that.
(And, very interestingly, some of that was chronicled right here on BH.)

And yes, it will happen again, in some form or other.

But this is a reminder of what did/can happen, and possibly worth thinking about again.

RM
ResearchMed,

<<I agree that there were some most who "had no choice".>>

All the survey relating to the emergency fund show that most Americans have little to no emergency fund. And, the debt level is high. So, my belief is most people have no choice.

KlangFool
In 2008 I was working on Wall Street at one of the largest hedge funds in the world. Minimum investment requirements were in the double digit millions, and so the LP investor base was mostly pension funds, endowments, insurance companies and a handful of very high net worth individuals.

Between 2008-2010, our assets under management dropped by 50%, even though the organic performance of our funds was flat (we were one of the few hedge funds to actually deserve our name during this period). The aforementioned institutions and HNW individuals were pulling out money at a mad rush, to the point where we had to institute our withdrawal “gates” for the first time. Those who were lucky enough to be contractually prevented from withdrawing money ended up much better off.

So yes, there was a lot of panic behavior back then, not just from the retail investor base who may have been financially squeezed, but from those who should have known better and certainly could have stayed the course.
Very interesting observations.

I don’t doubt that KlangFool is correct that there were some people who sold to pay their bills. My oldest kid was starting college then, and I am pretty sure some friends “sold low” to cover tuition. (Which reinforced that money you need in the next few years needs to be in cash.)

But I agree that the major hit was those who could have stayed the course but didn’t.

Our bet was, that as scary as everything was then, that the economic ship would be righted and we were better off in the long run by not changing our portfolio. Fortunately, we were right.

But we also were both employed and had no real fear of job loss. If our jobs were less secure, who knows?

Stocks crashing, unemployment rising, home values plummeting — hard to fault people who bailed, even the affluent.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Sasquatch » Fri Sep 07, 2018 7:48 pm

It sure seems like a portion of the population didnt learn from the mistakes of the debacle.

Mortgage backed securities are back (note date piece was authored) How much toxic debt is packaged this time.... I honestly have no idea
https://www.thebalance.com/what-are-mor ... mbs-417136
http://mortgage-x.com/library/option_arm.asp

Option ARMs are back. WaMu was famous for these in the NW(copyright 2018 at bottom of page) https://www.umcmortgage.com/mortgage-op ... n-program/
Last edited by Sasquatch on Fri Sep 07, 2018 8:35 pm, edited 1 time in total.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Fallible » Fri Sep 07, 2018 8:20 pm

KlangFool wrote:
Fri Sep 07, 2018 6:28 pm
Fallible wrote:
Fri Sep 07, 2018 6:13 pm
When he says investors don't act rationally in a crisis, that can refer not just to panic selling, but to poor investing in the first place, i.e., investors taking on too much risk and failing to ask themselves how much they can afford to lose in a crash, especially if they lose jobs.

And when he says, "If you wanted a front seat to the financial crisis, you couldn't have done better than the floor of the New York Stock Exchange, which is where I was in the summer of 2007 and into 2008," I think of those who had real front seats to the crisis - the millions who lost jobs, savings, and homes.

The article is a good reminder of that decade ago, but when I read the "key" questions he asks about financial markets in the future, I wonder what lessons we have learned, what progress has been made. Here are his questions that I once naively thought we would have answered by now:

"Is the financial sector too big to fail? (The answer so far is yes.) How much regulation should banks be subject to? What limitations should be placed on financial innovations that may pose a systemic risk to the markets? How active should the Fed be in deflating asset bubbles? How much scrutiny and regulation should "nonbanks" or "shadow banks" that have become important players in the financial markets receive?"
Fallible,

Come on. It should be obvious from the ending scene of the "The Big Short".
https://www.youtube.com/watch?v=Bu2wNKlVRzE
KlangFool
Well, I did say I was “naive.” :|

But hey, the movie’s great, followed the book well, but if you want a truly meaningful ending, read Michael Lewis in his book’s Epilogue. Couple excerpts, the first referring to the financial 1980s:
The reason that American financial culture was so difficult to change - the reason the political process would prove so slow to force change upon it, even after the subprime mortgage catastrophe - was that it had taken so long to create, and its assumptions had become so deeply embedded.
And...
What are the odds that people will make smart decisions about money if they don't need to make smart decisions - if they can get rich making dumb decisions?"
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 8:32 pm

Fallible wrote:
Fri Sep 07, 2018 8:20 pm
KlangFool wrote:
Fri Sep 07, 2018 6:28 pm
Fallible wrote:
Fri Sep 07, 2018 6:13 pm
When he says investors don't act rationally in a crisis, that can refer not just to panic selling, but to poor investing in the first place, i.e., investors taking on too much risk and failing to ask themselves how much they can afford to lose in a crash, especially if they lose jobs.

And when he says, "If you wanted a front seat to the financial crisis, you couldn't have done better than the floor of the New York Stock Exchange, which is where I was in the summer of 2007 and into 2008," I think of those who had real front seats to the crisis - the millions who lost jobs, savings, and homes.

The article is a good reminder of that decade ago, but when I read the "key" questions he asks about financial markets in the future, I wonder what lessons we have learned, what progress has been made. Here are his questions that I once naively thought we would have answered by now:

"Is the financial sector too big to fail? (The answer so far is yes.) How much regulation should banks be subject to? What limitations should be placed on financial innovations that may pose a systemic risk to the markets? How active should the Fed be in deflating asset bubbles? How much scrutiny and regulation should "nonbanks" or "shadow banks" that have become important players in the financial markets receive?"
Fallible,

Come on. It should be obvious from the ending scene of the "The Big Short".
https://www.youtube.com/watch?v=Bu2wNKlVRzE
KlangFool
Well, I did say I was “naive.” :|

But hey, the movie’s great, followed the book well, but if you want a truly meaningful ending, read Michael Lewis in his book’s Epilogue. Couple excerpts, the first referring to the financial 1980s:
The reason that American financial culture was so difficult to change - the reason the political process would prove so slow to force change upon it, even after the subprime mortgage catastrophe - was that it had taken so long to create, and its assumptions had become so deeply embedded.
And...
What are the odds that people will make smart decisions about money if they don't need to make smart decisions - if they can get rich making dumb decisions?"
Fallible,

Come on. This is nothing new. You can check out this book.

https://www.amazon.com/Manias-Panics-Cr ... b_title_bk

I lived through Texas Saving & Loan Crisis.

KlangFool

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by bhsince87 » Fri Sep 07, 2018 8:42 pm

I'm the unofficial "investing guru" in our office of engineers. I had 5-6 of my coworkers come to me for advice back then.

At least three of them "sold" low in their 401ks, even after I told them to sit tight. The others might have, but wouldn't tell me.

Even worse, they transferred their money into the 401k's MMF. That got "locked", which freaked them out even more!

They all said some thing like, "I've lost 40% already. I can't afford to lose any more!"

I tried to tell them they didn't actually lose anything until they sold.

Totally fear-driven.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 8:48 pm

bhsince87 wrote:
Fri Sep 07, 2018 8:42 pm
I'm the unofficial "investing guru" in our office of engineers. I had 5-6 of my coworkers come to me for advice back then.

At least three of them "sold" low in their 401ks, even after I told them to sit tight. The others might have, but wouldn't tell me.

Even worse, they transferred their money into the 401k's MMF. That got "locked", which freaked them out even more!

They all said some thing like, "I've lost 40% already. I can't afford to lose any more!"

I tried to tell them they didn't actually lose anything until they sold.

Totally fear-driven.
bhsince87,

The two things that saved me were

A) I was too busy fighting to keep my job. I have no time to deal with my investment.

B) My portfolio was 50-50 in the Life Strategy Moderate Growth Fund and the Wellington Fund. Hence, the downturn did not look too bad to me. It may be different if I had a 3 funds portfolio.

KlangFool

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 8:54 pm

Folks,

The bigger picture question is are you ready for the next one? Whenever it shows up.

I am prepared for 5 years of unemployment, 50% stock market drops, and 50% housing market drop.

KlangFool

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Fallible » Fri Sep 07, 2018 9:25 pm

KlangFool wrote:
Fri Sep 07, 2018 8:32 pm
Fallible wrote:
Fri Sep 07, 2018 8:20 pm
KlangFool wrote:
Fri Sep 07, 2018 6:28 pm
Fallible wrote:
Fri Sep 07, 2018 6:13 pm
When he says investors don't act rationally in a crisis, that can refer not just to panic selling, but to poor investing in the first place, i.e., investors taking on too much risk and failing to ask themselves how much they can afford to lose in a crash, especially if they lose jobs.

And when he says, "If you wanted a front seat to the financial crisis, you couldn't have done better than the floor of the New York Stock Exchange, which is where I was in the summer of 2007 and into 2008," I think of those who had real front seats to the crisis - the millions who lost jobs, savings, and homes.

The article is a good reminder of that decade ago, but when I read the "key" questions he asks about financial markets in the future, I wonder what lessons we have learned, what progress has been made. Here are his questions that I once naively thought we would have answered by now:

"Is the financial sector too big to fail? (The answer so far is yes.) How much regulation should banks be subject to? What limitations should be placed on financial innovations that may pose a systemic risk to the markets? How active should the Fed be in deflating asset bubbles? How much scrutiny and regulation should "nonbanks" or "shadow banks" that have become important players in the financial markets receive?"
Fallible,

Come on. It should be obvious from the ending scene of the "The Big Short".
https://www.youtube.com/watch?v=Bu2wNKlVRzE
KlangFool
Well, I did say I was “naive.” :|

But hey, the movie’s great, followed the book well, but if you want a truly meaningful ending, read Michael Lewis in his book’s Epilogue. Couple excerpts, the first referring to the financial 1980s:
The reason that American financial culture was so difficult to change - the reason the political process would prove so slow to force change upon it, even after the subprime mortgage catastrophe - was that it had taken so long to create, and its assumptions had become so deeply embedded.
And...
What are the odds that people will make smart decisions about money if they don't need to make smart decisions - if they can get rich making dumb decisions?"
Fallible,

Come on. This is nothing new. You can check out this book.

https://www.amazon.com/Manias-Panics-Cr ... b_title_bk

I lived through Texas Saving & Loan Crisis.

KlangFool
Right, it's not new, that's Lewis's point. And thanks, but I have read "Manias, Crashes, and Panics" and keep it handy on my Kindle for quick reference.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by aknewark18 » Fri Sep 07, 2018 9:46 pm

KlangFool wrote:
Fri Sep 07, 2018 8:54 pm
Folks,

The bigger picture question is are you ready for the next one? Whenever it shows up.

I am prepared for 5 years of unemployment, 50% stock market drops, and 50% housing market drop.

KlangFool
How much of 5 years of unemployment adds up to?

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Fri Sep 07, 2018 9:47 pm

aknewark18 wrote:
Fri Sep 07, 2018 9:46 pm
KlangFool wrote:
Fri Sep 07, 2018 8:54 pm
Folks,

The bigger picture question is are you ready for the next one? Whenever it shows up.

I am prepared for 5 years of unemployment, 50% stock market drops, and 50% housing market drop.

KlangFool
How much of 5 years of unemployment adds up to?
aknewark18,

5 years of current annual expense in fixed income and/or cash equivalent

KlangFool

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Dude2 » Fri Sep 07, 2018 11:19 pm

What I took away from those years was just how rude all of a sudden managers became. Assume you have an engineer that is doing the exact same job (level of effort) prior to those years, during those years, and after those years. During those years, that engineer could do nothing right. This was a time of bad reviews to justify zero raises. All of the intangibles came into play, i.e. yes, you met your milestone, but you didn't quite do it effectively enough. You achieved a, b, c, but a person of your level should have been able to also squeeze in d. What d? You never mentioned d, but after the fact all of a sudden d is in play.

The business model is pretty simple for these corporations. Sell engineering expertise to solve problems. For every dollar paid to engineers, charge 3 dollars. That model didn't change during the crisis; however, the attitudes changed precipitously. Nothing anybody did was good enough. Add uncertainty about the bottom line, take away upper level incentives, and this is what you get. It rolls downhill. We didn't have it anywhere near as bad as KlangFool and the IT world, but it was a time of very low morale. Now we're back to the state where what we do is golden.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by nedsaid » Sat Sep 08, 2018 1:08 am

The problem with bear markets is that each one has different causes. Since we don't know when we know when bear markets strike, we try to construct "all weather" portfolios using asset classes that don't correlate with each other. Thus we are trying to be ready for anything at all times. Problem is the markets do precisely what we don't expect. We look at what worked in the last bear market and assume that will work in the next bear market. The old fighting the last war problem.

The 2000-2002 bear market had available lots of things that would have cushioned the blow. The 1990's were a Large Growth market and Large Growth was priced to nirvana and perhaps infinity. So pretty much, being diversified in anything other than Large Growth really helped. Bonds worked great with 6% or so interest rates. Value fell but a lot less than Large Growth. Smaller stocks did better than Large Growth. Commodities did well in that bear market. REITs did well. Even precious metals mining funds did well here. In the aftermath of the late 1990's bubble, International Stocks did better than US Stocks. One thing that helped was that there was a bear market and the recession that ensued was relatively mild. The economy was in good shape compared to 2008-2009.

So pretty much, the diversifiers that worked so well in 2000-2002 were "must have" investments. Academic research picked up on this. Small/Value, REITs, TIPS, International Stocks, and Commodities were included in the portfolios of prestigious financial advisors. Later on, International Bonds were becoming more popular. We had a false sense of security that these diversifiers would rescue us during the next bear market. What happened was that we build a Maginot Line to fight WWI when WWII was fought with Panzers. Wrong tactics and weapons for the last war.

The 2008-2009 bear market was caused by a genuine financial crisis and coincided with the Great Recession. Unlike the 2000-2002 bear market, the economic downturn was deep and the financial system almost collapsed. Indeed, the credit markets save for nominal treasuries and agency bonds seized up. We were in a genuine crisis. So the diversifiers that worked in 2000-2002 failed miserably in 2008-2009. It all crashed. Even many segments of the bond market including TIPS and Investment Grade Corporates fell hard. Seeing that the economy tanked, the commodities bull market ended and so far has not come back.

So unfortunately, the next bear market will not be like the 2008-2009 bear market. It will have different causes. Who knows what will work then? The lessons learned are helpful but then again it is that old fighting the last war problem.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by nedsaid » Sat Sep 08, 2018 1:21 am

Valuethinker wrote:
Fri Sep 07, 2018 11:55 am


I do think the key moment in retrospect was Gordon Brown & Alistair Darling in the Reuters speech, when they said they would bail the banks. That in turn gave the US government the impetus to announce a bailout of its banks.

Gordon Brown was a seriously flawed Prime Minister. But a major economy and financial power, probably the 2nd or third largest financial power in the world, had at its head a man of great intelligence who understood the issues and the gravity of the situation.

It was a Churchillian moment. One which history shall remember.

It's no great speech, but it could be summarized as:

"Things are bad. They may get worse. We will do what is necessary. If that's not enough we shall do more". The British government agreed to bail out RBS and to find a solution for HBOS (a merger with Lloyds followed by a second bailout). It would inject equity into the British banks to guarantee their stability.

RBS had been something like the 5th largest bank in the world by assets. Alistair Darling, the Chancellor of the Exchequer, was told at the weekend by his Treasury officials that there would be no cash in RBS ATMs by Monday morning if nothing were to be done.

https://www.nytimes.com/2008/10/13/opin ... ugman.html

You could almost hear the engines of the Spitfires and and Hurricanes coughing to life.

It was a moment when one is reminded that courage and moral clarity can be useful virtues. That History is not yet finished with this rain soaked little isle.
We shall go on to the end. We shall fight at the Bank of England, we shall fight in the Banks and on the trading floors, we shall fight with Keynesian stimulus and growing consumer confidence, we shall defend the Pound, whatever the cost may be. We shall fight on the stock exchange, we shall fight on the financial news, we shall fight in the economy and in Parliament, we shall fight in the foreign markets; we shall never surrender. . .

Somehow, I don't think of Gordon Brown as Churchill or as being the inspiration for Helicopter Ben Bernanke. But I guess it all worked out and this was probably Brown's shining moment.

Keep Calm and Carry On. Keep a stiff upper lip. Sail on Britannia and all that rot. Oh, and may God save the Queen.

Somewhere, John Maynard Keynes is smiling.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Valuethinker » Sat Sep 08, 2018 3:30 am

bottlecap wrote:
Fri Sep 07, 2018 12:01 pm
AlmstRtrd wrote:
Fri Sep 07, 2018 11:08 am
I don't understand this from the bullet points at the top of the article:

"The financial crisis started as what seemed like a minor issue — the failure of the subprime mortgage industry."

How is that "a minor issue"?
The subprime failure was followed by a far greater failure of prime mortgages.

JT
Because people were losing their jobs and could not pay their mortgages.

Although there was strategic default in those US states that are "non recourse" as to mortgage loans, I believe the evidence shows that homeowners strategically default a lot less than sheer logic would predict. Giving up your home is an emotive thing and so people keep paying the mortgages until the bills, or life events, overwhlem them.

A related factor, but I think less important than the loss of employment, was a fall into negative equity -- probably by most people who had bought a home in the preceding 2-3 years (4-5?) -- even among prime borrowers.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Valuethinker » Sat Sep 08, 2018 3:35 am

nedsaid wrote:
Sat Sep 08, 2018 1:21 am


We shall go on to the end. We shall fight at the Bank of England, we shall fight in the Banks and on the trading floors, we shall fight with Keynesian stimulus and growing consumer confidence, we shall defend the Pound, whatever the cost may be.
They didn't make that mistake. Previous British Chancellors had been broken on the exchange rate - September 1992 and Black Wednesday comes to mind. They let the pound "find its own level" a drop of about 30% on a trade weighted basis, IICR.

.
Somehow, I don't think of Gordon Brown as Churchill or as being the inspiration for Helicopter Ben Bernanke. But I guess it all worked out and this was probably Brown's shining moment.
Nor was he. That is conflating a later policy, Quantitative Easing, with bailing the banks. Bernanke was a leading expert on Japan and was well acquainted with unorthodox monetary policy.

It did tip the US Congress and Tim Geithner over the edge. Instead of a complex plan to buy mortgage backed securities (MBS) via the TARP, which would not have solved the solvency problem of the banks (assets less than liabilities), the TARP was repurposed into an equity injection fund.

That confidence kept the financial system from collapsing. A number of US banks, including Citigroup, were on the edge. Where RBS was, they would have been in a matter of months.
Keep Calm and Carry On. Keep a stiff upper lip. Sail on Britannia and all that rot. Oh, and may God save the Queen.

Somewhere, John Maynard Keynes is smiling.
None of that at all. But clear and decisive action which rallied the markets. And gave the political headroom for the US to repurpose the TARP into a general bailout fund, and to get the Europeans to bail their banks.

Keynes would say we pulled the stimulus far too soon, when the economy was still well below full capacity.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by AtlasShrugged? » Sat Sep 08, 2018 6:22 am

In retrospect, I sometimes wonder if the better move back in 2007-08 was to do nothing at all. Meaning, no bailouts, and having the market deal with companies that failed without intervention. I am not as certain as the author appears to be that Keynesian economic theory and policies saved the day, and that Smith is passe. To me, Keynesian policy bought some time, not solved the problem.

Why do I say this? It seems to me that whenever we have the government intervene to cure a problem, there are a multitude of unanticipated outcomes that may prove worse, that actually exacerbate the original problem and create new ones.

Example: We have an explosion of debt that came out of the financial crisis. At some point, that debt becomes due. You cannot roll it over and refinance forever. Complicating matters, we now have the 'quants' building models that incorporate these extraordinary policies (what we did in the midst of the fiscal crisis, like lowering interest rates to zero). Another example is Freddie and Fannie. After a decade, is it time to get them out of conservatorship (full disclosure: I think yes, but I am biased as my wife is a shareholder)?

From my perspective, the biggest problem is that we are normalizing economic policy deviance, and that is a dangerous proposition to me. It is not at all clear what the retail investor can do to guard against huge portfolio losses. Invest you must, and you take your chances.

The biggest lesson I learned from the financial crisis: Trust no one on TV - from the government, or private companies.
The second biggest lesson I learned: Put a lot of thought into, write your IPS, and follow it. It is amazing how comforting that document can be. I think it is because when you write the IPS, you think ahead, and have the first few decisions already made on what to do.
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Portfolio7 » Sat Sep 08, 2018 3:25 pm

AlmstRtrd wrote:
Fri Sep 07, 2018 11:08 am
I don't understand this from the bullet points at the top of the article:

"The financial crisis started as what seemed like a minor issue — the failure of the subprime mortgage industry."

How is that "a minor issue"?
This is how I understand it, but appreciate any pertinant clarifications or corrections:

The reason this is a minor issue is because the net possible losses from the entire housing fiasco was perhaps $700B in loan forfeitures and directly related costs. This is a 'really big number', but it's about what the US economy shrugged off with the S&L debacle back in the 1980's. It's a nasty speed bump, but it's not going to derail the US economy.

However, take that $700B and lever it up almost 25 to 1 (a fairly typical situation for most of the financial firms issuing the derivatives related to that $800B) and you are talking $15 Trillion of potential losses (and there was more leverage beyond that which made the situation even worse). That at the time was a year of US GDP.

Think of a common financial situation. If you are making $50K, and you have a sudden hit of $2K, it's ugly, but you'll be able to manage. If you suddenly owe 25 times that, or $50K, that's a different story entirely; it's going to take years to dig out from under. Even if you find a way to offset some of that big bill, and the final bill is perhaps only $15K, it's still going to have a pretty substantial impact.

Similarly, one could argue the actions of the FED (especially in their role as a national clearing house & market maker, which few people really understand) ensured that losses were nowhere near $15T, though greater than $700B.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Portfolio7 » Sat Sep 08, 2018 4:19 pm

Valuethinker wrote:
Fri Sep 07, 2018 11:55 am
HEDGEFUNDIE wrote:
Fri Sep 07, 2018 11:31 am


In 2008 I was working on Wall Street at one of the largest hedge funds in the world. Minimum investment requirements were in the double digit millions, and so the LP investor base was mostly pension funds, endowments, insurance companies and a handful of very high net worth individuals.

Between 2008-2010, our assets under management dropped by 50%, even though the organic performance of our funds was flat (we were one of the few hedge funds to actually deserve our name during this period). The aforementioned institutions and HNW individuals were pulling out money at a mad rush, to the point were we had to institute our withdrawal “gates” for the first time. Those who were lucky enough to be contractually prevented from withdrawing money ended up much better off in the end.

So yes, there was a lot of panic behavior back then, not just from the retail investor base who may have been financially squeezed, but from those who should have known better and certainly could have stayed the course.
A lot of those investors had hidden leverage.

Insurance companies automatically have leverage. Corporate sponsors of pension funds have leverage. Many of the endowments were de facto leveraged in terms of their commitments to capital calls for funds. Some sovereign wealth funds are leveraged to their national budgets - a fall in commodity prices triggers money flowing back to the national treasury.

HNWIs often have their wealth tied up in stock options or illiquid company stock (and that company may have leverage).

I agree there was panic.

But we also experienced the global margin call. A relative works in corporate treasury and it was just frightening. Institutional investors were pulling their money out of Money Market Funds post the Lehman default, and as a result they were not "rolling" their Commercial Paper holdings. Liquidity was just sucked out of the system.

Companies had Revolving Credit Facilities - precommitted multiyear funding from banks. When they tried to draw them down, the banks simply pointblank refused - producing Material Adverse Change clauses. It's going to do you no good then to litigate your banks for the next few years.

Northern Rock? The first bastion to fall (Autumn 2007)? Business model built on securitization. When that stopped, Northern Rock stopped and we saw the queues of depositors round the block. That wasn't irrational - they only had GBP 30k of deposit insurance at the time.

Iceland? Iceland was one giant margin call. The money just exited the country and the country's economy imploded.

If you were a supplier, your customers just stopped paying you. Receivables are no good to you if there's no way to collect them. End customers like retailers just did not restock items, they either found stock from other branches or did without.

So there was irrationality. But there was also plenty of rationality.

It was by no means certain that it would turn.

I do think the key moment in retrospect was Gordon Brown & Alistair Darling in the Reuters speech, when they said they would bail the banks. That in turn gave the US government the impetus to announce a bailout of its banks.

Gordon Brown was a seriously flawed Prime Minister. But a major economy and financial power, probably the 2nd or third largest financial power in the world, had at its head a man of great intelligence who understood the issues and the gravity of the situation.

It was a Churchillian moment. One which history shall remember.

It's no great speech, but it could be summarized as:

"Things are bad. They may get worse. We will do what is necessary. If that's not enough we shall do more". The British government agreed to bail out RBS and to find a solution for HBOS (a merger with Lloyds followed by a second bailout). It would inject equity into the British banks to guarantee their stability.

RBS had been something like the 5th largest bank in the world by assets. Alistair Darling, the Chancellor of the Exchequer, was told at the weekend by his Treasury officials that there would be no cash in RBS ATMs by Monday morning if nothing were to be done.

https://www.nytimes.com/2008/10/13/opin ... ugman.html

You could almost hear the engines of the Spitfires and and Hurricanes coughing to life.

It was a moment when one is reminded that courage and moral clarity can be useful virtues. That History is not yet finished with this rain soaked little isle.
+1. Thanks for this insight, it meshes well with what I remember. The ancillary leverage and the shut down of revolving credit was a big part of the story.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by burt » Sat Sep 08, 2018 5:37 pm

Re: Lessons from the financial crisis.

I remember it well. Almost like it happened yesterday.
Took a new job out of state and couldn't sell my home. Told the realtor to price it at the bottom of the comps.
Never thought I would be happy to sell a home at a loss.
I was working at a Fortune 100 company that was uniquely screwed. I really thought the company wouldn't survive.
Projects were cancelled and half the building was laid off. My little project was spared. Absolute pure luck on my part.

Retired now at age 62 with 30/70 portfolio. Conservative portfolio ? You better believe it.

burt

p.s.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by nedsaid » Sat Sep 08, 2018 7:28 pm

Valuethinker wrote:
Sat Sep 08, 2018 3:35 am
nedsaid wrote:
Sat Sep 08, 2018 1:21 am


We shall go on to the end. We shall fight at the Bank of England, we shall fight in the Banks and on the trading floors, we shall fight with Keynesian stimulus and growing consumer confidence, we shall defend the Pound, whatever the cost may be.
They didn't make that mistake. Previous British Chancellors had been broken on the exchange rate - September 1992 and Black Wednesday comes to mind. They let the pound "find its own level" a drop of about 30% on a trade weighted basis, IICR.

.
Somehow, I don't think of Gordon Brown as Churchill or as being the inspiration for Helicopter Ben Bernanke. But I guess it all worked out and this was probably Brown's shining moment.
Nor was he. That is conflating a later policy, Quantitative Easing, with bailing the banks. Bernanke was a leading expert on Japan and was well acquainted with unorthodox monetary policy.

It did tip the US Congress and Tim Geithner over the edge. Instead of a complex plan to buy mortgage backed securities (MBS) via the TARP, which would not have solved the solvency problem of the banks (assets less than liabilities), the TARP was repurposed into an equity injection fund.

That confidence kept the financial system from collapsing. A number of US banks, including Citigroup, were on the edge. Where RBS was, they would have been in a matter of months.
Keep Calm and Carry On. Keep a stiff upper lip. Sail on Britannia and all that rot. Oh, and may God save the Queen.

Somewhere, John Maynard Keynes is smiling.
None of that at all. But clear and decisive action which rallied the markets. And gave the political headroom for the US to repurpose the TARP into a general bailout fund, and to get the Europeans to bail their banks.

Keynes would say we pulled the stimulus far too soon, when the economy was still well below full capacity.
I think you took this too seriously. I was taking off on your Gordon Brown/Winston Churchill comparison. You mentioned that you could almost hear the Spitfires and Hurricanes coughing to life. I took famous lines out of the "We shall never surrender" speech and made some substitutions. I guess my attempt at British humor fell flat and it was so dry that it wasn't apparent that it was humor.

Seriously, this was probably Prime Minister Gordon Brown's finest moment. He took extraordinary measures to rescue the economy. As far as Obi-Wan Bernanke, yes Quantitative easing took place later. But he started almost immediately to rescue the financial markets. Congress rushed through TARP and various government agencies including the Fed worked together to keep us out of a second great depression.
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by AlphaLess » Sat Sep 08, 2018 7:54 pm

KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational.
KlangFool
Interesting insight, KlangFool, and thanks for sharing.

What line of work was that? What is the difference between the 50% of co-workers vs 87% of department?
I am just trying to understand the nature of the company, the nature of the business, the delineation of the co-worker and department.

Also, interestingly enough, while the carnage had started long before that (Mar 2008, Aug 2008, Sep 2008, etc), unemployment kept increasing through 2009. And market bottomed in Feb.2009.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by AlphaLess » Sat Sep 08, 2018 7:56 pm

burt wrote:
Sat Sep 08, 2018 5:37 pm
I remember it well. Almost like it happened yesterday.
Took a new job out of state and couldn't sell my home. Told the realtor to price it at the bottom of the comps.
Never thought I would be happy to sell a home at a loss.
I was working at a Fortune 100 company that was uniquely screwed. I really thought the company wouldn't survive.
Projects were cancelled and half the building was laid off. My little project was spared. Absolute pure luck on my part.
Thanks for the insights, burt.

Curious to know:
- when did you take a new job, and why?
- was the Fortune 100 the old or the new job? How was the company uniquely screwed?
- what line of business was the company in (both old and new)?

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by ResearchMed » Sat Sep 08, 2018 8:04 pm

AlphaLess wrote:
Sat Sep 08, 2018 7:54 pm
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational.
KlangFool
Interesting insight, KlangFool, and thanks for sharing.

What line of work was that? What is the difference between the 50% of co-workers vs 87% of department?
I am just trying to understand the nature of the company, the nature of the business, the delineation of the co-worker and department.

Also, interestingly enough, while the carnage had started long before that (Mar 2008, Aug 2008, Sep 2008, etc), unemployment kept increasing through 2009. And market bottomed in Feb.2009.
I believe the market bottomed in March, 2009 (on the 6th?).

RM
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by KlangFool » Sat Sep 08, 2018 8:30 pm

AlphaLess wrote:
Sat Sep 08, 2018 7:54 pm
KlangFool wrote:
Fri Sep 07, 2018 9:46 am
ResearchMed wrote:
Fri Sep 07, 2018 9:31 am
I thought this was interesting, and wasn't CNBC's regular financial porn:

https://www.cnbc.com/2018/09/07/bob-pis ... -nyse.html

There are some interesting observations/thoughts to think about, although it should be obvious that no one knows what might happen "next time", etc.

it's also especially interesting given that we experienced this, and can remember some of the claims/predictions/etc., at the time.

RM
ResearchMed,

This article carries on the illusion that people sell because they were scared irrationally. On 1/1/2009, 50% of my co-workers were laid off on my location. For my particular department, 87% was laid off. For many of my "House Poor" peers selling was the only choice. It is perfectly rational.
KlangFool
Interesting insight, KlangFool, and thanks for sharing.

What line of work was that? What is the difference between the 50% of co-workers vs 87% of department?
I am just trying to understand the nature of the company, the nature of the business, the delineation of the co-worker and department.

Also, interestingly enough, while the carnage had started long before that (Mar 2008, Aug 2008, Sep 2008, etc), unemployment kept increasing through 2009. And market bottomed in Feb.2009.
AlphaLess,

<<What line of work was that? >>

Telecom industry.

<<What is the difference between the 50% of co-workers vs 87% of department?>>

1) 50% of all workers in this location.

2) 87% of my department in the location. So, the cut is deeper in my group. It was a very close call for me.

KlangFool

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by NoRegret » Sat Sep 08, 2018 10:33 pm

FWIW I don’t expect a bear market of similar magnitude to ‘08 until the 2030’s. Of course, there will be cyclic bears along the way.

Chris Ciovacco (see his YouTube channel) has been consistent and spot on.

NR
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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Valuethinker » Sun Sep 09, 2018 6:20 am

AtlasShrugged? wrote:
Sat Sep 08, 2018 6:22 am
In retrospect, I sometimes wonder if the better move back in 2007-08 was to do nothing at all. Meaning, no bailouts, and having the market deal with companies that failed without intervention. I am not as certain as the author appears to be that Keynesian economic theory and policies saved the day, and that Smith is passe. To me, Keynesian policy bought some time, not solved the problem.
"Liquidate. Only liquidate" said the US Treasury Secretary in 1930 (Andrew Mellon?).

The problem with that is the dimensions of the crisis. John Authers, the Financial Times columnist, wrote yesterday that there was one story the world financial press tacitly agreed not to publish. He went to Citigroup in Midtown NYC on September 17, and there were queues out the door of bankers trying to open up new bank accounts to split their funds within the $100k deposit insurance limit. The press could easily have got a photographer round, published those photos, and splashed it across the front page of the FT and other financial newspapers.

It was, he said, the story he did not run with. The Citigroup client officer opened up subsidiary accounts for his spouse and children and he moved money into those. And she told him that her counterpart at Chase next door was doing the same thing.

This was probably in the ground floor of the Citigroup building. One of the 4 largest banks in the world.

The effect on the real economy and ordinary lives of a global bank run is not imaginable. One only has to look at what did happen in Ireland and Iceland (the suicide rate in Ireland shot up -- in a country which is still deeply Catholic in its sensibilities and there is a real stigma around suicide).

You think the government made excessive interventions in 2008-09, you have no idea what the world would have looked like with all of the largest banks being directly taken over by sovereign governments. RBS was something like 5th largest bank in the world by assets and the UK govt wound up owning 80%. AIG was the world's largest insurer and the US govt wound up owning 80%.

This, btw, is not (purely) Keynesian economics. A strict Keynesian would have said simply nationalize, I suspect.

What a Keynesian would say is that the fiscal stimulus in the US and the world in 2009 was withdrawn too quickly. There was lots more infrastructure that could have been built, more debt relief extended to households, etc. If you look at the US post 2009 it had one of the slowest recoveries on record, and not coincidentally one of the slowest increases in government spending after the initial pulse stimulus - local and state governments were cutting spending faster than the Federal government was raising it. This was in marked contrast to the 2001-03 recession when Federal spending grew very rapidly (the post 9-11 and Iraq military buildups partially, but not only).
Why do I say this? It seems to me that whenever we have the government intervene to cure a problem, there are a multitude of unanticipated outcomes that may prove worse, that actually exacerbate the original problem and create new ones.

Example: We have an explosion of debt that came out of the financial crisis. At some point, that debt becomes due. You cannot roll it over and refinance forever. Complicating matters, we now have the 'quants' building models that incorporate these extraordinary policies (what we did in the midst of the fiscal crisis, like lowering interest rates to zero). Another example is Freddie and Fannie. After a decade, is it time to get them out of conservatorship (full disclosure: I think yes, but I am biased as my wife is a shareholder)?
Every financial crisis ends with a massive debt writeoff. The Third World debt crisis of the late 1970s and early 1980s, which would have bankrupted Chase Manhattan, etc. did so. This crisis, arguably, needed a bigger debt writeoff. Of mortgage debt held by American households, and in Europe of government debt. Our failure to do so is coming back to haunt us.

Private sector debt to GDP in the US is below its 2007 level, I believe. The private sector (companies and individuals) has rebuilt its balance sheets.
From my perspective, the biggest problem is that we are normalizing economic policy deviance, and that is a dangerous proposition to me. It is not at all clear what the retail investor can do to guard against huge portfolio losses. Invest you must, and you take your chances.

The biggest lesson I learned from the financial crisis: Trust no one on TV - from the government, or private companies.
The second biggest lesson I learned: Put a lot of thought into, write your IPS, and follow it. It is amazing how comforting that document can be. I think it is because when you write the IPS, you think ahead, and have the first few decisions already made on what to do.
[/quote]

I would put it that you need a wide range of sources and you need to balance them.

I agree it's important not to panic, albeit to make sure your safe assets are truly safe. For an American, within FDIC deposit insurance limits, or in US Federal Government securities.

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Valuethinker » Sun Sep 09, 2018 6:31 am

nedsaid wrote:
Sat Sep 08, 2018 7:28 pm

I think you took this too seriously. I was taking off on your Gordon Brown/Winston Churchill comparison. You mentioned that you could almost hear the Spitfires and Hurricanes coughing to life. I took famous lines out of the "We shall never surrender" speech and made some substitutions. I guess my attempt at British humor fell flat and it was so dry that it wasn't apparent that it was humor.
"Rule Britannia" was written in a pub on the Thames -- I once lived around the corner. It was an ironic song about the decline perceived in British naval power in the 19th century. Not many people realize that - "Last Night at the Proms" has turned it into a sort of superpatriot song.

My apologies if I missed the irony. I do think that the British state uniquely distinguished itself in those moments. The civil servants advised, and the Cabinet and the Ministers acted. That line to Alistair Darling "no money in the bank machines on Monday morning" if something was not done to assist RBS, had the impact it was meant to.
Seriously, this was probably Prime Minister Gordon Brown's finest moment. He took extraordinary measures to rescue the economy. As far as Obi-Wan Bernanke, yes Quantitative easing took place later. But he started almost immediately to rescue the financial markets. Congress rushed through TARP and various government agencies including the Fed worked together to keep us out of a second great depression.
Remember though the TARP was kicked out on the floor of Congress - the Dow fell 8% that day. The original plan (TARP was Geithner's initiative; full credit to President Bush in that he just told his people to get on with it) was simply to buy up MBS from the banks (but unless those MBS were bought above book cost, the banks would take a loss on them, which would have reduced their equity, and thus their solvency, even further).

However once Brown had acted, the TARP was reintroduced (or proceeded towards a vote - I am not sure of the mechanics of American legislative process). There was a question to Representative Franks (one of the sponsors) on the floor about whether the TARP could be used for a broader range of transactions with the banks, and he answered in the affirmative. Apparently in American law, discussions in the legislature have a force of legal precedent in court.

So the TARP was passed with one stated intention, but with enough legal fuzziness to permit it to be used for another purpose- to fund the bailouts. (Clinton & Rubin managed something similar when Mexico crashed, exploiting a legal ambiguity to put ?40 bn? into the Mexican government and thus to stabilize the collapse).

The legal avenue which has now apparently been closed off is the US Treasury's action to guarantee Money Market Funds. That action would not, as a result of a court judgement subsequently, be legal, apparently.

Since every great financial crash has a moment where it is collapse of liquidity that spreads the contagion, we may come to regret that. Financial institutions live by their ability to borrow short term from other financial institutions. The Shadow Banking System makes that more opaque but it's key.

Adam Tooze has written a (long) but important new work on the history of the financial crash and its consquences. One of the things he unearths is the importance of the Eurodollar deposit market - basically US financial system funding European banks.

https://www.amazon.com/Crashed-Decade-F ... 0670024937

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by Jeff Albertson » Sun Sep 09, 2018 7:47 am

Prof Tooze was featured on BBC's Business Daily, "Looking Back at Lehmans", last Friday. It's well worth the 18 minutes. They looked at causes & response, as well as consequences.
Ed Butler talks to historian Adam Tooze about the legacy of the global financial crisis, which peaked with the collapse of Lehman Brothers in September 2008. Adam Tooze is a professor at Columbia University in New York and the author of a new book Crashed: How a Decade of Financial Crises Changed the World. He argues that the reverberations of 2008 are still defining much of our political and economic life, from the rise of Donald Trump in the US to youth unemployment and economic policy in Europe.
https://www.bbc.co.uk/radio/play/w3cswgfd

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Re: Lessons from the financial crisis (Pisani, CNBC)

Post by nedsaid » Sun Sep 09, 2018 9:47 am

Valuethinker wrote:
Sun Sep 09, 2018 6:31 am

"Rule Britannia" was written in a pub on the Thames -- I once lived around the corner. It was an ironic song about the decline perceived in British naval power in the 19th century. Not many people realize that - "Last Night at the Proms" has turned it into a sort of superpatriot song.

My apologies if I missed the irony. I do think that the British state uniquely distinguished itself in those moments. The civil servants advised, and the Cabinet and the Ministers acted. That line to Alistair Darling "no money in the bank machines on Monday morning" if something was not done to assist RBS, had the impact it was meant to.
Nedsaid: Yes, a lot of songs came out of the pubs. My understanding is that some of the most beloved hymns of certain Protestant churches were drinking songs with new lyrics substituted and the melody retained.

Way back in my foggy memory banks, someone told me that the tune to "God save the Queen" came out of the pubs. Don't know if that is true but I wouldn't be surprised. It may have come from my 7th Grade Social Studies teacher who came from England. But us rebellious colonists did steal the tune to "God save the Queen" and repurposed it to "My Country tis of Thee."

I do follow British politics, though not closely. I would certainly give credit were credit is due. It is a great moment when Government works the way that it is supposed to.
A fool and his money are good for business.

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