Tuesday, March 24, 2009

Quote of the Day

Securities based on risky mortgages are what toppled financial institutions but it was the government that made the mortgages risky in the first place, by making home-ownership statistics the holy grail, for which everything else was to be sacrificed, including commonsense standards for making home loans.

Politicians and bureaucrats micro-managing the mortgage sector of the economy is precisely how today's economic disaster began. Why anyone would think that their micro-managing the automobile industry, or executive pay across a wide sweep of other industries, is likely to make things better in the economy is a mystery.

~Thomas Sowell

8 Comments:

At 3/24/2009 7:21 AM, Anonymous Machiavelli999 said...

I'm sorry Mark but this is just flat out wrong.

I have commented about this many times, but I recently saw a quote from Chuck Prince, former CEO of Citi, that summed up the cause of the crisis in a nutshell.

When asked why he didn't get out of MBS early and wasn't it obvious to him what type of major bubble housing was, he didn't blame regulators, bureaucrats, the CRA, Fannie or Freddie. He said:

"When the music is playing, you have got to dance"

This sums up finance perfectly. It is just a game of chasing returns. Oh, I am sure on an individual level some good analysis is being done, but on the aggregate money chases returns. This is how bubbles form.

There was a survey of commodities traders who were asked why did they all pile into oil last year. Was it their fundamental analysis? Was it the long term fundamentals of the diminishing supply of oil?

No. They put their money into oil because it was going up. Its as simple as that.

And that's why unregulated finance is prone to bubbles.

 
At 3/24/2009 7:40 AM, Anonymous Anonymous said...

Yeah... uhhh... just because the government makes a law providing you the opportunity to do something stupid doesn't mean you should go and do it.

 
At 3/24/2009 8:25 AM, Blogger 1 said...

"This sums up finance perfectly. It is just a game of chasing returns. Oh, I am sure on an individual level some good analysis is being done, but on the aggregate money chases returns. This is how bubbles form"...

Nice try but no dice unless one is living in a vacuum...

Apparently Prince hasn't sold anyone but you mach...

Sandy Weill: Citi Mess Chuck Prince's Fault--I Never Should Have Given Him The Job

What was Prince really chasing?

Departing Citi CEO getting $29.5 mln exit deal

 
At 3/24/2009 8:44 AM, Anonymous Anonymous said...

"When the music is playing, you have got to dance"

So, the government decides to hire a band, rent a hall, send out invitations and is surprised when the dancing starts?

 
At 3/24/2009 10:14 AM, Blogger lineup32 said...

"Why anyone would think that their micro-managing the automobile industry, or executive pay across a wide sweep of other industries, is likely to make things better in the economy is a mystery."

Political control over key business segments equals large campaign money for the political party in power. No secret, bailouts and excessive government regulation provides the basis for picking winners and losers, at taxpayer expense of course.

 
At 3/24/2009 5:20 PM, Blogger OA said...

Chuck Prince explaining why he rode the wave is not the same as explaining why there was a bubble in the first place.

If Freddie and Fannie hadn't been forced to back loans to unqualified people, regular lenders wouldn't have jumped in on their own.

 
At 3/24/2009 9:09 PM, Blogger Size said...

Mach999,

Chuck Prince is correct. You either have to participate or lose market share.

However, Anonymous 8:44 is also correct. The government forced everyone to play by a dangerous set of rules. The government created returns that don't exist in nature, so everyone in finance either had to chase them or get out of the game entirely. There are those who chose not to chase, but we don't hear about them because they're not getting a bailout.

 
At 3/25/2009 12:27 PM, Blogger Golfintiger said...

Sure, the financial institutions took the ball and ran with it...a long way. But solely blaming the financial institutions for this mess is like blaming the chemotherapy for making the cancer patient sick.

 

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