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In The Name Of The Faber, Gross, And The Holy Roach

Ridicule is the tribute paid to the genius by the mediocrities.

-Oscar Wilde (Irish poet, novelist, dramatist, and critic. 1854-1900)

From Greg Barns of the Canberra Times (Australia) today:

Marc Faber, Bill Gross and Stephen Roach are household names in the world of investment, but little known to the general public. And all three predicted some years ago that we would end up where we are today.

Of course, we gave Faber, Gross and Roach air time, and their small band of followers are no doubt sitting pretty and ready to ride out these wild economic times, but the rest of us did what human beings always do when the sun is shining and we are relaxing. We refused, because we could not see it on the horizon, to believe that the storm clouds were gathering…

The forecasts by this trio of contrarians were not isolated. They continued to hammer the same theme over and over. But their voices were drowned out and their message was not what we wanted to hear. They were useful to the media as counterpoint voices swimmers against the prevailing tide and therefore good copy. But of necessity they were viewed as loners, or iconoclasts.

But now, with the cycle fully turned, their views have become orthodox. We are now realising that all along the crash was inevitable.

Paul Heaton, “Mermaids And Slaves” (2008)
YouTube Video Link

Source:

“Three wise men whose prophecies we ignored”
Greg Barns
Canberra Times (Australia), October 10, 2008

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Related Post

From our sister blog Investorazzi.com this morning:

“Jeremy Grantham On Financial Crisis And Where To Next”

“We got so good at denial. The Fed was in denial, the Treasury was in denial, the bosses of Merrill Lynch and Lehman were in denial. And yet this crisis was the most widely heralded “surprise” in the history of finance - there were plenty of people warning that it was going to happen long before it did.”

Second Stimulus Package May Include More Tax Rebates

As the economic boost from the first stimulus package wanes, Democrats are hoping to inject new life into the U.S. economy through a second stimulus package. The Washington Post’s Lori Montgomery wrote earlier today:

House Speaker Nancy Pelosi said yesterday that she may call lawmakers back to Washington after the Nov. 4 elections to put together a new federal spending package worth as much as $150 billion in hopes of stimulating the nation’s flagging economy.

“We have some very harsh decisions to make and some of them can’t wait until January,” Pelosi (D-Calif.) told reporters at a health clinic in Denver. “We may have to go back into session before the next Congress.”

Montgomery pointed out that the new stimulus plan may include more tax rebates. She wrote:

Last month, the House approved $60 billion in new federal spending on infrastructure, food stamps, extended unemployment benefits and aid to state governments struggling to avoid cuts in Medicaid coverage. The new package could include a second round of tax rebates in addition to those provisions, according to a senior Democratic aide.

The House bill was blocked in the Senate, which could take it up when it returns to Washington on Nov. 17.

Stay tuned, folks…

Source:

“Pelosi Talks Stimulus”
Lori Montgomery
Washington Post, October 9, 2008

Mystery Solved? Why Washington And Wall Street Are So Incompetent

Narcissism: Self-admiration or self-love; a tendency to over-estimate one’s abilities and importance

On October 3, award-winning Washington Post columnist Steven Pearlstein claimed that Wall Street’s incompetence, rather than greed, was behind the U.S. financial crisis. Unfortunately for Main Street, a new study shows that such incompetence may be a common trait not only among Wall-Street types, but government policymakers as well. From the MSNBC website yesterday:

Narcissists like to be in charge, so it stands to reason that a new study shows individuals who are overconfident about their abilities are most likely to step in as leaders, be they politicians or power brokers.

However, their initiative doesn’t mean they are the best leaders. The study also found narcissists don’t outperform others in leadership roles.

Narcissists tend to be egotistical types who exaggerate their talents and abilities, and lack empathy for others. The researchers stress that narcissism is not the same as high self-esteem.

“A person with high self-esteem is confident and charming, but they also have a caring component and they want to develop intimacy with others,” said lead researcher Amy Brunell, a psychologist at Ohio State University at Newark. “Narcissists have an inflated view of their talents and abilities and are all about themselves. They don’t care as much about others.”

She added, “It’s not surprising that narcissists become leaders. They like power, they are egotistical, and they are usually charming and extroverted. But the problem is, they don’t necessarily make better leaders.”

The results, which will be detailed in an upcoming issue of the journal Personality and Social Psychology Bulletin, come from three studies, two with students and the other with business managers.

According to MSNBC, narcissists are drawn to this country’s political and financial power centers. From yesterday’s peice:

“Many people have observed that it takes a narcissistic person to run for president of the United States,” Brunell said. “I would be surprised if any of the candidates who have run weren’t higher than average in narcissism.”

Wall Street traders could also have a high dose of narcissism, she suggested. “There have been a lot of studies that have found narcissistic leaders tend to have volatile and risky decision-making performance and can be ineffective and potentially destructive leaders.”

Brunell does hedge though, saying that not all troubles in Washington and Wall Street can be blamed on narcissists, and of course, you can’t boil everything down to personalities.

Maybe so, but I have a feeling some Americans would like to see a number of “personalities” boiled right about now…

Source:

“Narcissists more likely to be leaders”
MSNBC, October 8, 2008

Why Halloween Is Going To Suck This Year

… and in other news, a new milestone was reached by Boom2Bust.com last night when post number 666 was published.

22 days to Halloween, Halloween, Halloween. 22 days to Halloween, Silver Shamrock.

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Tough Times For Those Nearing Retirement

More bad news on the retirement front. From William M. Bulkeley of the Wall Street Journal yesterday:

One in five middle-aged workers stopped contributing to their retirement plans in the last year, and one in three has considered delaying retirement, according to a new survey by AARP, an advocacy group for older Americans…

The survey, which covered 1,628 employed people over 45 years old, found that 20% had stopped participating in their retirement accounts in the past year, and 34% contemplated putting off retirement. Twenty-seven percent said they were having trouble making rent or mortgage payments.

Bulkeley pointed out the significance of these findings. He wrote:

About 60% of U.S. workers in the private sector have 401(k) accounts, holding about $3 trillion in assets. Earlier surveys have shown workers don’t put enough into 401(k)s to support their retirements, even as such plans have become the main source of retirement support, surpassing traditional fixed-benefit pensions. Labor Department statistics also show more Americans over 55 years old are staying in the work force, a sign that many can’t afford to stop working.

There is a silver lining to all this. Regarding all those middle-aged workers who stopped contributing to their 401k’s— at least their hard-earned money didn’t get swallowed up in the recent carnage on Wall Street.

Source:

“One in Five Baby Boomers Cuts Retirement Saving”
William M. Bulkeley
Wall Street Journal, October 7, 2008

$40 Billion Loss Projected For FDIC Deposit Insurance Fund

From the Associated Press yesterday:

The head of the FDIC is asking for an increase in premiums that will double the average paid by U.S. banks and thrifts next year to replenish the deposit insurance fund.

Federal Deposit Insurance Corp. Chairman Sheila Bair is making the proposal at a meeting of the agency’s board. It calls for higher-risk institutions to pay bigger insurance fees than others.

The proposed increase is based on a projected $40 billion loss to the insurance fund from bank failures through 2013. It would reduce the industry’s average pretax income by 5.6% next year, according to FDIC estimates.

Question: if higher-risk institutions have to pay larger fees than others, wouldn’t that make them an even higher-risk? Just curious.

Source:

“FDIC chair asks banks to pay more”
Associated Press, October 7, 2008

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Wall Street Greed Behind Crisis?

A couple of days ago I came across a piece by Washington Post columnist Steven Pearlstein in which he tried to determine if it was excessive greed on Wall Street that was behind the ongoing financial crisis. In case you aren’t familiar with Pearlstein’s work, this year he received the Pulitzer Prize for Commentary for “his insightful columns that explore the nation’s complex economic ills with masterful clarity” at the Post. Anyway, on Friday Pearlstein wrote the following.

The big problem with Wall Street isn’t that it’s greedy—it’s that it keeps making the same mistakes over and over. Each cycle, the masters of finance start out with reasonably good products and good intentions, only to get swept away by their success. They become arrogant, take too many risks and begin to believe their own marketing spiels. Then, when the cycle turns against them and the risks turn sour, they try to cover it up and begin lying to their customers, to regulators and to each other. Trust erodes, and the whole thing collapses.

In the populist “greed” fantasy, it is ordinary people who are the losers while the Wall Street bigwigs walk off with all the loot. But in the real life version, most of the bigwigs lose as well. They lose their jobs, their stock becomes worthless, their reputations are ruined. They spend the next several years shelling out $700 an hour to lawyers to defend themselves against lawsuits and regulatory inquiries and $250 to psychiatrists to help figure out where they went wrong. Bottom line: They wind up worse off than they would have been if they had simply done their jobs well, put their customers first and managed their companies for the long term.

To some, that may be a story of greed. To me, it looks more like old-fashioned incompetence.

Personally, I think it’s a healthy dose of both. And I’ll bet a good portion of Main Street could probably come up with a number of additional negative character traits that could be thrown into the mix…

Hubris?

Source:

“Greed Is Fine. It’s Stupidity That Hurts.”
Steven Pearlstein
Washington Post, October 3, 2008

Did Secretary Paulson Mislead President Bush On The Bailout?

Along with Fed Chairman Ben Bernanke, U.S. Treasury Secretary Henry Paulson has quickly become a household name in recent days. As one of President Bush’s top economic advisers, Paulson has helped spearhead the movement to rescue Wall Street and the financial system on behalf of Main Street and the U.S. economy. His efforts to date have resulted in the $700 billion bailout legislation that was signed into law by President Bush over the weekend. The bailout authorizes the Treasury Department to buy bad mortgages and other troubled securities associated with them from banks and other financial institutions. It is hoped that these purchases will allow credit to flow more freely throughout the financial system.

Earlier today, Dean Baker, an economist and co-director of the Washington, D.C.- based Center for Economic and Policy Research, questioned whether or not Secretary Paulson presented all the available options to the White House. He wrote in the Huffington Post:

According to the Washington Post, after the initial defeat of the bailout package in the House last Monday, Treasury Secretary Henry Paulson went to see President Bush in the White House. The Post reports that President Bush asked Paulson about “Plan B.” According to the Washington Post, Paulson told Bush “there is no Plan B.”

Of course this was not true. Paulson could have easily designed a bailout plan that was centered on the direct infusion of capital in the banking system, as was suggested by George Soros in a Financial Time column later in the week. Virtually every economist who has written on the bailout argued that a direct infusion of capital is a far more effective approach to dealing with the financial crisis than the approach outlined by Paulson.

Clearly Paulson had not invested a great deal of time in crafting the initial proposal he submitted to Congress since it was just three pages and few of the details of the plan had yet been decided. This means that Paulson easily could have switched gears and developed a plan along the lines advocated by economists.

Baker, who has been warning of an economic crisis for years now, added:

If the Post accurately described the meeting between Paulson and Bush (there is no source given for this account), then Secretary Paulson badly misled President Bush on the most important economic decision of his presidency.

Do you think it’s possible Hank Paulson may have had an ulterior motive when he allegedly told President Bush there was no other option available?

“If there is anything that a public servant hates to do it’s something for the public”

-Kin Hubbard (American humorist/writer. 1868-1930)

Source:

“Post Claims Paulson Misled Bush on Bailout”
Dean Baker
Huffington Post, October 6, 2008

SNL Skit On The U.S. Financial Crisis, Bailout

I don’t watch too much “Saturday Night Live” anymore, as my nostalgic tendencies make me yearn for the comedic genius of the writers and “Not Ready For Prime-Time Players” from the late seventies. However, I did manage to catch the following SNL skit from this past weekend, which pokes fun at those behind the financial crisis we now find ourselves in.

Too funny, but for how long?

Note: As of Monday night, the skit has disappeared from the NBC video page. Glitch? Or something more sinister, perhaps…

As of Tuesday morning, it looks like NBC did indeed pull the SNL Bailout skit from their website. From Ed Lasky over at the “American Thinker” blog this morning:

NBC has pulled the video of the Saturday Night Live skit satirizing the role of George Soros and the Sandlers in the collapse of Wachovia Bank off the internet and is deleting comments on its message boards asking about it. This skit reflected information first brought to light by me on AT’s pages.

Once again the media covers up information that proves harmful to Democrats. Were the party in question the GOP, there would be a major row right now over this suppression.

Update: a bootleg copy (apparently) lives on YouTube (for the moment) watch it while you can:

Oh well. Looks like the Nazi Broadcasting Corporation pulled the plug on the YouTube video a couple of minutes after I posted the Tuesday morning update.

Can’t start the morning without my daily fix of fascism you know…

The obscure we see eventually. The completely obvious, it seems, takes longer.

-Edward R. Murrow (American journalist. 1908-1965)

The Week Of Financial Crisis

Now that it’s Monday morning, when I look back at the financial chaos that took place last week, one term in particular comes to mind…

“Hell in a handbasket”

And Dr. Prieur du Plessis, the chairman and principal holder of South African-based Plexus Asset Management, best summed up the week of financial crisis in Market Oracle (UK) yesterday when he wrote:

Whew – what a wild week! Global stock markets and commodities tumbled, whereas government bonds and the US dollar surged amid mounting fears that the ongoing turmoil in financial markets was foreshadowing a hard landing for the US and Europe.

The first-ever trillion-dollar loss (as measured by the Dow Jones Willshire 5000 Index) on Wall Street came on Monday in the wake of the US House of Representatives failing to gather enough votes to pass the $700 billion bank rescue package. Globally, more than $1.7 trillion got wiped off the MSCI World Index.

Considering the entire history of the Dow Jones Industrial Average since 1896, Monday’s decline of 777 points ranked as the largest points decline in history (see post “Fear Grips Global Markets”). However, and let’s be thankful for small mercies, the percentage decrease of 6.98% was still significantly less than 1987’s 22.61% decline.

Although the Senate’s passing of the bailout plan on Wednesday brought temporary relief, the reversal on Friday of the House’s earlier decision brought more volatility. In classic “buy on the rumor, sell on the news” fashion, the Dow Jones Industrial Index rallied by 3.0% leading up to the vote, but then sold off by a massive 486 points (4.5%) to end 1.5% down on the day and 7.3% lower on the week.

Already, this week is off to a bang-up start. As I type this, the Dow is off over 400 points this morning, while in Europe, the pan-European Dow Jones Stoxx 600 index posted its biggest one-day percentage loss ever on Monday (according to preliminary data). The index fell 7.6% to 241.57, surpassing the 6.21% fall recorded back on September 11, 2001.

Source:

“Fear Grips Stock Markets as Economies Tip Into Recession”
Prieur du Plessis
Market Oracle (UK), October 5, 2008

Quotes For The Week

A hat-trick of quotations for you…

The rejection of the package is good because it shows that some people in the U.S. are still sane. A bailout will not buy the U.S. a way out. The government is less powerful than markets in fixing this mess.

-Marc Faber, in a September 30 phone interview with Bloomberg

Sometimes I think we need to put out an ad: “No, we don’t have any more jobs than you do.”

-Jodi Royal-Goodwin, the redevelopment agency director for Reno, Nevada, in response to an influx of homeless people coming to the city looking for jobs

Altogether, we have had eight years of no gains in real median wages, flat stock market returns, and minimal net new jobs. Despite what you have heard, after adjusting for debt spending, population growth and realistic adjustments to the GDP deflator, there have only been 3 or 4 quarters of GDP growth since 2005. If you adjust for military, government and minimum wage positions – i.e. jobs funded by tax payers and jobs that don’t pay anything - there have been absolutely no net new jobs. Bush’s largest gains have been with inflation, oil and food prices, debt, trade deficits, bankruptcies, foreclosures, and healthcare costs. If an assembly of the world’s leading economic strategists were to design the most destructive economic disaster possible, they could not match the results of Bush’s tenure. Even the most loyal Bush supporters will admit he has been an absolute disaster – that is if they’re being honest.

-Mike Stathis, Managing Principal of Apex Venture Advisors and author of America’s Financial Apocalypse, in a Market Orackle (UK) piece from September 14

Gold Stars, Or The Gallows, For Congress?

So what do you think, Boom2Bust readers?

Did Congress do the right thing in passing the bailout legislation the second time around?

Let’s hear your opinions on this matter!

Ron Paul: Welcome To The Next Great Depression

Congressman Ron Paul warned his colleagues in the U.S. House of Representatives before they approved the bailout legislation:

By doing more mischief, by not allowing markets to adjust, debt to be liquidated, you’re going to guarantee a Depression…

YouTube Video Link