Friday, February 13, 2009

The Expanding Credibility Field

Well, well, another bank has utterly screwed things up and found it has lost several billion more than it thought it had lost. Who are these people? What are they for? I think I can answer that last question - they exist to come up with words like 'impairments' and 'market dislocation'. Brilliant, they actually sound as though they mean something more than cock-ups and vertiginous plummet. It's worth noting the comments on Alphaville. One says Alan Johnson will be Prime Minister in two weeks. Why? Because 'Someone within the Lloyds Bank Organisation must have email evidence of undue government pressure forcing Lloyds to skip due diligence and hitch itself to a corpse.' Pretty credible that.


  1. Words simply fail me. They might as well make me prime minister and, simultaneously, chief exec of all the banks.

  2. Postman Alan hey, to deliver more bad news i should think?

    did you get any cash on Broon gone by June? that rhythms btw.

  3. The Nimrod could have been a fine aircraft, had its constructors been free of MOD and treasury interference, this could be said of virtually every contract undertaken on their behalf.
    The Nimrod started life many years ago as the Comet, the first commercial jet powered aircraft to go into service, with disastrous consequences, they fell out of the sky.
    The official line always pointed to component failure due to stress induced fracturing, a discipline about which not a lot was understood at the time.
    What is not well known is the fact that it was not that simple, the culture, materials available and the skills used to produce the aircraft had their roots back in the time of the Spitfire and Lancaster.
    No one thought to ask "the performance that this plane is expected to produce, how sure are we that we have in place the required disciplines that will lead to a safe and successful outcome. There was no system in place to create the question in the first place.
    I watched the fiasco of the great unwashed trying to skewer the great unabashed on Wednesday, one of the phrases they like to use is stress testing, it sounds good, makes them seem as though they know what they are talking about. It goes without saying that they are talking rubbish. What is the point of stress testing if you haven't done any semblance of correct stress analysis in the first place, the correct use of a leader requires a dog, what we have here are lice.

  4. I agree the idea about evidence of undue government pressure emerging is pretty credible. There is another side, though, and Baz puts it well: there was no analyst in London like Meredith Whitney in New York that blew the whistle on these excesses ahead of time.

    Mind you, the excesses of sub-prime in the US were easily worse and provided the purest poison for a lemming-like, over-leveraged interlocked global system of mortgage backed securities to spill its guts over. The poison was directly the result of government interference in the market, in the apparently worthy cause of trying to make it easier for poor ethnic minorities to own a house in the US - but in fact creating criminal fraud on a massive scale. That seems well established by now.

    Neither the lack of whistleblowers nor the sub-prime poison were the fault of our PM. They meant that all of us were taken by surprise by the first symptoms of the crunch in 2007. But that he alone had something truly catastrophic to handle by Friday 10th October last year.

    I know this is hard to bear but I doubt anyone else would have done better. More to the point, I doubt anyone is better informed and better placed - and angrier with bankers he'd previously respected so naively - to make the best of a terrible job through 2010.

    There, gone and said it. Oh dear.

  5. Brown is a disgrace to his country, he betrayed the national interest by not focusing the government on possible risks and developments in the world economic system.

    Every economist in the treasury and the bank of England who has worked there from 2000 onwards should either be sacked or demoted.

    This decade has seen two major failures of Government.
    1, 9/11 why did not the FO warn off the risks emerging from the ME? answer they were too busy forging friendships/partnerships instead of understanding risk

    2, Credit Crunch, why did not Treasury, BoE, FSA warn of dangers emerging from world economy and its development? answer they were too busy forging friendships/partnerships instead of understanding risk

    Question no1, is how shall we govern ourselves in the future?

    criminalize corporatism is a start.

  6. Criminalise corporatism is a very good slogan, thanks, much closer to the heart of things - though maybe a little bit challenging in terms of legal detail!

  7. After the first bank bailout [350 billion]here in the states the government now admits they are unable to account for about 79 billion. 79 billion I might add that we don't have.

  8. Above, richard linked from Meredith Whitney's name to this article: The End. Here is an excerpt from page 8:

    This was what they had been waiting for: total collapse. "The investment-banking industry is fucked," [Steve] Eisman had told me a few weeks earlier. "These guys are only beginning to understand how fucked they are. It's like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: 'Holy shit, I'm wrong!'" Now Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. The investment banks were not just fucked; they were extinct.

    Not so for hedge fund managers who had seen it coming. "As we sat there, we were weirdly calm," [Danny] Moses says. "We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed." Eisman was appalled. "Look," he said. "I'm short. I don't want the country to go into a depression. I just want it to fucking deleverage." He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it. "That Wall Street has gone down because of this is justice," he says. "They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience."


  9. Rus, thanks for quoting that amazing moment from 18 September 2008 when Steve Eisman finally knew he was right about the sub-prime disaster that up to that point Wall Street desperately wanted him to shut up about.

    There's just a trace of paradox in what he said that day in that people like Eisman and Meredith Whitney were the conscience of Wall Street that he said didn't exist. (And because of the bets they made Eisman and his colleagues made a pile of money. But even his words of encouragement to Whitney on the telephone on 31 October 2007, when her analysis of Citi had made such an impact on the market, convince me that there was more to it than venal motives. There was a concern for truth - and his angry words almost a year later tell me that there was a passion for some kind of justice, just as one senses from Bryan's friend Nassim, who's also not short of a bob or two from calling some of these things right.)

    Eisman does say he's not come across any concern for the customers they've ripped off in a big Wall Street firm. That's I think the key thing to think about. Maybe not criminalise corporatism but certainly let's stigmatise it. And wherever possible make the corrupt system of cross-sponsorship between government and massive banking corporations (which have only got bigger in this crisis, it's well worth noting) a thing of the past.

    Michael Lewis' whole account is for me required reading and deserves something close to meditation in the coming months, thanks again.

  10. Richard, yes of course its more than legislation, its about a change in culture.

    1, politico self regulation has failed, thus we should have a star chamber of senior judges who set the rules for slags, and oversee there implementation.

    2, We need a ministry of the opposition, thus giving much wider access to govts thinking, advice ect.

    3, bonfires of the quangos, these are the centre piece of our corporatist state, proper devotion to our pre WW1 state should deal with that. empower the town halls and send health and social care down to them.

    4, ban politicos from speaking to anyone other than their constituents except when its on the record.

    5, ban govt from giving cash to ngos, charities, business, trade unions, ban lobbyists from parliament.

    6. pay to vote, lets say £20 which goes to the party you voted for, I am sure trade unions, ngos, business can distribute the cash as they see fit, and hope joe public does not lie to them, this is the only funding partys will receive, we need to make politics cheap again.

    just a few off the top of my head suggestions.

  11. I've no idea precisely what will work. But I feel sure a version of the status quo with more government involvement in banks and from that everywhere else, with fewer bonuses for the new mediocrity, won't cut it at all. So everyone needs to be considering radical changes like this. We've got to go back local with a whole host of services, that is surely true. Maybe Gove can get it started with education. I also like the idea of paying to vote, with some cut-off for those on benefit. We all know about the law of unintended consequences, I just don't know it'll play this time. That's I suppose why I pray. Seen by many as escapism, for me it's simple grasp of ignorance, the most basic fact. But thanks greatly for these suggestions. Will help me mull.

  12. Hi Richard,

    The part about no "person inside a big Wall Street firm . . . having a crisis of conscience," coupled with the idea of mediocrity within the system, leads me back to the obvious--that there have been people in charge who never should have gotten raised past cubicle positions, little jobs, with average pay, and well-supervised.

    Someone asserted something years ago, and I forget in what context or where, that after graduation, the politics of numbers alone demands that the B students take power, and the A students take a back seat. B students don't know what they don't know, and cannot understand what the A students are trying to say. Of course, this is really an over-generalization, as we know that it is not that simple, that many geniuses are D students. But the core thought applies. B students take poses as if they are geniuses, when they are not. The culture also puts down A students to keep them in line: they are nerds, or they have no common sense, and so forth, good for a laugh and some specialty geek work that the powerful B students can use in the board rooms.

    This leads to the idea that what should be in place are stringent certification procedures to be sure that only people licensed for their acuity of thought, get to take positions that would require such acuity of thought. If you do not have what it takes, no matter how many people or who thinks you can do the job, the (good) testing would show that you cannot, and therefore would be a danger to society in such a position, more dangerous than if a public building was being wired by an unlicensed electrician who learned his trade on the street.

    But this whole idea of Wall Street people not having troubled consciences is, well, troubling. It's as if the investment bankers not only needed to have the smarts of Meridith Whitney, Steve Eisman, et al, but the moral development also, surely lack of any criminal record, which I believe is standard fair in companies for employees (if not board members), along with having good individual credit ratings. But we still have not zeroed in on moral maturity. Of course, giving people moral development tests before they can be professionals or board members, opens a can of worms, and all sorts of biases and reliabilities in testing would need to be guarded against. But maybe it is time to take a look.


  13. Rus, please take a late response as a compliment. More to mull. Very valuable.

    The indirect reference to Piaget reminds me of his influence on a young Alan Kay and the original Learning Research Group at Xerox PARC. Great memories and still important ones. (Anyone interested are left to do their own googling rather than me set links in stone for seminal software history, probably unfamiliar to many on Bryan's 'Blog Sunday'.)

    My own thoughts though have been more on smallness and the rude, informal end of moral development, exemplified by Eisman. Here's a guy who had to leave the place his parents worked and had found him a cushy position because even there it was too big for his 'difficult nature'. I love the way he kept repeating "Again, in English this time" on being presented ad nauseam with the sub-prime and CDO stories. Everybody else it seems was happy to go along with the bullcrap, mathematical models and all, so as not to appear stupid. No, wrong, not just mathematical models. Maths turned into the wondrous and flexible potion of software models, provider of spurious twenty-first-century authenticity across a vast number of fields by now.

    We need to take potty-mouthed Eisman, clone his DNA and fast. Climate change needs him - same stupid models, same gobbledegook, same arrogance, same untested assumptions with disastrous consequences.

    But that probably applies to all Big Science. The Large Hadron Delay versus far more cost-effective options down disused mine shafts. And all that.

    And not just Big Science. Big Government and Big Corporatism.

    I may never say fuck as many times per sentence but there's something of Eisman I aspire to.

    Just the way my mind's been going since you put up the central moment of Lewis' narrative. All directions - yes, Thought Experiments - are useful right now. We've hit a major hole in the road. Everyone assumed we could bump over it like all the rest but once we came close and could see the rear of a double-decker plus Bentley poking out we knew this time was different. At least we had some time to think about it. We ought to. Deeply. Thanks.

  14. Thank you, Richard.

    You've given me thought too, in this last comment, but even from your sharing of the Lewis link, which I have passed on. I have enjoyed this whole thread.