When Did Roubini Call The Collapse

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I saw this on Business Insider:

“Nouriel was predicting collapse from as early as 2002, if not before, and his focus was on the current account and the dollar more than the banks. I first raised the spectre of a massive liquidity crisis for highly leveraged U.S. financial institutions in 2006, so I think my timing and focus were a little better. But I was wrong in one respect: I thought a geopolitical event would be the trigger for a massive repricing of risk. Wrong. It happened all by itself, caused by endogenous forces within the financial system.”

So now Roubini is supposed to have called the collapse in 2002?

Maybe. But when I looked through his archives I could only find speeches to that effect in the summer of 2006. That’s all I’ve heard Roubini claim too.

But now here is Niall Ferguson (above) claiming Roubini called it in 2002.

Time for some more research…

We want to give the man his due. Just because he seems to be draped on the arms of beautiful women at parties nearly everywhere we see his mug, it doesn’t mean he wasn’t right on…er…top..of things..

Update: Megan McArdle says Roubini got the magnitude of the crisis right but not the causes.
(Lila: But he got that right only well into 2007, which I don’t consider prediction so much as description, at that point).

McArdle points out, however, that Roubini was mostly focusing on the current account deficit and the dollar in 2004…neither of which was central to the crisis.

But then she herself goes onto suggest that it was the mispricing of risk through incorrect statistical modeling, as described by Mandelbrot and Taleb (of Black Swan fame)k, that underlay the crisis. But this too is incorrect. Indeed Taleb himself has denied it and said he was misquoted.

Frankly, even though I say it myself, Mobs beats them all in prescience and apt timing in describing why the system toppled over.

In a word – it got hollowed out. I think that was a theme already described in Empire of Debt (Bonner & Wiggin) in 2005 and Financial Reckoning Day (Wiggin & Bonner) in 2002.

All three were read widely by a large swath of the business community and press and plagiarized.

Ex-Sith Lady Uses RICO On Sith Lord (?)

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The ex-wife of Steven A. Cohen, legendary multi-billionaire manager of hedge-fund SAC, whom the ever controversial (and confrontational) Patrick Byrne has for some time been suggesting is the, or perhaps, one of the Sith Lord/s of Wall Street, is using RICO laws to get a bigger settlement from her former husband. That´s turned up some interesting accusations:

“In Ms. Cohen’s version of events, her husband and his brother, Donald Cohen, orchestrated a long-running racketeering scheme. She says her former husband lied under oath about his net worth, conducted mail and wire fraud, and concealed from her and the Supreme Court of New York millions of dollars that he possessed in 1990, thus reducing her divorce settlement.

Even in this post-Madoff era, the accusations might seem outlandish. Mr. Cohen, known as Stevie, is one of the nation’s most successful money managers. With a $13 billion hedge fund and a sumptuous Connecticut estate, he is, at 53, a Wall Street legend.

But all of this comes at an uncomfortable moment for Mr. Cohen and his company, SAC Capital Advisors. Since federal prospectors began making arrests in a major insider trading investigation in October, SAC, which is based in Stamford, Conn., has been linked to the case.

A former SAC analyst has pleaded guilty on charges related to insider trading that occurred years after he left the firm and has agreed to provide any information he might have about insider trading that occurred when he was at SAC. No current SAC employee or manager has been charged with wrongdoing.”

and this:

“She claims in her suit that in 1985, while they were married, Mr. Cohen confessed to her that he received inside information about the takeover of RCA by General Electric, a megadeal of the 1980s that prompted a sweeping insider-trading investigation. The Securities and Exchange Commission dropped its investigation after bringing charges against a G.E. executive and a Houston family with ties to a Wall Street bank.”

and this:

“When the couple divorced, Mr. Cohen stated that, on paper, he had a net worth of $16.9 million. But $8.7 million of that was “worthless,” he said, because of a bad real estate deal with Mr. Lurie.”

Lurie, who later fell out with Cohen, claimed that the money he got from Cohen to put through the deal came from an SAC trading account.…

My Comment

And some substantiation for the charges can be found in this WSJ story on Goldman Sachs analysts tipping off their own traders first and then favored hedge-funds (SAC at the head of them), before their own clients(which I noted in 2006).
See also this Deep Capture post.

Apparently, it´s not easy street being a Sith Lord. You never know when your spurned Sith Lady (not to mention various disgruntled Sith Knaves) might spring out from the shadows to expose what´s apparently standard operating procedure in the money business.

(Sigh) Not even a Greenwich mansion seems worth it (for a colorful account of the culture of the hedgies, whom we call the bubble kings, see “The High Way Robbers,” in ¨Mobs, Messiahs and Markets,”(Bonner & Rajiva, Wiley 2007).

I said this a long time ago  in “Three Card Capitalists”

The market collapse might have been triggered proximately by failed sub-prime loans, but the deeper sources of it lie in the massive fraud and corruption that go back to the  1980s, and even earlier, to the 1970s.

Frank Chodorov On Destroying The Citadel Of Power

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Frank Chodorov, on the seduction of power, from  Mises.org

“For, it is said that while Saul of Tarsus was carrying out his duties as Commissar of Truth, the Messiah he had been denying appeared before him and convinced him of his error. So, after a bit of soul searching, he quit his job and thereafter dedicated himself to the task of preaching the very doctrine he had been denouncing. And because he was now the persecuted rather than the persecutor, he was effective; everywhere he went he found willing listeners, even in Rome itself. More important than their numbers was the conviction of his converts that in the eyes of God the lowliest in society was equal unto Caesar. The psalm of freedom — of the dignity of the individual — reawakened their souls. Neither the lash nor the dungeon vile nor the wild beasts in the arena could rob them of their self-esteem. By their very suffering and death they transmitted their faith to others, the sect grew, and at long last Caesar capitulated.

From the story of Saul, who came to be known as Paul, we draw the lesson: that when people want freedom they will get it. When the desire of the business man for “free enterprise” is so strong that he will risk bankruptcy for it, he cannot be denied. When youth prefers prison to the barracks, when a job in the bureaucracy is considered leprous, when the tax collector is stamped a legalized thief, when handouts from the politician are contemptuously rejected, when work on a government project is considered degrading, when, in short, the state is recognized to be the enemy of society, then only will freedom come, and the citadel of power collapse.”

Dan Denning On Dubai, Copenhagen, And The Stock Market

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Dan Denning, author of “Bull Hunter” (Wiley, 2005), in the Daily Reckoning (Australia):

“The S&P 500 hit a 14-month high overnight. The conventional wisdom is that two news events are responsible. This is probably wrong. But let’s look at both events anyway and see what happened.

The first is that Abu Dhabi extended a $10 billion in financing to debt-distressed Dubai. Hossanah! Remember, Dubai is not Lehman. It’s Bear Stearns. It’s merely the reminder that there are lot of leveraged investors in the world who’ve used borrowed money to buy assets that aren’t very productive. They’ll get theirs soon enough.

The second bullish item is that ExxonMobil (NYSE:XOM) made a US$41 billion all stock bid for Houston-based natural gas company XTO. This sent Exxon shares down 4.4%. Thus the Dow’s rally was a bit tepid (XOM is a Dow component)……

Exxon is either getting a bigger foot in the U.S. natural gas market or hedging against cap-and-trade legislation, or both. We vote for both. No one is in a better position to know about the constraints on global oil production and discovery of new reserves than a major company like Exxon. And Exxon has seen firsthand that unconventional natural gas can be a lucrative little market.

But are those two bits of news really enough to send the market higher? Probably not. Who knows why the market goes higher? It does what it does. There’s an alternative explanation.

The alternative explanation is that the Copenhagen climate talks look like they’re collapsing into confusion and President Obama’s legislative agenda is in tatters. The private sector absolutely loves this…..

Good policy? Bad policy? Who knows? All we know is that the more uncertainty you introduce into the markets, the more conservative and defensive investors are going to get……

That’s not to say that a deal won’t come out of Copenhagen. Maybe the planet will be saved. Or maybe Copenhagen is the sell signal for global warming as a big idea/moral issue with which to bash the public. But either way, we reckon the stock market actually likes the idea that no climate deal is imminent and that healthcare legislation in the U.S. Senate can’t seem to get 60 votes.“

My Comment

Full disclosure: I worked for Agora two years ago. I receive no financial or other compensation ( trips, free food, passes to movies, restaurants, invites to exclusive seminars, commissions on real estate, insider deals etc. etc.) for mentioning them.  But, if you´re writing about financial contrarians, they´re the original ones ….

My own difficulties with and criticism of them do not – and should not – prevent me from correctly attributing and acknowledging their work in populariazing nearly all the main issues that are now being debated in the media. Certainly, it was through them, and through Lew Rockwell, and Mises, not through establishment media or their blogs that I received an education in Austrian economics (I should add that I was always instinctively oriented to it, from childhood on).

Having deleted my facebook account after the social media wrestling-match between the Wall Street media mob (and backers) and Deep Capture´s investigative team (and backers),  I am now content with actually writing emails or making phone calls to people I want to contact. Thankfully, there aren´t many I do.

Peter Boettke On Paul Samuelson

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Peter Boettke writes a sobering obituary for Paul Samuelson:

“John Hicks once wrote that the story of economics in the 1930s was the battle between Hayek and Keynes. I think Hicks is right, and that this battle continues to this day as witnessed in our current policy debates.  But I think there is a deeper debate that goes at the very project of economics as a scientific discipline. And that battle is the one between Samuelson and Mises, and the fateful choice was the late 1940s.  Rather than following Mises’s Human Action, the economics profession went the path of Samuelson’s Foundations.  Formalism was interepreted as synonymous with logical rigor, and in the subsequent decade positivistic testing was interpreting as synonymous with empirical analysis.  By the 1960s, formalism and positivism transformed the science of economics so that the Misesian understanding of “theory” and “history” was actually completely dismissed as a relic of a pre-scientific age.

Since then a large part of the great efforts by economists have been directed at recapturing insights that Mises-Hayek possessed already by mid-century — whether we are talking about cognitive limits of man, the role of property rights (and legal and political institutions in general and behavior related to them), and the microfoundations of all macroeconomic phenomena. New institutional Economics, New Classical Economics, New Economic History, Experimental and Behavioral Economics, etc. all deviate in significant ways from the scientific and policy project that Samuelson initiated in the late 1940s and which dominated economic thinking from that time until the 1980s.  The Samuelsonian project had to be pecked away at for progress in economic understanding to take place. Yet the ‘scientific’ allure of the project still remains — unfortunately even among many of those who pecked away at the Samuelsonian project.  The pretense of knowledge (see Hayek’s Nobel) and the claim to the mantle of science (see Rothbard’s paper of that title) have a much stronger grip on the minds of economists and intellectuals than what might be reasonably expected in the wake of repeated failures.

Samuelson argued that like all great scientists he was only concerned with the applause of his peers. And he received great praise in his lifetime and will be celebrated in the short-run in his death.  But I have stated on more than one occasion that I believe Samuelson will be remembered in the same way as Sir William Petty is remembered, not as Adam Smith is remembered.  His substantive contributions (as oppopsed to the form in which he stated arguments) are not immediately obvious to pinpoint.  We must always remember that Samuelson was the great anti-Misesian of 20th century economics, and in my book that translates into a force for anti-economics despite all the scientific accolades, awards, honorary degrees, and reverence by his peers he was granted in his lifetime.”

Speculation Tax and In-House Informants In The Works

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“We can also be a bit clever about cracking down on evaders. Suppose that we gave a reward of 10 percent of the tax collected to workers who turn in their bosses. There are few Wall Street billionaires that physically do the trading themselves. They have assistants for this task. And many of these assistants would be happy to make themselves rich by turning in their bosses.

In reality, the idea that a tax on speculation is unenforceable is laughable on its face. Compare the difficulties of enforcing a speculation tax with enforcing copyrights. In the case of a speculation tax, the issue is a relatively small number of very large transactions. No one cares if trades involving a few thousand dollars go untaxed. The real issue is a relatively small number of trades involving millions, or even billions, of dollars.

By contrast, copyright enforcement is all about billions of small transactions involving movies with a copyright-protected price of $15 or $20 or songs with a copyright-protected price of less than a dollar. The problem of enforcing copyrights is several orders of magnitudes greater than the problem of enforcing a financial transaction tax. Yet, none of those insisting on the impossibility of enforcing financial transactions taxes have said that copyrights are unenforceable. The issue is clearly what they want to enforce, not a question of what is enforceable.

The country does need to let itself be ripped off by the Wall Street crew indefinitely. We can make them pay a price for the damage they have caused. We just have to stop listening to the Wall Street apologists and get serious.”

My Comment

Two questions and a wince:

Question: Are we to assume from this that after the taxes you already pay on capital gains from trading, you are going to be further taxed, because, thanks to inventors and businessmen, costs in trading have come down?

Question: And are we to believe that this will affect only million dollar trades, but not the few thousands that many more investors are concerned with?

Wince: Did I hear that people are going to be given incentives to report their bosses?

Whoa!

We already have the SEC and FBI bribing people to inform on other people. Personally, I think an informant who receives money for his information should be disregarded.

What happened to doing your civic duty as a virtue?

Do citizens have to be bribed to perform duties (assuming you think, which I don´t, that turning in tax evaders is part of your moral duty)?

(Of course, we already bribe them to fight, bribe them to make babies, bribe them to vote, bribe them to run businesses…socialism being the society built on bribery rather than on demand).

And that´s only one part of the problem with this….

SEC To Look At High-Frequency Trading and Naked Access

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From Reuters, a report shows sharp rise in “naked access” to markets after 2005:

“NEW YORK (Reuters) – A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.

Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.

Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.

The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.

The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”

Are We All Keynesians Now?

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Peter Robinson in Forbes, writing about Professor Samuelson´s death, on why we aren´t all Keynesians now:

“Question: “Everyone,” you claim, “understands … that there can be no solution without government.” Are you aware that Harvard economist Robert Barro called the Obama stimulus package “garbage?” “This is probably the worst bill,” Barro insisted, “since the 1930s.”

Had you noticed that Stanford economist John Taylor has warned against responding to the crisis with a government intervention? “[P]olicy makers,” Taylor wrote recently, “should rethink the idea that frequent and large government actions and interventions are the only answer to our current economic problems.”

Are you aware that nearly 300 economists signed a petition opposing a federal stimulus? “Notwithstanding reports that all economists are now Keynesians,” the petition declares, “we do not believe that more government spending is a way to improve economic performance.”

And have you happened to glance at any recent polls? According to the Rasmussen organization, more than half of Americans believe the Obama stimulus bill will either hurt the economy or have no impact.

If dozens of economists and more than half the American people are against you, then who is this “everyone” of whom you spoke?”

Why Am I Not Surprised?

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Ritholtz:

(Sept 26, 2009)

(strong critic of the Fed, on speaking to Congress about reform and about oversight by Congress of the Fed)

“I was invited to testify this week to the House Financial Services Committee about reform and regulation.

I politely demurred.

Quite bluntly, I didn’t see how speaking to Congress would matter one tiny bit. Its not like they seem to be paying much attention to witnesses, or have very much interest in figuring out what was the cause of the crisis. Besides, they seem to be beholden to those whose interests are to not fix the problems at hand.

While I have been critical of the Federal Reserve (especially the Greenspan years), my beef with them has been their judgment and decision-making process. Congress, on the other hand, is a whole different matter. Its not their judgment, but rather, the fact they are owned not by the American people, but by lobbyists, and corporate interests. They have become structurally deformed.

(Lila: So who owns the bankers and the Fed? The American people?)

How weird is it for me, who spent so many pages blaming the Fed for much of the recent crisis, to find myself in a position of defending them from outside political pressure?”

My Comment

Oh, not weird at all. Perfectly transparent.

Here´s why.

It´s OK for establishment critics to criticize Obama. It´s OK to criticize Congress, and the Regulatory Agencies. And to call them all bought and paid for by corporate interests. It´s OK to criticize the oil industry, and the defense industry, and fundamentalist Christians, Bush, Cheney, Phil Gramm, and abstractions like “the power structure”. It´s OK to criticize speculators (in the abstract) and the Fed (in theory). It´s OK to lecture African leaders. Or the Indian caste system. Or socialism or capitalism..or greed…or the Catholic church.

But it´s never OK to actually do anything that really limits the power of the bankers and financiers at the heart of the problem.

No audit of the fed.

No investigation of the actual, provable corruption of the financial media, the academic peer review process, prize committees,  etc. etc.

No lawsuits against bankers, without retaliation from the SEC.

The Creation Of Professional Consensus

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An article that illustrates how professional consensus is created in the sciences today:

“To experts such as McIntyre and Pielke, perhaps the most baffling thing has been the near-unanimity over global warming in the world’s mainstream media – a unanimity much greater than that found among scientists.

“For example, last year the BBC environment reporter Roger Harrabin made substantial changes to an article on the corporation website that asked why global warming seemed to have stalled since 1998 – caving in to direct pressure from a climate change activist, Jo Abbess.

“‘Personally, I think it is highly irresponsible to play into the hands of the sceptics who continually promote the idea that “global warming finished in 1998” when that is so patently not true,’ she told him in an email.

“After a brief exchange, he complied and sent a final note: ‘Have a look in ten minutes and tell me you are happier. We have changed headline and more.’

“Afterwards, Abbess boasted on her website: ‘Climate Changers, Remember to challenge any piece of media that seems like it’s been subject to spin or scepticism. Here’s my go for today. The BBC actually changed an article I requested a correction for.’

“Last week, Michael Schlesinger, Professor of Atmospheric Studies at the University of Illinois, sent a still cruder threat to Andrew Revkin of the New York Times, accusing him of ‘gutter reportage’, and warning: ‘The vibe that I am getting from here, there and everywhere is that your reportage is very worrisome to most climate scientists … I sense that you are about to experience the “Big Cutoff” from those of us who believe we can no longer trust you, me included.’

“But in the wake of Warmergate, such threats – and the readiness to bow to them – may become rarer.

“A year ago, if a reporter called me, all I got was questions about why I’m trying to deny climate change and am threatening the future of the planet,’ said Professor Ross McKitrick of Guelph University near Toronto, a long-time collaborator with McIntyre.

“‘Now, I’m getting questions about how they did the hockey stick and the problems with the data.

‘Maybe the emails have started to open people’s eyes.’

What´s especially interesting in this report is that the Russian government has confirmed that the emails were uploaded from a Siberian server, but has “strenuously denied” that they were generated by the Russians.
That possibility was one of the reasons why I didn´t initially rush to defend the hackers, as many skeptics did.
But since then, several sources have claimed that the information was illegitimately denied to the public and was probably released by a whistleblower or someone  acting on behalf of the public interest in the matter.