My connection with the events depicted in The Big Short is that I worked in the information technology department of a mortgage bank in the run-up to the 2007 implosion of the subprime mortgage market. Many of the big players in that market, like New Century and Countrywide, were based here in my backyard — in Orange County and Pasadena. Given that it was fairly evident at the time that complicated financial instruments were being dreamed up for the sole purpose of lending money to people who could never repay it, it’s remarkable that very few people foresaw the catastrophe and that even fewer actually had the nerve to bet on it to happen. Long story short, the major rating agencies — Standard and Poor’s and Moody’s — were incompetent in their rating of subprime mortgage bonds, giving investment-grade and, in some cases, triple-A ratings to high-risk instruments. A lot… Read more →
EppsNet Archive: Bailouts
Goldman Sachs CEO Henry Paulson Endorses Hillary Clinton
I’m seeing a lot of headlines today on Henry Paulson’s endorsement of Hillary Clinton, in all of which Paulson is identified as “President George W. Bush’s treasury chief Henry Paulson,” or “ex-GOP Treasury Secretary Henry Paulson,” or something to that effect. There are certainly other ways of identifying Henry Paulson, e.g., Former Goldman Sachs chief executive Henry Paulson Architect of TARP and “Too Big to Fail” Henry Paulson Wealthy Wall Street goon Henry Paulson Henry Paulson, who used his position as Treasury Secretary to bail out his Wall Street friends with taxpayer money It’s hard to see how an endorsement from Henry Paulson is anything but a nail in the coffin of the Clinton campaign . . . I took millions of dollars for speeches to Wall Street banks and investment firms, including $675,000 from Goldman Sachs (see New York Times), and now they’re all endorsing me! (Shocking.) Also: I… Read more →
Greece is Going Out of Business
I remember the good old days when we only had to worry about small banks going out of business. Then big banks started to go out of business, then non-bank financial institutions, and now small countries. The problem with having a lot of debt is that, with some exceptions (“too big to fail”), bad things happen when your investors get nervous. My memory is not photographic as some of the legends about me say, but I am sure I would remember if the works of Adam Smith included the phrase “too big to fail.” — Garry Kasparov What are the odds that people running companies or countries will make smart decisions about money if they don’t need to make smart decisions — if they can do just as well or better making dumb decisions and being rescued from the consequences? According to the government debt chart below, the next countries… Read more →
Best 10-Word Explanation of Why the Big 3 Bailout Should Die
We simply cannot ask the American taxpayer to subsidize failure. — Mitch McConnell Read more →