Felix Salmon, who’s been generating some of very best reporting and commentary on the ever-unfolding financial crisis:
[I]f you think that financial reporters are frazzled right now, just imagine what it’s like for the people on the front lines. Stocks are going haywire, volatility’s soaring, counterparty risk is through the roof, regulators aren’t helping matters – and the upshot is shot nerves, hasty decision-making, and generalized chaos.
The same is true, of course, at Treasury, at the New York Fed, and at any other regulatory organization you can think of. And it’s a recipe for disaster. Just remember – if you can keep your head when all about you are losing theirs, it doesn’t matter, because they’re the people in charge.
This is why the speed at which things are falling apart is so worrying. Monster deals are being done and then forgotten about within hours: last night I was at a dinner party, talking about the crisis (natch) and listening to someone say “oh yes, AIG, I forgot about that one”.
I don’t think anybody’s capable of holding in their head all the vital information needed to get a grip on things right now – not in the wake of Lehman and Merrill and AIG and the liquidity injection and the TED spread and Morgan Stanley and the money-market funds and counterparty risk in the CDS market and bans on short-selling and WaMu and negative nominal interest rates on T-bills and the oil price and the dollar and why on earth that German bank wired $300 million to a bankrupt bank and on and on and on and on. We’ve been overwhelmed by the complexity of the system, and nobody knows anything.
September 19th, 2008 at 7:56 am
John Robb, author of Brave New War, has a very good write-up on this overload at his blog:
http://globalguerrillas.typepad.com/globalguerrillas/2008/09/decentralized-i.html
September 19th, 2008 at 9:02 am
Oh yes Felix, I’m losing sleep over those poor Financial Journalists…
September 19th, 2008 at 11:10 am
Here’s a crazy idea. Who has the kind of mind that could take all of this in and make sense of it? Who has experience at the very highest levels of decision making, the trust of people like Rubin, Summers, Burns and is looking for something big to do? Who did Alan Greenspan say was “the only President who understood what I was talking about” (and he served under four)?
How about asking Bill Clinton to oversee the whole shebang — the quasi-RTC, the necessary legislation, developing the new regulations? He could do it, would love the details and would bask in the attention. Of course, who could ask him?
September 19th, 2008 at 11:49 am
For savvy investors this “crisis” is when the real money is made. You can always count on money going from weak hands to strong hands, this time is no different. The flushing out of worthless assets on one companie’s books is gone, and the profitable parts move on to a more competent manager of those assets. A Darwinian game of chess where the strongest survive, and the weaker die.
September 19th, 2008 at 12:07 pm
At a macro-level Jim H is right. Bank of America may do a better job than Countrywide and Merrill Lynch. We don’t need to cry for their CEO’s.
But at a micro-level, those worthless assets include the homes and savings of thousands of working citizens who were paying their mortgages and had taken the advice of trusted advisors who supposedly understood the system better than they did. If you’re trying to save the economy, focusing on Wall Street is necessary. But if we’re also concerned with a decent society, we need to avoid wiping out the hopes and dreams of the little guys that so far are being treated as collateral damage.