Comments on: "Bankers, like gangs, just get carried away"

By: Anonymous

Anonymous — Wed, 13 Feb 2008 22:20:00 +0000

Yves, I read that piece in the FT and hoped you’d comment about it, though have to admit that I expected you to blow more willingly in the same horn. What Kay points to — and he’s not always as clearly spot on — is a theme that is VERY closely related to Palley’s recent criticism of “one economics,” and goes beyond pay structure of traders and CEO’s in the financial industry. Neoclassical economics, whether of the Rodrik-Stiglitz or the Friedman-Sargent-Lucas type relies on rational, utility-maximizing individuals. There can be informational asymmetries, but if you’d only organize markets and incentives properly, they’ll bring about first best solutions. That is fundamentally wrong once you change your perspective on agents as group-thinkers, learners, adopters, herd-animals, in a sense. Models with such agents require an adjusted homo oeconomicus, a different economic worldview, and obviously lead to different policy recommendations. Keynesians and Post-Keynesians — Palley arguably belongs to the latter — have long argued along these lines. More recently, “sociological and anthropological” insights, as Kay says, have broadened economist’s
horizons. See Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model, edited by David Colander, or Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics by Eric D. Beinhocker.

By: eh

eh — Wed, 13 Feb 2008 12:00:00 +0000

I disagree that it was somehow known, or perhaps even knowable, that these products would ‘come back to haunt’. As I understand it, this structured debt paper was constructed with default rates per historic norms in mind. It is quite possible that the people doing the construction did not have all the underwriting details, i.e. in order to make a better assessment of likely future default rates. And even if they had, with things like stated income etc it may not have mattered much. So the originators, where greed was obvious, deserve a big share of the blame.

Whether this paper and its risks were presented honestly to investors is another matter.

By: Anonymous

Anonymous — Wed, 13 Feb 2008 08:41:00 +0000

We see a three to five year horizon for litigation and investigations stemming from the subprime market

LECG Corp. Q4 2007 Earnings Call Transcript
Page 5 out of 10|
posted on: February 12, 2008

And experts have been recently retained on several significant subprime matters. We are already seeing investigations from the SEC, FBI, Justice Department and State Attorneys General, as well as new numerous law suits involving these parties. Further, while we cannot divulge too much, we can report that we currently engaged on two of the most high profile subprime matters in a variety of capacities in addition to several other matters.
To-date over 15 senior-level experts and 50 staff have been put in on a number of sub prime related projects. We see a three to five year horizon for litigation and investigations stemming from the subprime market to be fully resolved. We expect to be heavily involved in subprime work through out this period.

By: Jojo

Jojo — Wed, 13 Feb 2008 05:10:00 +0000

People who get commissions, bonus, etc. will ALWAYS do what is best for them to maximize their $$. If you don't, you might not have a job next year because you didn't make your numbers. This will never change. It is human nature.

But of course, salespeople are only reacting to the agenda set in front of them by management. So the real problem is management.

Having worked in sales for quite some time, I speak from experience.