The now bankrupt investment bank Lehman Brothers invested heavily in the politics of global warming and were hoping to make millions out of emissions trading. In an earlier blog post entitled 'Bankrupt Lehman Brothers Promoted Global Warming' I suggested this was part of their undoing. According to Graham Young the issue is not specific to Lehman Brothers, or global warming, but rather systemic, and it has everything to do with computers and modelling.
“In the real estate investment and development industry computer models never really took over. Valuation practice meant that valuers had to check their calculations by using at least two, and preferably three methods for comparison. Cost of construction and direct market comparisons didn't negate computerised discounted cashflow models, but they did mean banks wouldn't lend to you on the digital blue-sky valuations. The models might be right, but few lenders were prepared to risk their shirts on them.
“I know I soon realised that if it didn't work on the back of an envelope, then making it work with a computer program was very dangerous.
“The same thing can't be said for equity and credit markets, where asset pricing models for risk have taken over at the large ticket end of things. Which brings us to the sub-prime mess.
“Even though a cursory explanation of how the mortgage packages were structured sounds daft, the models said that they were fine. GIGO (garbage in garbage out) is the technical term for this. And the models were so complex, and the products they were used to produce so opaque, that no-one really knew the full risks of what they were "investing" in.
“And at the bottom of the pile, making all of this possible with abstract computerised models, were undoubtedly a lot of physics and maths graduates.
Which is pretty much where we are with climate change.”
Read more here:
http://ambit-gambit.nationalforum.com.au/archives/003396.html
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Don’t forget there is a community thread at this blog. Breaking news over there includes the retirement of Don Burke as chair of the Australian Environment Foundation.
I agree, Graeme. And there has been no shortage of good economists warning about this for years and to no avail. But what we need to guard against is the rewriting of history to suit an over-regulation agenda when a "proper" regulation regime is what has always been required.
It is interesting the way the reserve deposit system has been completely discarded as a monetary policy tool. Primarily due to the banks sidestepping these requirements by way of non-bank intermediaries.
If there is one good thing to see from all this is the sight of Republican Senators getting their heads around the fact that one of the core roles of government is as "lender of last resort". The ideology of strict non-intervention is taking a timely beating but the issue is more one of whether the regulatory price of that role will be in proper proportion to the long term need.
I'm not claiming conspiracy here. But offloading your overblown real-estate-portfolio onto minorities, and then getting the taxpayer to bail out the banks is a pretty good way to win the fractional reserve musical chairs game.
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Of course you are right Ian. The regulations specific to this crisis is an integral part of the crisis. But we see the specific problem of bank crises and the business cycle echoing down through the ages. And the one thing that is common to all crisis is the unwinding of fractional reserve pyramiding.
Now that our banks are so huge and regulated it can take longer for the bubble to burst. And in the information age the pyramiding can go further before it bursts and this is the case also because of the pure fiat nature of the system and the implied government backing.
We have even lost any reserve asset ratio. For the very first time pyramid money outweighed cash 100 to 3. Thats a system that is a hair-breadth away from collapse.
In fact forcing it all onto minorities might have kicked the can down the road another year or two but made things a great deal worse when the unwinding came. This is like what Greenspan described in the 60's as "putting a penny in the fusebox."
We see government action or any number of problems precipitating the crash in every generation for some hundreds of years.
But the one thing that all such banking collapses and recessions have in common is the fractional reserve ponzi-scheme.
The war spending the bad regulations and the stimulus packages would have stressed the system. But where you have a crash what you have is an unwinding of fractional reserve.
Yeah, regarding Jimmy err... Warren Buffet wowing them again:
http://www.dailyreckoning.com.au/warren-buffett-goldman-sachs/2008/09/25/
Ra calling anyone an insufferable twerp is enough to blow my bull$hit canary right out of his cage.
At least take your head out of your own ass long enough to give us some substance as to why it was not mandated loan targets that dug the current economic hole. Just a single fact would be an improvement on your last few posts, you bombed out bogan. Did they exist or didn't they? And what was their impact?
I think he's even more appalling now that he thinks he's somehow a nationally recognized intellectual or at least was given intellectual stardom by being invited to the 2020 summit. He seems to have this extra spring in his step due to some unaccountable confidence that simply shouldn't be there.
So yes, he's even more of an insufferable twerp than before.
"This isn’t funny anymore. Since his return from the 2020 summit, he’s become insufferable which is saying something even for him. Is there a medical term ” delusions of grandeur”."
I'm just not able to sort out these gradations of unrighteousness with your subtlety. I thought he was just as appalling before he left.
The point scoring in respect of modellers financial vs climatic is quite a bit off the mark. The underlying driver of the economic crisis was not modellers nor was it bankers greed.
Oh low IQ bullshit. Models were understating risk across the board. Stop bullshiting
The point scoring in respect of modellers financial vs climatic is quite a bit off the mark. The underlying driver of the economic crisis was not modellers nor was it bankers greed.
Some time ago the US congress mandated that all lenders had to allocate a large, fixed, portion of their housing lending to minorities as an off budget social program.
The key problem with this was that this meant lending to people with a very unstable work history, low skills base and high marginal propensity to consume any additional income they might gain. They also purchased property in less investment worthy locations as the regulators intended them to.
Bankers recognise these people as "bad risk", race or skin colour had nothing to do with it. And when faced with a compulsory accumulation of this bad credit in their portfolios they had no choice but to get the modellers to work to see how far they could syndicate this stuff to spread their risk as wide as possible.
The financial modellers were not maximising greed but, rather, minimising risk that stemmed directly from an ill-conceived regulatory measure.
It should also be noted that this structural expansion of the lending envelope had a strong expansionary impact that tended to obscure the underlying instability of the employment prospects of the borrowers. Add an expensive, but in my view, necessary war of occupation and some ill-timed tax cuts and the rest is history.
But none of this has been mentioned by all the leftist economists who, after crawling into holes after the Vietnamese, Chinese and now Indian economic take-offs, are now back out in the street regurgitating their calls for rigid financial re-regulation.
But even these calls are all quite redundant as the US banking system is now essentially being nationalised as the government picks up both good and bad quality assets at a fraction of their fundamental value.
Note, the worlds richest man, Warren Buffet, has recently entered the market to get his full share of bargain wealth at the firesale. And when the write-offs flow right through the economy over the next decade or two the government will make some very healthy profits at the expense of the public whose savings will fund the repurchases.
While on the subject of bankruptcies, has anyone seen this comment by the Quiggin.
"I’ve been finding it hard to concentrate on the future of the planet ....."
http://johnquiggin.com/index.php/archives/2008/09/22/climate-change-and-the-murray-darling-basin/
This isn't funny anymore. Since his return from the 2020 summit, he's become insufferable which is saying something even for him. Is there a medical term " delusions of grandeur".
He obviously needs a full time job. Give the kid a bucket to fill up the Murray.
For starters you are looking at the wrong metric. The atmosphere is just the oceans by other means. You ought to be looking at the energy and circulation of the oceans and worrying about the temperature as mostly a derived secondary step.