
Disillusioned in Davos - jackgavigan
http://larrysummers.com/2017/01/20/disillusioned-in-davos/
======
ktRolster
_I am disturbed by (i) the spectacle of financiers who three months ago were
telling anyone who would listen that they would never do business with a Trump
company rushing to praise the new Administration_

He is surprised that bankers are in a hurry to put themselves in a position to
make money?

~~~
atmosx
Yeah, he had no clue that bankers are greedy, that's why he pushed the Glass-
Steagall Act, but suddenly he became enlighten. Well good for him, didn't work
out for tax payers, apparently.

I wouldn't worry though, the market will _regulate_ itself and if it doesn't,
there's always tax payer money just around the corner, all financial
institutions have to do is make sure they're on the right side of the tide
(e.g. not Lehman, but Goldman).

~~~
ktRolster
Banking seems like an industry that is super ripe for disruption.

A problem seems to be that it's based on trust (do I trust this person enough
to loan them money), and once it is based on trust, that trust will be abused.

~~~
leereeves
Disruption can be the problem.

For example: mortgage backed securities and other innovations were a huge
disruption to the traditionally boring banking business.

~~~
yummyfajitas
What's the problem with mortgage backed securities?

~~~
leereeves
The 2008 financial crisis.

~~~
yummyfajitas
I'm confused; mortgages have been securitized since 1968 and MBS have been
common since the 80's. How did they cause a financial crisis 40 years later,
and why did it take so long?

~~~
leereeves
More specifically: subprime MBSs (and CDOs)

Failure to rate them properly (giving them AAA ratings) led governments,
banks, pension funds, insurance companies and other "safe" investors to invest
vast sums, making that money available for subprime lending, leading to poor
(nearly nonexistent) lending standards and the housing bubble, and when the
bubble burst, forcing the government to eat private losses to prevent
financial ruin.

~~~
yummyfajitas
Why do you believe that in the absence of MBS, a failure to properly rate home
loans would have let to a different result?

~~~
leereeves
Not many would lend their own money to someone with no income and no assets.

But by bundling many such NINJA loans into complicated investments that few
understood, mortgage writers were able to fund these loans with money from
most risk averse investors.

Would anyone have been fooled by individual NINJA loans with AAA ratings?

~~~
yummyfajitas
We know this to be false; most mortgage issuers _did_ lend their own money for
NINJA purposes. The typical practice done by Countrywide and others was to
sell off the AAA tranches of MBS and keep the riskiest ones.

 _Would anyone have been fooled by individual NINJA loans with AAA ratings?_

This question betrays a gross misunderstanding of how mortgage securitization
works. It's perfectly legitimate to construct AAA mortgages from arbitrarily
bad loans, provided you've _accurately_ quantified how bad they are.

~~~
leereeves
I didn't say no one would.

I said not many - meaning, in particular, not the risk averse investors who
control vast sums of other people's money and demand top rated securities.

Countrywide was making a profit off the resale of the loans, removing short
term profits from the corporation, leading to personal gains even after the
scheme failed, and Countrywide's CEO agreed to pay a "$22.5 million penalty to
settle SEC charges that he and two other former Countrywide executives misled
investors". Countrywide wasn't your typical investor.

> This question betrays a gross misunderstanding of how mortgage
> securitization works.

Your comment betrays a misunderstanding of what happened. People were fooled
by the complexity.

I said nothing about the ability to construct accurately rated loans. The fact
is that the MBSs and CDOs _did_ fool many people, including the rating
agencies.

And you didn't answer the question. How many would be fooled by a simple,
individual, AAA rated NINJA loan?

~~~
yummyfajitas
Countrywide (and other loan issuers) tanked because they were keeping the
risky tranches. It was the AAA tranches they sold. That takes all the risks of
the underlying loan portfolio and amplifies it.

 _And you didn 't answer the question. How many would be fooled by a simple,
individual, AAA rated NINJA loan?_

The question is meaningless. Individual loans aren't rated (at least not on
the same C-AAA scale that bond-like instruments are). Portfolios of loans are,
as are securitized loans.

People were "fooled" by _portfolios of loans_ in the exact same way they were
fooled by securitized loans - they chose optimistic parameters for the
nightmare scenarios. That's not complexity, that's just guessing wrong about
one or two simple numbers.

~~~
leereeves
Countrywide tanked because they kept the risky tranches for _shareholders_ ,
not for the people operating the company, who pocketed millions.

And when the SEC sued, the CEO agreed to repay investors "$45 million in
disgorgement of ill-gotten gains", but reportedly, because of an
indemnification agreement, Countrywide the corporation (actually the
corporation's new owner BofA) was forced to pay $20 million of that as well.

Hard to see that as anything but a scheme to "mislead investors".

[https://www.sec.gov/news/press/2010/2010-197.htm](https://www.sec.gov/news/press/2010/2010-197.htm)

------
MrQuincle
I don't think it's the job of foreign leaders to tell the American people that
they elected an individual with certain character traits or history. There are
many foreign leaders who are not as nice, benign as we would hope they would
be.

The extreme action would be an intervention. This will only be done if 90% of
the US population is suffering and asking for help. Even if there would be
camps where people would be murdered, the world will not interfere.

An isolationist policy very likely allows the rest of the world to refocus. By
making the US less dependent on the world, the world will become less
dependent on the US. The ties between Europe and Asia will become stronger and
I'm curious what that will bring.

~~~
FullMtlAlcoholc
I dont believe he's referring ti fireign leaders as much as he's referring ti
American bankers and business leaders.

------
gorbachev
"the unwillingness of business leaders who rightly take pride in their
corporate efforts to promote women and minorities to say anything about
Presidentially sanctioned intolerance"

Remember this when Silicon Valley leaders lick his boots.

------
leereeves
> Businesses who get on the wrong side of the new President have lost billions
> of dollars of value in sixty seconds because of a tweet.

#fakenews?

The story linked from that remark is about the cost of the F-35, with no
mention of a personal vendetta ("getting on the wrong side of the new
President").

------
drinkjuice
> It is a lesson of human experience whether the issue is playground bullying,
> Enron or Europe in the 1930s that the worst outcomes occur when good people
> find reasons to accommodate themselves to what they know is wrong.

Hannah Arendt mentioned something like this in an interview, how many of the
intellectual friends (or maybe rather acquaintances; intellectuals, anyway)
she had had in Germany were very apt at coming up with all sorts of "high
minded" things about Hitler. You know, cutesy salon talk, theories,
predictions. She found this grotesque, obviously.

I am often reminded of this when reading HN. And frankly, I find this circus
about Trump mostly circus. I mean, what is the difference between him and
other presidents or people who ran? That he is _openly_ gross? That he doesn't
sugar coat me-first fascism? That he makes the underbelly visible? You know
what's worse than talking shit about women or foreigners? Killing them in the
thousands and millions. But oh boy, just nobody say "pussy", nobody be a
racist, and of course, nobody call anyone a Nazi or something. America, the
country where it's leadership this and excellence that, with glorification of
the military as bookends. Where people excuse pushing for putting the whole of
humanity into a little glass bottle and smashing it on a rock with the fact
that this or that isn't unleashed on Americans, or not on Americans yet, or to
lesser degree, yet.

This becomes even more obvious when some people do what they consider making a
moral point. Like that Streep Oscar acceptance speech. All that compassionate
work Hollywood is doing, awww. Are those baby shoes, or is that really the
best you've got?

Even the post by Summers essentially boils down to:

> It is to enabling if not encouraging immoral and reckless policies in other
> spheres that ultimately bear on our prosperity.

If that is your main concern, I'm not impressed. If your problem is that you
_might_ get put in a train cart, and not that others have already _been_ put
in one and tortured to death at their destination, while their murderers still
show off the gold they extracted from their teeth at gala dinners, you are not
measurably better, not compared to others. You're the front organization,
compared to which the more radical inner circle can consider itself more
hardcore, you're the fake representation of an outer world, to steal another
thought from Arendt which I do think applies.

And it's a bit like using terrorism or pedophiles to push totalitarianism --
how could anyone criticize that? How could anyone criticize people criticizing
Trump for being racist or whatever? Well, they're the good cop to the bad cop,
made more effective by having no clue that's what they are. They mean well,
which makes it more important to insist on the point.

Good luck I guess.

~~~
stdbrouw
It's all fine to say that we should first and foremost look at what someone
does, not what they say, but the idea that the latter has absolutely no
bearing on the former and that propaganda and rhetoric is universally and
completely independent of the actions someone will undertake and that words
have no consequences, well, that seems like exactly the kind of cutesy salon
talk you criticize.

~~~
drinkjuice
> the idea that the latter has absolutely no bearing on the former and that
> propaganda and rhetoric is universally and completely independent of the
> actions someone will undertake and that words have no consequences

I said it's circus to be upset about the words of someone when you're not
equally or more upset about the equal or worse _actions_ of people you're
chummy with.

Let's say you're married to a murderer you never criticize, and then get upset
when the neighbor is talking about killing a bunch of people, _because that is
immoral_ \-- then you have double standards and I can't share your antics. I
might condemn that neighbor when you're not around, but not in agreement with
you.

That's what I'm saying, and I'm not also saying "he's not going to kill
anyone, and even if he did, that's fine because your husband started it", and
I never would. Which is exactly why that kindergarten stuff gets _projected_
on me.

Even IF you were right, and I was displaying "exactly" what I criticize -- so?
Is anyone deluded enough to think they can hide behind _me_?

