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The fact that the stock more than doubled on its first day of trading — something the investment bankers, with their fingers on the pulse of the market, absolutely must have known would happen...

No, this is an absurd claim. Investment bankers are not clairvoyant.




Right. This is reminiscent of the famous line about what your accountant is supposed to say when someone asks him about profit.

  Profit? Who's askin'?

  - If it's a customer, you're making a little bit of profit.
  - If it's an investor, you're making a LOT of profit.
  - And if it's the government, you're making no profit at all.
Joe Nocera wants everyone to make just a little bit of profit. If they make too much, he's calling for a Congressional investigation. And if they make too little...he's calling for a bailout:

  http://www.nytimes.com/2009/01/24/business/24nocera.html
  
  Most important, the government has made clear it will not  
  allow a major bank to default, to avoid the replay of the 
  Lehman catastrophe.
Nocera is one of the guilty parties in the prestige press who propounded the "too big to fail" mythology. Now sovereign defaults are on the horizon, in part because we didn't let banks that made bad bets simply go into bankruptcy. His observations about banks should therefore be taken with a grain of salt.


Too big to fail is _not_ a fallacy. The knock-ons from the failures of Lehman and Bear Stearns were very visible. In Europe, the knock-ons from the failure of Kaupthing and Landsbanki were too, and they only ended up affecting insitutional investors as retail depositors got government protection.

AIG failing would have caused an investor panic across banking as a whole due to their position as the leading insurer of investment risk.

In the UK, Lloyds TSB and RBS (two of the 'big four' UK banks) both very nearly collapsed; the smaller Northern Rock bank did collapse and had to become 100% government owned. The alternative in each case was depositors having their assets frozen for a long period with only the promise of pennies on the pound a long time later, with a knock-on loss of confidence for the sector, combined with a large compensation bill for the taxpayers. Would you _really_ like to see what that happens when 20% of the banking market suddenly freezes?


Yes. Because the alternative -- which we are currently seeing unfold -- is a wave of sovereign default, starting with the PIIGS and ultimately taking out the USD as the world's reserve currency.

...I should add that Northern Rock did not have to be nationalized, nor should taxpayers be obliged to pay any kind of compensation bill. Bankruptcies can and must happen to clean out the dead wood.


UK law provides taxpayer backed guarantees to a fixed balance per saver per bank; if NR had been allowed to collapse the UK taxpayer would've been on the hook for that amount.

And I agree that bankrupticies must be possible and are a good thing for businesses as a whole; Too Big To Fail explicitly works against this. NR was big enough regioinally that it'd have caused major economic damage to that (already fragile) region had it been allowed to go down.


Nocera is one of the guilty parties in the prestige press who propounded the "too big to fail" mythology.

But the quote you cite is of him observing the government's behavior - accurately - not prescribing what the government should do, or evidence of the government following his suggestions.


Read the full article. He's clearly positive on the bailout and explicitly says the government's first reaction about how to "save" the banks was the "right one".

  Case in point, it turns out, is the banking crisis. It 
  sure looks like the government’s first impression about     
  how to save the banks was the right one, after all
And here is that quote in context:

  Thanks largely to actions taken by the Federal Reserve, 
  the commercial paper market has thawed, and banks are 
  lending to each other again — if not to the rest of us. 
  Customers aren’t racing to pull their money out of the 
  banking system and stuff it under a mattress.

  Most important, the government has made clear it will not 
  allow a major bank to default, to avoid the replay of the 
  Lehman catastrophe. (Though it would have been nice if Mr. 
  Geithner, who had been involved as head of the New York 
  Fed, had acknowledged that the Lehman default was a 
  terrible mistake. Instead, he fell back on the old “there 
  was nothing we could do” dodge. Not exactly confidence-
  inspiring.) The government showed its determination to 
  stick by this thinking when it rushed in to shore up the 
  faltering Bank of America.
That is a highly supportive take on the bailout, at the time it was happening.


So, not malice, but incompetence? It's their job to know, and if they are wrong by about a factor of two...


I don't think you can be prosecuted for guessing wrong. Otherwise weather reporting would be really risky business...

edit: presuming your client understood you were guessing. If you pretended to KNOW and were guessing, you could be prosecuted then.




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