Friday, November 28, 2008

Riveting read on financial crisis

An article that starts like this definitely warrants attention, and this proves to be a good read.

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

Continued here.

While this may not bring you any closer to understanding the mechanics behind the subprime crisis, at least you now know many of Wall Street's fat cats are as clueless as you and I.

Some interesting bits:

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility.

and this, something about Merrill Lynch (which Singapore's sovereign fund took a stake in), sigh...

“We just shorted Merrill Lynch,” Eisman told him.

“Why?” asked Hintz.

“We have a simple thesis,” Eisman explained. “There is going to be a calamity, and whenever there is a calamity, Merrill is there.” When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman’s logic—the logic of Wall Street’s pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.


Read the article and tell me someone won't make a movie out of this some day.

3 comments:

Anonymous said...

A MUST-WATCH on the subprime crisis... one of the sublimest examples of British humor I've yet encountered...

http://www.youtube.com/watch?v=mzJmTCYmo9g

YY.

Lilian said...

Thanks, love Brit humour; this clip was terribly wicked :)

Anonymous said...

More recent updates on the financial crisis by Bremmer, Bird & Fortune:

http://www.youtube.com/watch?v=st3BlOKtvnA&NR=1

YY.

(this is the 4th in a series of 5 clips)