Financial Crisis Inquiry Commission
Systemic Uneconomics: Financial Crisis Root Causes: Part III
Submitted by Scott Cleland on Thu, 2010-01-21 16:03To discern the real “root” causes of the financial crisis of 2008, one must probe beneath the surface and examine the health of the “root system” of our capital markets “forest.” The roots of the capital markets forest are sound economics; the natural market function of automatically equilibrating supply and demand and risk and reward, that is commonly appreciated as Adam’s Smith’s “invisible hand.” We generally assume that the natural market strength of the capital market forest’s root system ensures that all the trees are not in danger of being blown over in the crisis of a storm.
“Systemic Risk Laundering” -- Financial Crisis Root Causes -- Part II
Submitted by Scott Cleland on Tue, 2009-09-08 09:27
How could American taxpayers get stuck with a multi-trillion dollar tab that they weren’t even aware that they were running up? How could that huge tab still be allowed to run up unchecked today? For the Financial Crisis Inquiry Commission, the sad answer is one of the biggest root causes of last fall’s devastating financial crisis and one of the biggest continuing systemic risks to the financial system and the economic recovery.
The Father of Indexing Calls My Indexing Thesis "Nuts!"
Submitted by Scott Cleland on Fri, 2009-07-03 16:35When Investment News asked John Bogle, Vanguard's founder and the father of indexing, about my "Indexing into the Ditch" thesis (that indexing is one of the root causes of the financial crisis) he said: it “is nuts! Last time I looked, index funds accounted for about 0.4% of all stock trading ... Just perhaps the other 99.6% might bear a teeny-weeny bit of the responsibility.”
Let me first respond to Mr. Bogle's points in order.
The thesis "is nuts! "I must admit I smiled at the ad hominum implication that my thesis was "nuts" and not worth listening to; I remembered that Bernie Ebbers called me the "idiot Washington analyst" because my research was the first to charge that WorldCom's business simply did not add up.
Indexing into the Ditch -- Financial Crisis Root Causes -- Part I
Submitted by Scott Cleland on Thu, 2009-06-11 16:43Despite the widely held view that indexing is the safest way to invest, indexing helped recklessly drive our financial system and economy into the ditch last fall.
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While there’s consensus the financial crisis warrants “new rules of the road” and better policing to protect against systemic risk, all the rules and oversight in the world can’t keep us out of the ditch in the future if index vehicles continue to drive the wrong way against oncoming traffic.
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And “stress testing” whether bank vehicles can survive head-on crashes, completely misses the point that indexers should not be driving the wrong way on the freeway.
Diagnosing the Financial Crisis' Root Causes
Submitted by Scott Cleland on Thu, 2009-06-11 16:43This is an introduction and background for my new multi-part research series on diagnosing the root causes of the Financial Crisis.
