The Next Minsky Moment

[Valmy]

We cannot afford to bail out the economy a second time.

[Habbaku]

We cannot afford to bail out the economy a second time.

Why not? Deficits don't matter.

[The Minsky Moment]

Damn!

This reminds me: is there any site/blog you'd recommend that's good for reading financial news/opinions without either the treasury optimism of the big ones or the tinfoil lunacy of the little ones?

Financial Times is pretty good, not cheap though.
For pure Federal Reserve watching, Tim Duy's blog is the gold standard (get it?): https://economistsview.typepad.com/timduy/

[The Minsky Moment]

We cannot afford to bail out the economy a second time.

Also can't afford not to, that's the problem.

[Tamas]

We cannot afford to bail out the economy a second time.

Also can't afford not to, that's the problem.

Which is what makes it such a great idea for the biggest fish to pursue such relentless risk-taking. They can't lose.

[celedhring]

We cannot afford to bail out the economy a second time.

Also can't afford not to, that's the problem.

Which is what makes it such a great idea for the biggest fish to pursue such relentless risk-taking. They can't lose.

That's one of the things I've always wondered. What you say is true about the institutions per se, but is it true for the individuals that ran them into the ground? It's a honest question... were the managers of the subprime crisis punished for their recklessness? And I don't mean "punished" as in "jail", more like, lost their jobs, nobody wants to touch them with a bargepole, found themselves in a worse personal position than before... ?

[grumbler]

Which is what makes it such a great idea for the biggest fish to pursue such relentless risk-taking. They can't lose.

I'm not sure to whom you refer to as the "can't lose" types.  Stockholders can and do lose, big time.  The executives also.  Who is left?  Low-level employees?

[DGuller]

Which is what makes it such a great idea for the biggest fish to pursue such relentless risk-taking. They can't lose.

I'm not sure to whom you refer to as the "can't lose" types.  Stockholders can and do lose, big time.  The executives also.  Who is left?  Low-level employees?

Executives get fat options if they win, and don't have to pay them back when they lose.  Sure, they may lose their job, but when their job pays them obscenely for taking reckless risks with the public's money, that's not a big downside risk.

[alfred russel]

With very few exceptions, everyone lands on their feet.

David Duncan was the partner at Arthur Anderson over the Enron account. He pled guilty to criminal charges (extremely rare for an auditor to get hit with a criminal conviction), but after his firm was acquitted (didn't do them a lot of good since it went bankrupt post Enron), he withdrew his plea.

So what happened to the man most responsible for the Enron account that brought down an accounting firm with 85,000 employees and admitted to shredding workpapers?

https://www.linkedin.com/in/david-duncan-8b249b56/

He went on to be CFO of a pipeline company.

[grumbler]

Executives get fat options if they win, and don't have to pay them back when they lose.  Sure, they may lose their job, but when their job pays them obscenely for taking reckless risks with the public's money, that's not a big downside risk.

I agree that there are enormous perverse incentives in a system whose guarantor is disinterested in protecting the investment, but "they may lose their job" is a far cry from "they can't lose."

[grumbler]

With very few exceptions, everyone lands on their feet.
[snip of a single anecdote about a single guy who ratted out his bosses]

One guy isn't "everybody."  Some guys and gals might find another job, but even if this is the case, you can't argue that they "can't lose."  Even the guy who is the poster child of "landing on their feet" in your example isn't making a million a year any more.

[DGuller]

"Lose" should be evaluated compared to outcomes free of perverse incentives.  If your golden parachute is worth more than honest employment free of lemon socialism, then I'd say you can't lose.

[alfred russel]

One guy isn't "everybody."  Some guys and gals might find another job, but even if this is the case, you can't argue that they "can't lose."  Even the guy who is the poster child of "landing on their feet" in your example isn't making a million a year any more.

He definitely lost, prior to Enron if he wanted to be a CFO, he probably could have been in the running at a fortune 500 company making multi millions a year. The counter argument is that if wasn't willing to play loose and fast with the rules he wouldn't have gotten the opportunities to move up the ladder and would have been just another mediocre accountant (like me! ). It also isn't certain that he didn't make in excess of $1 million a year - that isn't out of the question for a pipeline CFO.

My point isn't that he didn't lose in the Enron collapse--he certainly did. My point is that even after being at the epicenter of possibly the biggest scandal of our lifetimes, he is still much better off than the vast majority of us.

If you think that I cherry picked one example--I have been following this guy for a reason. I'm an accountant that used to audit public companies (eventually I joined one and am no longer an auditor). We'd talk about having to do a good job to avoid jail--but ultimately it never happens.

But look into it yourself. Pick a major scandal. The CEO and CFO plus a few other major players may get in serious trouble and jail time (Enron having more than normal). Go a click lower to them in the org chart--the people at the table when the strategies were devised and the people responsible for implementing them. Google where they are now. Some may have retired, but those that keep working will almost invariably ended up in a solid position.

In major scandals, the CEO and CFO with perhaps another person or

[Iormlund]

Perverse incentives. 

Our CEO sold millions in stock before it fell 85% due to his actions. I will be really surprised if he sees the interior of a jail. Why wouldn't everybody else do like him?

[Tonitrus]

I am heavily in cash atm, just waiting.

I'm probably a bit more brash, though thinking I should put trailing stops (maybe about 10%) on everything to be safe.