Trader’s Narrative

With the subprime hitting the fan, a lot of acquaintances, friends and family are asking me to explain how we got into this mess. This video does a very good job of that - or as good a job as you can do in about 10 minutes:

The most important point they miss is that the crisis is a confluence of many separate mistakes that have come together to create the perfect financial storm. It begins with Alan Greenspan overseeing the creation of the excessive liquidity which flowed into the stock market and through excessive speculation created a bubble which popped in 2000. This was further exacerbated by the subsequent attempt to create another bubble in real estate to save the US from the consequences of the stock market implosion.

Greenspan was specifically asked and prodded about both bubbles as they were forming under his stewardship of the US monetary policy. In each instance, publicly, he was insistent that everything was fine. That there was no bubble. That there couldn’t be a real estate bubble because real estate is not fungible. He even went as far as recommending ARMs!

That set the stage for everything else that followed. So it is unfortunate that the role of the most damaging Fed Reserve chairman in the history of the US is not given its proper context.

I also wish 60 Minutes had more Jim Grant, he is a very smart guy - highly recommend you check out the Grant Interest Rate observer. What was Robert Pickel thinking in agreeing to this interview? He comes across as a total douche. Which he probably is.

If all this gets you depressed, here is an alternative explanation of the subprime mortgage mess.