Hands up, who saw this coming?

James K. Galbraith (spawn of John K. Galbraith) answers fifteen questions. Including the question everybody should be asking: who saw the financial tsunami coming (and by extension, who didn’t)? Also posits what for those whackjobs Clueless Bush and Darth Cheney have to look forward to come Jan. 20. Nice to hear someone call a spade a spade. [NYT]

The Great Credit Card Bailout
Ready! Set! Max those cards! ladies and sperms, as this once in a lifetime offer from your gummint(tm) will give your spendthrift ways a happy ending. [biz.yahoo]

Chutzpah, personified
Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses – despite asking the U.S. government for an emergency bail-out.The struggling Wall Street bank has set aside £7 billion for salaries and 2008 year-end bonuses, it emerged yesterday.Each of the firm’s 443 partners is on course to pocket an average Christmas bonus of more than £3 million.The size of the pay pool comfortably dwarfs the £6.1 billion lifeline which the U.S. government is throwing to Goldman as part of its £430 billion bail-out.

As Washington pours money into the bank, the cash will immediately be channelled to Goldman’s already well-heeled employees. [Daily Mail]

Rrevenge of the Spreadsheet Jockeys!

Did a computer flaw nearly wreck AIG?

GARY Gorton, a 57-year-old finance professor and jazz buff, is emerging as
an unlikely central figure in the near-collapse AIG.

Mr Gorton, who teaches at Yale School of Management, is best known for his
influential academic papers, which have been cited in speeches by Federal
Reserve chairman Ben Bernanke. But he also has a lucrative part-time gig:
devising computer models used by the giant insurer to gauge risk in more
than $US400 billion ($586 billion) of devilishly complicated deals called
credit-default swaps.

AIG relied on those models to help figure out which swap deals were safe.
But AIG didn’t anticipate how market forces and contract terms not weighed
by the models would turn the swaps, over the short term, into huge
financial liabilities. AIG didn’t assign Mr Gorton to assess those
threats, and knew that his models didn’t consider them. Those risks have
cost AIG tens of billions of dollars and pushed the federal government to
rescue the company in September.

Yeah, insinuate it’s the computers fault. How about “GIGO” or “operator error”? Sheesh, talk about representation bias!

[The Australian] [Ticker Forum] [Aleph blog]

My fave comment from TF:

It’s the old “Picking up Nickels in Front of Steamrollers” strategy from LTCM.

All this stupidity is going to make Taleb write another book. Black Swans for Dummies (err Modelers).

The Great Credit Card Bailout Max those cards, ladies and sperms, .

“The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced. The manners of capitalism improve. The morals may not.” -John Kenneth Galbraith


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