The Financial System May Be Built to Scare
Maybe the System Can’t Be Fixed
(Bloomberg Opinion) -- Ten years ago today, Lehman Brothers was spending its last day on Earth as a going concern, ahead of a bankruptcy that unleashed heckfire on the global economy. We’ve had a lot of Bloomberg Opinion columns about this watershed event this week (more on that in a second), but maybe the most important thing to think about now is the next crisis: What will cause it? How can we avoid it?
Cathy O’Neil writes that Wall Street is lousy with models supposedly looking out for Armageddon, but says they are as inadequate now as they were in 2008 – which is both a feature and a bug. Risk models, Cathy writes, “are supposed to predict the bad times. Nobody really wants to think about that, so they are designed to be functionally weak: wrong enough to take advantage of the rules, but not so wrong that it’s obvious.” At the same time, it’s nearly impossible to build an accurate model of future risks, for a bunch of reasons. “It will probably take another crisis to make us recognize where we’ve fallen short. The question is whether we will be in any state to do something about it when that time comes.” Read the whole thing.
- Shuli Ren on being a Lehman employee the day it died;
- Jared Dillian on the good people who worked for the bank;
- Stephen Gandel on the thriving shadow-banking system;
- Mihir Sharma on how banking has become too boring;
- Barry Ritholtz on common misconceptions about the crisis;
- Aaron Brown on how crisis autopsies ask the wrong questions;
- Joe Nocera on how some mortgages are still in crisis; and
- Stephen Carter on how Zombie Lehman keeps winning in court.
Trump’s Economic Wand Not So Magic
Even when things go horribly wrong for President Donald Trump, as they so often do these days – such as today, when his former campaign manager Paul Manafort pled guilty to federal crimes and said he was cooperating with the Mueller probe – he can always comfort himself with the knowledge that the economy is strong. He can even take some credit for it – but not all of the credit. Much of the economy’s strength these days comes from a booming oil and gas sector, writes Karl W. Smith. And Trump’s tariffs and immigration crackdown will make it harder for energy companies to build the pipelines they need to transport their product. “If he’s not careful, his actions could reverse the trends he is so eager to tout,” Karl writes. Read the whole thing.
Trump’s giant tax cuts for the wealthy and corporations, meanwhile, have eaten into the federal government’s revenue, points out Justin Fox – contrary to the claims of conservative economists.
In Russia, It’s Thugs Vs. Technocrats
Russia’s central bank this morning raised interest rates to fight inflation pressures that have built as the ruble has weakened against the U.S. dollar. This was just the right move, says Marcus Ashworth, and an example for Turkey’s central bankers. Perhaps with one eye on President Recep Tayyip Erdogan, policy makers in Ankara haven’t fought inflation aggressively enough, and that country’s lira is suffering accordingly.
Russia has plenty of smart technocrats like its central bankers, writes Leonid Bershidsky. The only trouble is that those people toil in the service of a cabal of thugs, starting with Vladimir Putin, essentially cleaning up the messes they leave behind them. “These economists and managers have long since made a pact with the devil: They know what kind of system they’re serving, and they’re part of it.” At some point the thugs will make a mess even the technocrats can’t fix, Leonid warns. Read the whole thing.
You Can’t Spell ‘Tepid Applause’ Without ‘Tesla’
Tesla Inc.’s second-biggest investor after Elon Musk is almost as zealous about the electric-car maker as he is. Just try to resist the infectious enthusiasm coming from this partner of Baillie Gifford & Co., a Scottish fund manager with a $4.5 billion stake in Musk’s electric-car maker: “There is still a good possibility that Tesla will prove entirely and highly successful,” he gushed in an interview published today. Also: “We think there is a chance that we can make a lot of money … but are we certain about it? No, of course not.” Whoa, take a cold shower, fella!
Mark Gilbert points out, with far less sarcasm, that this is slightly less ardor than you want from your biggest outside investor, particularly when your valuation depends in part on unshakable belief in Musk’s superpowers. It’s also not great that the only note Baillie seems to have taken from Musk is his wrongheaded hatred of short-sellers, Mark writes. Read it all.
A fatal Boston-area gas explosion could haunt pipeline operator NiSource Inc. for a long time, if the experience of PG&E Corp. after the San Bruno explosion in 2010 is any guide, writes Liam Denning:
The primaries are over, and one pattern that emerged is that the Democrats have Tea-Party-like energy, without all the Tea-Party-like headaches. – Jonathan Bernstein
Not all European right-wing populists fit the typical description. #NotAllEuropeanRightWingPopulists – Leonid Bershidsky
Believe it or not, Theresa May’s Conservative Party has bigger problems than Brexit. – Therese Raphael
Hurricane Florence and Typhoon Mangkhut are the kind of disasters that test the resilience of infrastructure around the world. It doesn’t pass such tests often enough. – Nathaniel Bullard and Miho Kurosaki
The reality of working remotely is less cheery than it seems.
How will police solve murders on Mars?
Is the mysterious evacuation of a New Mexico observatory a sign of alien invasion? It would be irresponsible not to speculate.
DARPA has made it possible to pilot swarms of drones or jets with only your mind. What could possibly go wrong, etc.?
Robotic pants could help people walk again.
A pod of beluga whales seem to have adopted a narwhal.
Here are 60 new books to read this fall.
Note: Please send drone swarms, suggestions and kicker ideas to Mark Gongloff at firstname.lastname@example.org.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Gongloff is an editor with Bloomberg Opinion. He previously was a managing editor of Fortune.com, ran the Huffington Post's business and technology coverage, and was a columnist, reporter and editor for the Wall Street Journal.
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