Tuesday, October 19, 2010

Blast From The Past

There is lots of chatter today regarding on op-ed piece in the Wall St. Journal today by one David Malpass. For those with a short memory, which encompasses most of Wall St., Mr. Malpass was chief economist at Bear Stearns when it it tried to corner the housing market just before it blew up. Actually I am kidding about the cornering part. Bear Stearns and Mr. Malpass just simply forgot the cardinal rule on Wall St., or as Frank Lopez's advised an up and coming Tony Montana in the classic movie Scarface, "Don't get high on your own supply".

This blast from the past Malpass also held assorted economic appointments in both Reagan and H.W. Bush's cabinet blah, blah, blah. All this means he is eminently qualified to drive a bus, no check that, you need a class 'C' licence, at least in Canada you do. Anyway you get the picture, yet another of the countless number of 'smartest guys in the room' who couldn't see the freight train coming behind the bonus cheque but I digress.

Mr. Malpass used to pooh pooh any naysayers who had the temerity to challenge his claims that housing was healthy, and that it was a bubble of epic proportions. Like a report he put out back in July of 2004 where he observed that the housing market was healthy and that much of the rise in prices simply represented a "catch-up" because they had lagged behind the rise in equity prices since the mid-1990s.
That same Bear Stearns report also noted that rising household formations, declining unemployment, low interest rates, a decline in the inventory of unsold homes and the 1997 cut in capital gains taxes on owner-occupied homes as other reasons for its continued optimism.

Sounds air-tight to me. How about you? Probably did as well to Jimmy Cayne and the rest of the Keystone Cops running Bear Stearns at the time. It is a shame that the Bear braintrust (now there's an oxy-moron if there was one) didn't spend as much time studying the REAL underlying housing market conditions (hint LIAR-loans, NINJA-loans, non-existent Countrywide documentation as my niece informed me of as she was a travelling branch auditor, just to mention a few) as they did the Neiman, Porsche, and Robb Report catalogs or playing bridge if you prefer, right Jimmy? 

Well it seems given this history, one might correctly assume Malpass would be working as a greeter at Wal-Mart, or parking cars at Mortons. But no, your assumption would be wrong. No in this country. Mr. Malpass is still hanging around....maybe hanging around long enought to get Christina Romers old job. Crazy? Far-fetched? Is it?

Let's look around shall we?

How about former Detroit Lions general manager, at the time 2nd highest paid in the league, Matt Millen. Millen will go down in history as the unchallenged prophet on how to bury a franchise in 3 easy lessons and what awaits you after that accomplishment. A life of ridicule? A stint selling life insurance? Purgatory? No, silly, not purgatory, but rather a cushy little job as expert football analyst on ESPN and the NFL network, thats what.  Nice !

Yes that's what a 31-97 record over 8 years and an historical 0-16 season get you. In all fairness and not to be mean, the year Millen's Lions went 0-16 they were a stellar 4-0 in the pre-season. Just want to give you all the facts. 

Or how about former New York Fed President Tim Geithner. Sit on your ass like a boob as the banks you are charged with supervising and regulating in your district blow up in spectacular fashion under your watch and what awaits for you? Tell us what awaits him Johnny !   

A promotion! Yes, readers you heard that right, a promotion! After a successful career marked by ignorance and impotence you Mr. Geithner get to become Treasury Secretary. 

Gotta love this system here.

Anyway what was I talking about? Oh yeah, Malpass. Almost lost my train of thought. 

Yes, Mr. Malpass now serves as president of Encima Global a research firm serving the 'smart money' set. It seems his prior history of 'sizzle sans steak' still resonates with some of his frat buddies who are always in need of a 'story'. Go figure!

I am a huge subscriber to Nassim Taleb's theory, noted author of  the popular book The Black Swan, The Impact of the Highly Improbable. His theory or rather his rather simple rule for judging those whose economic opinions are worth his time said this:

"Did someone predict the crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say."

Lovely Nassim ! Couldn't have said it better myself. 

So back to Mr. Malpass. Why is anyone still listening to people like this for heavens sake? Why is anyone giving him a forum? 

Is there such a dearth of fresh thought in this country that we have to keep re-cycling the same ol' people with the same ol' ideas over and over again?

Oh yeah, I remember now. Those who don't learn from history are doomed to repeat it.

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

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Samy786 said...

interesting post

Harleydog said...


appreciate the note, thx for reading.