The Bankwatch

Tracking the consumer evolution of financial services

Where were the financial media in 2007 ?

I am watching “’Inside Job’ tonight.  Its a documentary on the financial crisis narrated by Matt Damon.  The thing that is fascinating me is the dates.  Many of the senior people interviewed including bankers and government are noting 2009 as the time they saw a problem.

I searched my own blog, and the first indications of a problem were are least two years earlier.

All I do is read the press.  I am not involved directly in investment banking, but am directly involved in retail financial services.  Yet this blog had indications of the eventual problem as early as 2007, one and a half years before the September 2008 freeze.

This was a predictable crisis.

This has to be the most predictable problem that ever could have arisen.  When the lenders were happily throwing money at New Century, the markets have been mixing obligations within Collateralised Debt Obligations which go into the derivatives market.  The collaterised nature, and higher rates would have been attractive in those markets.  Now that the alarm is raised as a results of default on payments (not on the principal, yet, just the monthly payments), the derivatives market stands to drop next.

Relevance to Bankwatch:

This is not a problem that will be solved with regulation.   There is a peculiar numbness that takes over understanding of crises that must be better understood.  The financial media have a responsibility here.  I can write away with my little blog and a few people see it.  Yet where were the media in 2007 ?

A real engineer builds bridges.  A financial engineer builds dreams.  [quote from the documentary]

The piece quotes Rajan, <speech rajan2005> who in 2005 at the Jackson Hole Fed conference famously predicted the 2008 banking crisis from sub prime and derivatives.

Written by Colin Henderson

August 23, 2011 at 21:19

Posted in Uncategorized

2 Responses

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  1. I recall that throughout the boom years the banks and media were predicting that there was a new economic model which was driving these asset/stock valuations and there would be a soft landing.

    Dave B

    August 24, 2011 at 02:00

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