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Posts Tagged ‘Wall Street’

Stupidity Plus Lemmings

Posted by Reed on Wednesday, September 24, 2008

…arguably the greatest casualty of yesterday’s debacle is the notion that bankers actually know what they are doing. For all the advanced degrees, flickering Bloomberg screens and chest-pounding that went on, it is apparent that many of those on Wall Street fatally misunderstood the risks inherent in the products they sold to investors.

They were not just unlucky to be caught in an external hurricane of events–they were not as smart as they thought.

For what, after all, is a credit crunch but the sudden realization by investors that many of the valuations they have been applying to assets are wrong? The risks were miscalculated, the rewards exaggerated, the probabilities of default hopelessly out. Valuation lies at the heart of finance, and, for many years, Wall Street forgot how to do it.

Ref: http://www.forbes.com/opinions/2008/09/16/bankers-schumpeter-capitalism-oped-cx_pb_0916.html

Federal finances have been deteriorating ever since George W. Bush became president. Bill Clinton bequeathed him a budget surplus equal to 2.4% of the gross domestic product (GDP). This fell to 1.3% in 2001, turned into a deficit of 1.5% in 2002, 3.5% in 2003, and 3.6% in 2004.

Since 2004, deficits have declined as a percentage of GDP, falling to 2.6% in 2005, 1.9% in 2006 and 1.2% in 2007. However, the latest projections from the Congressional Budget Office (CBO) show the deficit rising to 2.9% of GDP in fiscal year 2008, which ends on Sept. 30. The deficit will remain in this range through at least 2010.

Ref: http://www.forbes.com/opinions/2008/09/16/debt-taxes-bush-oped-cx_bb_0916bartlett.html

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