“On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.
He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt….the audience was dismissive, some laughed.” New York Times, see here.(PDF here in case.)
But most people at that event, and in the financial world, WANTED housing, oil and banks to succeed. Not only did the players themselves crave the income, but governments loved it too. They got big taxes on those huge earnings. Realtors made big commissions and property owners saw the value of their real estate zoom up. Speculators made big bucks flipping properties. And financial people made huge commissions selling mortgage packages and derivatives
What’s not to love in an up up up market?
Except the gains turned out not to be real.
Was the want to believe so big that it blinded them all, including the analysts?
Even comedian Jon Stewart got into the act last night, blasting well known CNBC financial host Jim Cramer here:
CNBC shirked its journalistic duty by believing corporate lies, rather than being an investigative “powerful tool of illumination.” And Stewart alleged CNBC was ultimately in bed with the businesses it covered – that regular people’s stocks and 401Ks were “capitalizing your adventure.” Cramer agreed to offer more levelheaded commentary.
Did Cramer and his network too, want to believe in the up market? More than they wanted to know the truth?
I wonder if this might have happened to Bernie Madoff’s victims, too. Yes they were swindled…but did they want to believe so much in their unusually large returns that they didn’t do their homework?
“Madoff Had Accomplices: His Victims”
S0 writes the New York Times tonight. Yes, we can all agree Madoff ruined the lives of many people with his lies. Still, were the victims blameless? They BEGGED to invest with him. He pursued no one. They wanted the steady, big returns. Who wouldn’t?
But most of them did NO due diligence, either.
“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”
I wonder if they trusted too much because they wanted more to believe that the returns would be true forever, than to discover it might all be built on lies. After all, it feels good to think how lucky and special you must be to have found such a magician.
Is this what happens to the hordes of folks who start out in NM and spend time and money based on the promises they hear? Do we want to believe the good possibilities so much – that we don’t do any due diligence to discover what it takes to make it in the NM business?
And then everyone’s too embarrassed to talk about it so they slink away? Like Madoff’s investors who now feel like fools?