Sign Kentucky Banking Notice To Quit Free

Industry sign banking kentucky notice to quit free

world works this is a garbled cigar will actually three mistakes I think first is to talk about the self-interest of organizations I don't think that's right now organizations can have goals but but the self the relevant self-interest is the people in various positions in the organization's and that of course their self-interest or their motivations their behavior very important that's a small point the second were such as they were best capable of protecting their own shareholders and their equity and the firm's well that's that's very ambiguous point I'll stress it's not obvious because a firm or an entire industry goes broke that the that the businessmen were we're failing to protect their shareholders because every business has a positive risk of bankruptcy and no business will conduct itself so or will be permitted by the market really to conduct itself so safely as to have a zero risk of bankruptcy so there are rational risks of bankruptcy and and irrational but the third mistake and the most and the and the worst and the most serious and the one that you know justifies your calling as a free market mindset is his assumption that the irrational pursuit of profit by business firms could be expected to protect the economy against a disastrous of various sort and I don't think any economists believe that and think Greenspan is very good economists because much of economics is concerned with market failures that is with situations in which the business people you know pursuing profits acting within a legal framework not not criminals will create a harms or fail to confer benefits which are important is the sign that's why you have a government you have to place limits on businesses in order to prevent well the sort of thing that has that has happened now the the reaction of the media and of the end of Congress has been that the cause of this depression that we're in is the greed and stupidity and recklessness of bankers and that I think is wrong and and deflects our attention from what ought to be the real the real concern if you think about it I mean certainly people go into business well generally sometimes they just go in because they were interested in it or they have no good alternatives but usually money is an important part of their motivation but it's it's not a great formula for getting rich to hire stupid people pay them very high salaries and then go broke right I gotta can't be right and in fact the people who were hired who were hired by Wall Street and it's in its heyday now now now in collapse we're generally very smart you know the career tracks for Harvard ph.d PhDs and physics until a few months ago there were two alternatives one was to become an academic physicist the other words to go to work for Wall Street Wall Street was very eager to hire PhDs in physics because of their terrific mathematical skills because you know modern banking place places great emphasis on quantitative models of risk in order to try to avoid bankruptcy actually but banking is inherently very risky business the essence of banking and this Bank I'm usually making a broad sense would include hedge funds to include any kind of financial intermediation but the essence of it is that your capital is borrowed capital borrowed your capital now you lend it and your hope is that the spread between the interest rate that you pay the people you borrow from and the interest rate you charge the people you lend to will cover your expenses and provide a profit for the shareholders but the problem is that the only way you get the spread the only way you're able to charge a higher interest rate to your borrowers then you're paying to the people who've lent through your capital is by taking risk because it's risk that is the primary component of a high interest rate and risk is really a cost it's not gravy and so in order to thrive in banking you have to be you have to be able to diversify risk we have to be very shrewd and identify and borrowers who are below average in risk and the market has noticed it and so on or as was as was mentioned by Professor barley maybe we have kind of a personal relationship with the borrower that you know a lot about this person that isn't reflected in just the statistics of creditworthiness but it is it is it is risky it is a risky business and if you if if you don't if you don't take these risks you're not going to be successful in banking and you know this is a Darwinian system business you have to keep up with your competitors or or die I think these businessmen made efforts and professor Marlin measurement that securitization was devised for trying to minimize risk by achieving a geographical diversification packaging these in fact California if it weren't for securitization of dead California would be bankrupt because through securitization some of the costs of mortgage defaults in California have been spread to States in foreign countries so and and you know they these Harvard physicists we're put to work designing mathematical models to try to reduce risk but everybody knew I think that you can reduce risk you can eliminate it and as a rational businessman will not will not be what will will accept possibility of bankruptcy I mean strictly rational businessman will incur costs and trying to avoid bankruptcy only up to the point where the expected cost of bankruptcy is is is higher this is equal to it so so i think i think these businessmen knew there was a risk of this collapse they thought it was a small risk because all the experts said it was a small risk and denied that you know there was a bubble in housing that was a minority view until until too late what is interesting I think is the failure of government says that it's the job of government to protect the economy from the consequences of a massive fall in the in the banking industry bankers aren't going to worry about that they just worried about their own business and why it failed is interesting it ties up with the concerns that you've expressed about about economists because it is a failure to a large extent of of economists the people who run government economic policy are primarily economist Greenspan was an economist not enacted or not an academic and Bernanke has been chairman of the Federal Reserve since the beginning of 2006 is not only a very respected academic economists from Princeton but he is the leading economic student of the Great Depression of the 1930s so his failure and that of the economics profession generally to have anticipated and made provision for avoiding such a disaster and forget and forgetting us out of it is pretty astonishing and I was very surprised and and I'm very interested in the in the in the reasons why why for this failure some of them I think are not not really peculiar to economics or to social science and that is there's a long history of failing to anticipate surprise attacks and I think the reasons for these consistent failures with its pearl harbor or whether it's 911 are systemic reasons because in all of these cases after the surprise attack a surprise depression surprise collapse of the banking industry last September one finds that there are many warning signs warning signals going back years and they're disregarded the Economist magazine British mag British my english magazine in 2002 said that the United States had a housing bubble and that when this bubble burst it would