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TIM:
A lot of my take (and Ive never sat in on the kinds of negotiations that
you have) is that many decisions (prior to crises) are pretty much made by
the seat of the pants, the bad stuff just kind of happens, and then when it
blows up everyone scrambles to pass blame.
It's not so much that its a criminal conspiracy to defraud as just a bunch
of guys flying around the trading floor and the office (many times with
faulty facts and crazy with either fear or greed) and no one having the
guts to step forward and say "We aren't going to do this business... its
just to damned risky." Not when there are so many commissions and spreads
to be made and the guy down the street is doing the trade.
Of course when its a small institution that is wanting to make a trade or
follow a strategy that there is even the slightest bit risky to the firm 10
fools in suits jump out of their offices and scream NO! NO! and NO!.
And even the principles of the fund.. even though I do believe that
incompetence should be prosecuted... probably were dumfounded at how
quickly things went sour... the natural reaction (I remember when I started
trading) is to hold and hope things get better (after all, they can't get
any worse, can they?) The worse the loss the more susceptible to this
behavior the manager becomes.
Anyway, its going to be interesting.
>Dave:
>
>You have the right take on this issue--Although Meriwether got caught
taking a
>roll too large for his capital [by a factor of ten, maybe], the real crime
was
>committed by the people that put their firm's money and health at risk by not
>practicing good risk management. Who was watching the cookie jar?? NO ONE.
>
>If you, as an investor or a lender, are going to give a trader enough rope to
>hang himself, don't give him enough rope TO HANG YOU.
>
>And you're right: The financial rags that have covered this crisis should be
>ashamed for dressing up the scenes with such schlock as: "in a big,
wood-paneled
>room with pictures of past Federal Reserve presidents on the wall." They
should
>have told the truth. I've been in those meetings, and the one thing I
remember
>is that the people being forced to make career-threatening decisions
usually are
>soaking wet with sweat. Perhaps they could have reported that, 'Each of the
>managers sat hunched over the burled walnut antique table, a puddle of water
>pooled just below their chins from the constant drip of sweat...'
>
>Best,
>
>Tim Morge
>
>
Stewart Taylor
Taylor Fixed Income Outlook
Voice: 501-219-9774
Fax: 501-228-0963
E-Mail: staylor@xxxxxxx
Web Site: http://www.cei.net/~staylor/
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