How Greenspan's Framework Went Awry - Daniel Kahneman

[dan0813]

I guess Greenspan didn't get the memo that the big investment firm were no longer private companies. A ceo of a public firm can make hundreds of millions of dollars in salary and bonus before the firm eventually goes bankrupt or gets a bailout.

[islandmuffin]

Government did it! Executives from Governmental agencies, Fannie and Freddie, BOTH admit that they were pressured by Government to use subprime loans in order to increase home ownership. And you are her saying Greenspan did it!. Yes, but his contribution to the mess was manipulating interest rates to help create the bubble. More than the Fed manipulating interest rates; it was ALWAYS Government incentivizing Fannie Mae and Freddie Mac to take too much risk.

[Hypnotron2006]

I think Kahneman's explanation is insufficient to explain the scale of the financial meltdown and the supressing of the evidence of it for over 6 years. I think Greenspan's so called "confession" is nothing of the kind. It's simply a smokescreen. It's the "a few bad apples" bull all over again. The reality in my opinion is that this meltdown and it's subsequent bailout was not only foreseen, but planned.

To claim that they weren't acting rationally is a misdirection.

[waterbean05]

That isn't what is being said by Kahneman. He is saying that the agents of the firms (the executives) were acting rationally, but only when it came to their own interests, not the interests of their firms. The problem was that Greenspan and others treated and still do treat firms as if they make their own decisions based on what will best suit them, irrespective of the agents working within them and their interests.

[waterbean05]

The firms weren't behaving how they "ought" to behave according to Greenspan's model. The goals of the companies turned out to be the goals of the agents/executives working within them, which were decidedly short-term goals and had very little to do with what benefitted the company. Basically, Kahneman is saying that the firms were not greater than the sum of their parts, and speaking of the firms' behaviors in such an abstract way is dangerous.

[vituperative]

Planned by whom?

Misdirected by whom?

[TheatreCritic]

it might be interesting to look into modelling kahnenman's distinction between the interest of firms and their employees in terms of the traffic paradox (from game theory)..

[Zzozze]

The present economic system is based on an addictive process. There is a "War on Drugs", but no "War on Addictive Credit". How come?

The "richer" the people become, the lesser "feeling of wellfare" they actualy have...therefore the "never enough"...

[billyjoeallen]

If firms are not rational, then why would democracies be rational?

[islandmuffin]

@billyjoeallen

What a kook! Are Government agents more rational than private agents? His dogma is irrational.

[allgoo19]

@islandmuffin

"Are Government agents more rational than private agents?.."

Yes.

[pismo10]

@allgoo19

Not by a million times, the private sector screws up now and then, govt screws up always..

[allgoo19]

@pismo10

"govt screws up always.."

When you say "always", just one exception will be enough to defeat your claim.

Google, "GM posts profit, CEO Whitacre to retire"

Since the gov. became the biggest share holder, GM had become a profitable company after decades of losses.

Never say "always". ^_^

[pismo10]

@allgoo19 I wish that was true...

[allgoo19]

@pismo10

"I wish that was true..."

What truth you have then.

Show me.

If you can't, it's about time for you to change you view.

Otherwise, you'll be chanting the same thing over and over in a religious way.

Use your brain.

[pismo10]

@allgoo19 GM is now another liberal welfare program surviving on printed dollars, nothing more. Open your eyes you foolish child, everything the govt touches is crap, IRS, DMV, SS, Medicare, -caid, postal service, on and on. All wasteful and bankrupt. 23 years to build one runway in Atalanta, you really want these people running your life? Welfare(govt) is not the answer. Read some history and learn something.

[allgoo19]

@pismo10

"GM is now another liberal welfare program surviving on printed dollars.."

I didn't ask your personal opinion. I asked you an info. that says "GM turnsed into profitable company is false".

Where is it?

We'll talk about this topic based on facts, not each other's personal opinion.

Understand?

[pismo10]

@allgoo19 GM would not be black if it were not for the flow of printed money keeping it "alive" GM should have gone bankrupt, reorganized. Try to look a little deeper. I suppose you believe GM paid back it's loan dollars as well. LOOK DEEPER. Think...It wont' hurt to bad until you find reality, then it will really hurt.

[allgoo19]

@pismo10 "GM would not be black if .."

I run into this thread again, it's been 5 months since my last post.

I looked at your home page. Not surprisingly you are Peter Schiff follower.

Basically you are selling his words without thinking anything critically into his opinion, just like so many others. That's why you are unable to prove your point. Your thinking ability is pretty shallow.

"making profit" means it generates more money than flow of money put into, not "keeping alive"

Understand?

[pismo10]

@allgoo19 You must be very bored, go back to reading your comic books and you'll be happy again...GM blows, get over it.

[allgoo19]

@pismo10 "You must be very bored,."

Opinion with nothing to back it up bores me.

If that's what you mean, yes I'm bored.

Do you have any proof that your opinions are unique to your own? Prove me wrong.

"making profit" means it generates more money than flow of money put into, not "keeping alive"

You have nothing to say about this?

[pismo10]

@allgoo19 Have an ice cream, you'll feel better.

[allgoo19]

@pismo10 "Have an ice cream, you'll feel better."

You probably don't make enough money to buy an ice cream.

You lack average size brain.

You don't even know what a profit means, right?

[PavelSTL]

Kahneman is awesome, but his point here lacks insight. Yes, we understand that a CEO's personal interests and time scales don't coincide with those of a corporation, but nor do those of a president and his country. That's why we elect people with high moral standards who are willing to put corporate or public interests above their own private ones. Corporations either need to screen the candidates better or implement effective checks 'n balances. There's nothing wrong with time scales.

[spamrisk]

Even without maliscious intent, a conflict-of-interest was established, causing biased perception and/or motivating the immoral.

This conflict of interest is the underlying problem, and the time scale discussion was only a symptom. It was too easy to beleive that it was worth the risk because the risk wasn't really theirs.

I could start a whole bunch of chickenhawk comparisons related to the politics aspect, but it is a symptom, not the root problem:

Conflict of interest

[PavelSTL]

Right, but that's obvious. Entire life is a conflict of interests. That's why we have built-in cognitive heuristics - to choose the interest of higher survival value at the right time. Everybody has them. So, knowing that, you need to choose the leader whose cognitive heuristics gives higher precedence to altruistic behavior. Alternatively, you can set up an effective checks 'n balance system to control non-altruistic tendencies. Failure to do so results in a collapse we have witnessed.

[BlackSwan013]

We elect people with high moral standards? You would never even be in a position to be elected without compromising many things. The most dangerous wolf in the woods is wearing sheeps clothing.

[RvNYC]

The entire economic collapse boils down to this fact;

From 2000 to 2006 billions of dollars in loans were given to people who could NEVER pay them back while government enforced this quasi mandate. This was the fuel for greedy financial wizards to fleece the system.

[befranklintoo]

I have mercy for greed in any form. grammarians excuse themselves from getting the point by their correctness. 5 billion peoples does anyone really have anything to say.

[befranklintoo]

crisis for the super rich means nothing to the mass's.

[McArrowni]

I guess you missed the part where you are paying for the super rich's mistakes, whilst they get away with slightly lower bonuses.

[pismo10]

@McArrowni Yes, I hate these liberal bailout policies...

[fatmanprime]

That's not true. And it's masses. There are no apostrophes in plurals.