Joseph Stiglitz on the Fall of Lehman Brothers

http://bit.ly/muYv47 - The Nobel prize-winning economist discusses the state of the U.S. economy.

Category:

News & Politics

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• big
• brothers
• economy
• joseph
• lehman
• stiglitz
• think

[Renegen1]

Go learn more about economics. Those sub-prime mortgages were the most profitable(in the short term) investments the banks could make. The "market" naturally gravitates for what is the most profitable and in this case the market created too much risk.

All you need is regulators to say, hold on a minute, let the markets play but don't let them invest in too much risky products. How do you keep regulators from being corrupted? No political appointees, limited mandates and several of them.

[Renegen1]

@bobjimjones And that is the essence of the problem. You see, in finance, the more risks you take the greater the rewards. And bankers are paid, their bonus for example, on the expectancy of returns. A major problem that was addressed just before the crisis was that bankers are paid for returns obtained, NOT for risk-adjusted returns obtained. Plus, compensation is immediate while the loans take years before they blow up. Ever heard of the phrase "tails I win, heads you lose?"

[theMuffinMan9999]

@hoagyandslim Not you socialist

[LogicalFlawDetector]

What a bunch of nonsense. Subprimes most profitable? You are telling me that lending to underqualified borrowers who have the highest risks of defaulting on the loans is in the *self-interest* of the banks? Under that logic, we should see have seen a national housing bubble and collapse for every business cycle. So far in American history, there has been only one national bubble: and that's after the low interest rates by the FED, and government forced subprime lending and subsidies.

[Foreshadow44]

This guy is stating what I stated back in the mid-90's when the economy was seen as good. I didn't lose any money off of it. In fact, I made money but then didn't reinvest in things like .dot com or mortgages. Like he is saying they built a system that exploited ignorance. It think it is massively funny because most of the people harmed are people who are 50 year old Republicans who have money and then find 'by magic' of bad investments based on seemingly great investment information lose it.

[bobjimjones]

@Renegen1 so certain banks are making terrible business decisions that will lead them to insolvency in the near future. what's the problem? they fail and new ones emerge. that's how the market works, the end.

[bobjimjones]

@Renegen1 why would lending to people who are the least likely of all to pay back their loans be the most profitable for banks? it defies logic.

[MauroRincon]

There are people here who barely has any experience as economists (if any) and yet say this guy, a nobel prize winner, doesn't know anything about the subject.

[Visfen]

@Renegen1 and the SEC didn't do anything about it

Harry Markopolos works as an independent financial fraud investigator, or essentially, someone who makes money finding out if there's something fishy going on. Exactly what short traders do

Oh my, I think the problem here is that your weighing more into my statement than was intended. I'm not saying all regulators are corrupt and take bribes. I'm saying they have an economic incentive to do so, short traders don't

It's institutional economics

[Renegen1]

There isn't much point to talk when you are indeed going on blind faith, and even worse, fiction. Madoff was not found by "short term traders". Not even close, you pulled that one out of a hat. It was found by a SEC employee and his bosses didn't listen. As for independent regulators, like I said, it's entirely possible. In fact, it's the norm.