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Official — Economic Crash Not Computers' Fault
itwbennett writes "A 2-year government investigation has found what we pretty much all knew to be true: High speed trading systems were not the cause of the 2008 economic crash. 'The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,' according to a leaked copy of the report's conclusions revealed in the New York Times."
That's just what my computer model said too...
The rich are waging class war against the rest of us, and transferring wealth from the average person to themselves through fraud and coercion.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
I mean, the problems largely stem from scuzzy bankers and brokers buying and selling what they knew was garbage, along with problems with the fed's lousy idea of what an interest rate is, etc.
It's like finding out that the Minnesota bridge collapse wasn't the fault of computers either. No big deal.
Non impediti ratione cogitationus.
I mean, why not?
Please do not read this sig. Thank you.
There are a lot of complaints about automated trading on /., but at least the machines don't know how to be dishonest or cheat the system. Perhaps we should just leave trading to the machines and ban humans from participating. Something tells me that there would be fewer problems in the long run.
HFT is still a problem.
shouldn't they have just taken the bankers word for it and fired the software guys? What's going on here, everyone blames technology?
Hey buddy, can i bum a karma? ~}CinderellaManson{~
Who's with me?
It was the Fed. Everyone already knows.
Send your spendthrift head of state this
Only a fool could believe in the thesis of the New York Times - http://marcobruni.info
Years after $Trading_Houses intentionally create a bubble to trick gullible people into giving them money, people finally admit that maybe there were actual people involved in the stock market crash. As opposed to it being the fault of the inanimate objects designed and put into place at the behest of the trading houses
Kind of like with the dutch tulip bubble, but less pretty.
the "flash crash" of fall 2010 was caused by robotraders.
the "credit crash" of fall 2008 was caused by greedy streetpunks passing crap paper around in the form of wispy visions of a bad translation of a murky photo of a dim shadow of the promise of someday showing a bad asset. and taking big bonuses every time the stinking pile came around for another rubber stamp.
the only possible report on cause could be "everybody failed as soon as this unregulated activity was allowed."
that's what published.
duh.
if this is supposed to be a new economy, how come they still want my old fashioned money?
Was this EVER a proposed cause of the global economic crisis put forth by any reputable source? At first I thought the article was talking about the flash crash last May. I was unaware anyone could look past the many obvious causes of the 2008 collapse and try to blame high speed trading.
Yeah, "extensive" research and interviews. Only of the very people who didn't see it coming of course, because the legion of people who predicted it in advance wouldn't have any idea as to the causes.
You can guarantee the answer will be "there was enough regulation" by the gazillion regulations that did exist at the time and we need a gazillion more. Rather than "maybe the Fed settings rates at almost 0% for so long wasn't such a wise idea, oh and maybe when banks are making million dollar loans to people with no income and no assets the regulators and ratings agencies should take a look-see (you know doing their jobs)".
And yes some things that weren't regulated should have been (if it looks like insurance and quacks like insurance then maybe is is insurance even if they call it a credit default swap).
High speed trading is completely irrelevant since this wasn't triggered by a sudden drop in the prices of things involved in high speed trading in the first damn place.
You know, results of a government commission that was established to figure out the causes for the financial crisis of 2008 came out, and that commission was a charade, just like this one.
That commission "found" that the crisis was caused by lack of regulations, that low interest rates and Freddie/Fannie had nothing to do with the housing bubble, they "found" that the only thing that government did "wrong" was let the Lehman brothers fail and that the future crisis can only be avoided if there is more government regulations.
Lets start with this: I despise the governments.
The results of that commission were just as well known in advance as the results of the one from this story. Of-course a government commission will find that what is needed is more government and that whatever structural problems that are caused by government are not the real problems.
THIS IS THE SAME BULLSHIT.
IT IS BULLSHIT, DO NOT BELIEVE A SINGLE WORD THAT YOU ARE READING IN THE FABRICATED CONCLUSIONS OF THESE COMMISSIONS.
They are finding one thing: there is need for more government.
They are finding this other thing: whoever is in power cannot be blamed.
That's all.
You can't handle the truth.
Andrew Leonard says it's pretty much a waste of time.
I'm sure that committee members would have liked to assign blame; it's just that they didn't have the votes.
Or at least the conclusions drawn are bogus. Algorithmic trading and hedge funds absolutely must be identified as a contributing factor in this 'crisis'. This kind of trading allows for some degree of arbitrage. The current pricing models, like GARCH, are not suitable for situations where traders are making decisions without having to assume the same risk as the other agents in the market.
But hey, go ahead and push your agenda Democrats. The factors they've identified as 'most important' are actually pretty important. It's just sad to see them poo-poo a systemic pathology of our stock market.
Nationalize the Banks - before it gets any worse.
If this were happening to any other country on earth the State Department would be leaning heavily on them to nationalize their failing banks. It's happened hundreds of times in the past and will happen again. Now that it's us, we're just too damned proud to suck it up and do what needs to be done.
"'The crisis was the result of [human action] criminal behavior and [inaction] failure of law enforcement to do anything about it."
-kgj
Computers are not Jewish...
Maybe this is just what the robots want us to think...
Could it be, that part of the problem is from the $50 million they spent on this 2 year investigation. Nah.. That's just me over reacting.. Nothing to see here move on!
"Yep, grass is green. We finally confirmed it."
Maybe the authors think that we've actually built an Artificial Intelligence and put it in charge of our financial system. If so, maybe we should replace them with one of those computers.
Those who do study history are doomed to stand helplessly by while everyone else repeats it.
A summary of the report's conclusions:
- We conclude this financial crisis was avoidable. The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.
- We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts, in no small part due to the widely accepted faith in the selfcorrecting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe.
- We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis. There was a view that instincts for self-preservation inside major financial firms would shield them from fatal risk-taking without the need for a steady regulatory hand, which, the firms argued, would stifle innovation. Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding.
- We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis. In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt, leaving them vulnerable to financial distress or ruin if the value of their investments declined even modestly. For example, as of 2007, the five major investment banks—Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley—were operating with extraordinarily
thin capital. By one measure, their leverage ratios were as high as 40 to 1, meaning for every $40 in assets, there was only $1 in capital to cover losses.
- We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets. As our report shows, key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of 2007 and 2008. Other agencies were also behind the curve. They were hampered because they did not have a clear grasp of the financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis.
- We conclude there was a systemic breakdown in accountability and ethics. The integrity of our financial markets and the public’s trust in those markets are essential to the economic well-being of our nation. The soundness and the sustained prosperity of the financial system and our economy rely on the notions of fair dealing, responsibility, and transparency. In our economy, we expect businesses and individuals to pursue profits, at the same time that they produce products and services of quality and conduct themselves well. Unfortunately—as has been the case in past speculative booms and busts—we witnessed an erosion of standards of responsibility and ethics that exacerbated the financial crisis. This was not universal, but these breaches stretched from the ground level to the corporate suites.
THESE CONCLUSIONS must be viewed in the context of human nature and individual and societal responsibility. First, to pin this crisis on mortal flaws like greed and hubr
The markets had evolved much faster than new regulations could be applied, and of course the existing regulations weren't well enforced either. That's what you get tho...the party in power will put nay-sayers and do-nothings in charge of agencies and programs they don't like as a way to "show" that the agencies don't work. And of course, it's terribly difficult to get any new regulations put into law as no matter how good the economy they are always spun as job killers.
But that's our two-party system.
Blar.
A 2 year government investigation? Seriously? It's crap like this is why we're so horribly in debt, we keep on spending on the most ridiculous of things. Such a waste of tax dollars...
What do I know, I'm just an idiot, right?
may be found here http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_full.pdf
Quidquid latine dictum sit altum viditur
I don't think anyone thinks HS trading was the culprit behind the mortgage mess.
Perhaps the OPer is confusing this with the flash crash.
In terms of the mortgage meltdown, HS trading wasn't a major problem, but flawed risk models certainly were complicit because they added to the general overconfidence.
You expect that commoners who suffer from illiteracy have sufficient intelligence/competence for self-governance?
You think they could set up a sustainable system? Or, for that matter, any kind of system at all?
If it were possible, it would have been done long, long ago. And if it had any staying power, it would still be around.
The rich organize the world because that is the only trick humanity can pull off.
Stupid commie.
You do realize that gaining wealth is the primary incentive to do any work at all, right?
Creating new wealth requires a lot of hard work for mediocre gains. Organizing the creation of wealth (by others) and skimming off the top gives much higher yields for far less effort. So, there is every incentive to do this. And everybody can't do this (SOMEBODY has to actually produce, and such somebodies must outnumber the organizers in order for organization to be gainful), there is also plenty of incentive to set up as many barriers-to-entry as possible.
Welcome to the real world. Or rather, welcome to the most natural and obvious consequence of capitalist values (or simple human nature).
Zero-cost high-speed trading is a sure way for the privileged on-site trader offices to slowly skim the world's wealth into their pockets.
This ever increasing generalized diversion can only be offset by runaway debt and money creation.
Beyond a certain threshold, debt leads to economic crash as in 2008.
Ironically, the short term response has been to hide behind increased debt, leading to the unavoidable disaster that we shall soon observe, unless you believe in miracles.
If there had been a worldwide minuscule (Tobin) tax on trading, this grand theft could not have occured and the subsequent debt-induced crash might have been avoided.
Of course, the thus enriched world financial elite which ultimately controls all political decision making will never tolerate such a tax which would render high-speed trading useless.
Folks, Private bankstas at the private central bank or fed reserve released there bailout info LAST MONTH. I read an article by a economist from VA that said the BAILOUT for the fraud was somewhere around 10.5 Trillion and NOT what the media was telling you about they 787 Billion TARP. THere were many bailout programs other than TARP. Do NOT and I repeat DO NOT let them brainwash you into thinking MBS housing derivatives caused the problems. 21,000 got BAILOUTS both local and FOREIGN. Yes foreign if that does not make you sick. THe bailout programs released in a report , two years later, tells about TAF, TARF, TLSF, PDCF, Maiden Lane, AMBS and others. WHAT CAUSED THE BANK ROBBERY? Try 1500 Trillion in derivative bets according to BIS. NYTIMES said it is 1000 Trillion. Washington Post says 600 Trillion. No one knows exactly how much because the derivatives are being unwound everyday. I ask of you to use your geekpower to fight back. Learn. and teach. The news is too half truths and spun. I challenge you with the questions. Are cars and insurance Toxic Assets? As in Toxic asset relief Program. If you think this post is a joke. When your granny loses her retirement and wonders why it is valued at one quarter and the mega banks, wall street and congress are rich you will not be laughing. Why should Goldman sachs get 615 Billion? Bank of America 887 Billion plus Merrill Lynches 1.1 Trillion? There was fraud and NO ONE WENT TO JAIL. Ok maybe Bernie Madoff in 2007 x Nasdaq guy but there are 1,000es and tens of thousands. Thanks for reading.
Many early civilizations were pre-literate yet set up complex societies.
Or are you arguing about the word 'commoner' - do you mean that illiterate nobility can set up and run complex societies and you are making a class based argument, that non-nobles are somehow different?
Seriously. Everyone knows what happened in 2008. We were warned about it for about 5 years leading up to it, and chastised with hindsight about it in the years following. The economic crisis was caused mostly by the housing bubble bursting, and slightly by a sudden inflation in oil prices due to an increase in demand. At no point did anyone glance at the markets of those days and suspect that high speed trading was somehow to blame, or even responsible in any way. So why are we wasting money on government funded studies to confirm it. More importantly, what else are we wasting money on in a vain effort to answer questions we already know the answers to?
-Restil
Play with my webcams and lights here
If this was caused by "people mistakes" there's not much we can really do, nobody gets punished, and nobody is held accountable.
If this was caused by industry-wide systemic faults within the financial trading systems (programs etc) then *someone* somewhere would be held accountable, made to pay restitution, and actual changes would be implemented.
I for one am not even slightly surprised to hear this announcement today.
Visit CryptoGnome in his home.
This is silly. Computers did not get here by themselves. They arise out of human action. They do or do not do things as a result of human action or inaction. Saying "it wasn't computers, it was human action or inaction" is meaningless, because the two are not mutually exclusive. Indeed, one is dependent upon the other.
You see? You see? Your stupid minds! Stupid! Stupid!
Many people are for the hypothesis of having moved past peak oil having caused the 2008 recession, especially ENV academics. Another thing some of those people and others say is that the current unemployment is here to stay, it will not go back to what it was like before.
Negative, semi-clueless one! They were copying the history of the Great Crash and Great Depression, when those financial institutions who had financed the passage of Prohibition (lasting from 1920 to 1933, and equating to a gigantic tax cut -- sound familiar?? -- and dark pools for laundering through the stock exchange) picked up assets at bargain basement prices after they purposely crashed the system --- in other words, a massive transfer of wealth.
Same thing this time, except they have created a new and improved version with their control of credit derivatives (JPMorgan Chase, Goldman Sachs and Morgan Stanley) which acts --- when properly exercised --- as a global financial virus.
And your last sentece is wanting --- what occurred was that the second and third tier banks realized the extent of the ultra-leveraging which had occurred --- when the banksters peddled their securitized debt, i.e., issuing securities multiple times based upon one loan, which the next bank or financial institution purchased on the asset side, then further issued securities of some type on the liability side, when the next bank purchased on the asset side, then issued further securities on the liability side, ad infinitum......which is what we call ultra-leveraging, and what was used by Goldman Sachs, Morgan Stanley, Citigroup, BofA, and others, for all that ultra-leveraged speculation to manipulate the commodities: oil, energy, gas, foodstuffs, precious metals, etc., etc., etc.
You are incapable of forming your own independent conclusions?
You must be an American Zombie ConsumerTard? And the FCIC did make referrals for criminal prosecution, sonny 'tard.
Try reading the frigging report prior to making idiotic and moronic comments. Are you above the age of 7?
They are known as JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, BankofAmerica, Blackstone Group, Citadel, Fortress Asset Management, Standard & Poor, Meany's, Fitch's, KKR, Carlyle Group and friends.
Friends would be: Reagan, Bush (1), Clinton, Bush(2) (p. 13 of Chapter 1 of the FCIC report), and the Gramms, Robert Rubin, Arthur Leavitt, Larry Summers, Timothy Geithner, and a bunch of perps presently with the Obama Administration (Gene Sperling, Neal Wolin, etc.).
The "Crash of 2008" was the result of several simultaneous actions.
First, the overspending by the still relatively new Democratic Congress were not vetoed nearly enough by Mr. Bush.
Second, the real estate boom busted. Mr. Bush had warned of the coming collapse 4 years earlier, but Congress, both Republicans and Democrats were much too interested in claiming credit for the easy home loans to worry about something that was more than 3 months off.
Third, the relaxed accounting rules put in place during the Clinton Years had their final clash with reality. Reality won. Profits were nowhere near as high as investors were being told.
Fourth, the savings rate by Americans continued to decline, a trend that dated back to the Carter years, and is a result of tax policy. This resulted in under funded banks that relied mainly on loans to each other for collateral, as there were not enough depositors to provide the funds. Like paying one credit card with another, a point comes where you have to pay the piper. The long toll had gone on for years. Finally reaching a breaking point. Much of the banking system worldwide went down together. Full recovery still hasn't happened. Europe has several countries that are in deep financial trouble because of it. Several US States are hurting from this as well.
The US press of course blamed the President. That is after all a long time US tradition. Mr. Bush even got blamed for a hurricane or two. Stupid people believed it. New Orleans Mayor Levin for instance.
A coastal city that is 30 feet below sea level, with only a dirt levee between it and the ocean should expect storm flooding of epic proportions, say 30 feet or so. That is what happened. The Army Corps of Engineers had been warning of this since 1910. It happened. There was an interesting article in Scientific America about that in the late 1970's. It was not a question of if, only of when. The problem still isn't fixed, so it will happen again.
Now of course, Mr. Bush is no longer President, and Mr. Obama is getting blamed for the actions of others, including the weather. Well, he asked for the job. The blame comes with the territory.
So, it's all officially Obama's fault now. Really, it is lots of people's fault. Who benefited? Mr. Soros, and a few select others. Mr Buffet didn't do too badly either. Mrs. Pelosi and Mr. Reid got a lot from it too. Mrs Pelosi has lost her throne as an aftereffect, but Mr. Reid managed to hang on, thanks to a hundred Million from Mr. Soros. The list goes on, but it is so much easier to just blame someone. It doesn't fix anything, but you might feel better for a while. That is really the take home lesson. We didn't fix anything, but we have blamed someone. They may or may not have had something to do with it.
Don't worry about Mr. Soros, he got 7 Billion of the Stimulus funds to develop an oil field in Brazil where the oil is contracted to go to China. Mr. Buffet made out well on the recent stock climb, so he's doing well too.
There are lots of interesting happenings on the other side of this political aisle too. Pick any famous Washington or Wall Street insider, and they are probably in it up to their necks. Some don;t even know they were partially at fault. After all, some very intelligent people are deliberately stupid. It's pride.
No matter what side you are on, you were probably betrayed. It is after all about money.
Everybody knows 3 people with my name.
Actually, had you bothered to pay attention -- assuming you have an attention speed which lasts longer than the customary 3 seconds -- you would know that the FCIC, especially Phil Angelides and Brooksley Born -- conducted extensive hearings and investigations around the country, from NYC to California and points inbetween, which established fraud and culpability.
Well, I don't think there is any question about it. It can only be attributable to human error. This sort of thing has cropped up before and it has always been due to human error.
I dream of a nation where a man is not judged by his skin color but by an number assigned by a credit rating agency.
I think it is high time the financial/economy sector gets a complete reboot.
Get rid of all these legal money laundering schemes. Because it is all they are, these financial transactions are just massaging money to dilute it, or concentrate it, out of the sights of most people.
--
http://www.twilightcampaign.net/
The US lacks governance and accountability - I'm shocked!
Does anyone else see the corollaries between the crash of '08 and WWI. I mean, a lot of people in the trenches were taken out but none of the big shots were made to suffer. Apparently nobody learned anything from it. And we are bound to repeat the cycle.
It's pretty striking to me... And scary of what might happen in the second round.
congratulations Sponge Bath, you have passed 'government commission reports 101'.
produces, then all of this intellectual stuff kind of flies out the window.
imagine your model given input CDO tranche X spits out 'BB'. your customer wants output 'AAA', and threatens to take their multi-million dollar contract to your competitor unless your model is repaired.
there is no 'mistake of historical research' or whatever. there were people pointing out the flaws in these models. they got ignored or fired because there was too much money being made and shareholders liked money.
it is nothing more complicated than what slashdot familiars would be familiar with: video game ratings in video gaming magazines. or better yet, benchmark measurements for CPU speeds. if you can understand the shenanigans and conflicted interests in these two markets, you can understand the crash of 2008.
please see The Big Short, Michael Lewis ... The Sellout, Charles Gasparino... Structured Finance and CDOs, Tavakoli... EConned, Yves Smith...., And Then The Roof Caved In, David Faber.... etc etc etc etc .
imagine the reverse of ebay sniper tools. Zillions of them. All programmed ( BY HUMANS ) to sell if the price drops below a certain value in order to cash in before they become loss making.
If you don't risk failure you don't risk success.
millisecond trades caused the crash. When decisions happen faster than information to inform those decisions can travel and be digested, you're inherently unstable.
It's been shown with AI bots that a short interval trading system is INHERENTLY unstable.
Example: large shareholder divorces. Needs to liquidate stock for the divorce and sells a lot of stock. Stock market notices this and reduces the share price offered to the next seller. Trader/software notes the dropping price and sells to reduce losses. Further drop in price. More traders sell. Crash. Later, it's not the fault of computer trading, just some very few people who were silly.
NOTE: despite having silly people there with enough power to collapse an economy, there are no reductions in the wages for these people or attempts to punish these people unfit for the job.
And what is happening now is redistribution by force from the currently underprivileged to the privileged.
Or, please, inform me, what happens when people protest against, say, the G20? Or protest outside a bank or coal mine or other high industry? How about when you're hounded for millions in damages under threat of violence for "sharing" 24 songs on the internet, causing NO PERCEPTIBLE DAMAGE WHATSOEVER?
Wealth is being redistributed by force now.
The GP post is merely inferring we change the direction.
The very people who get rich off of these high-speed trading systems are commissioned to generate a report about the reasons for the 2008 crash, and they find that they high-speed trading systems had nothing to do with it.
SHOCKING!
Where did bush get blamed for a hurricane? Really. I didn't see it.
I saw him get blamed for the floods of NO but that's because he cut the funding despite the engineering corps telling him it needed work, allowing the flood to happen AND for putting a know-nothing flunkey in charge who couldn't find a bulls arse with a banjo which exacerbated the problem.
But blamed for the hurricane?
No.
I've taken your implicit criticism to heart, and reworked my manifesto accordingly:
"The crisis was the result of [human action] man's inhumanity to man and [inaction] good men doing nothing, thus ensuring the triumph of evil."
-kgj
Oh wow, dood, the Petroleum Broadcasting Sleazebags did a great misinformation whitewash. Oooooohhh....aaahhhh.ooohhh...can the crap already and assuming you're not a chatterbot or paid lackey, try thinkin for yourself for a change, zombie consumertard.