Money and Finance
- Daniel Kahneman On Confidence
From Don't Blink! The Hazards of Confidence: “The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story...
- Talks At Google: Secretary Hank Paulson: "hank: 5 Years From The Brink"
Link to video: Secretary Hank Paulson: "Hank: 5 Years from the Brink"Secretary Hank Paulson joins us in conversation about his new documentary. HANK: 5 Years from the Brink tells the story of how Paulson worked to persuade banks, Congress, and presidential...
- Bill Ackman’s Q3 Letter
Via ValueWalk. We chose to exit our entire stock and total return swap position in J.C. Penney at the end of August and incurred a loss of approximately 50% of our original investment. We did so because of a disagreement with the board about the timing...
- Big Long Is New Big Short As Bass Joins Subprime Bet
Investors who made some of the biggest profits from the 2007 bust in U.S. mortgages are once again in agreement. This time, they’re going long. Hedge fund manager Kyle Bass, who made $500 million betting against subprime debt in the crash, is raising...
- How Paulson Gave Hedge Funds Advance Word
Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself...
Money and Finance
The Confidence Game - by James Grant
In disclosing plans to buy a quarter-trillion dollars of bank stock in the name of the American taxpayer, Treasury Secretary Hank Paulson harped on confidence. "Today, there is a lack of confidence in our financial system, a lack of confidence that must be conquered," he said on Tuesday.
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What Mr. Paulson did not get around to mentioning was the excess of confidence that preceded the shortfall. Under the spell of soaring house prices (and before that, of stock prices), Americans trusted the things they ought to have doubted. But markets are cyclical, and there is always a new day. In compensating fashion, people will eventually doubt the things they ought to have trusted. Investment opportunity follows disillusionment. It's complacency that precedes bear markets.
What Mr. Paulson did not get around to mentioning was the excess of confidence that preceded the shortfall. Under the spell of soaring house prices (and before that, of stock prices), Americans trusted the things they ought to have doubted. But markets are cyclical, and there is always a new day. In compensating fashion, people will eventually doubt the things they ought to have trusted. Investment opportunity follows disillusionment. It's complacency that precedes bear markets.
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If the confidence deficit seems so high, it's because the preceding confidence surplus was full to overflowing. People suspended critical judgment. They accepted at face value the pretensions of central bankers and the competence of investment bankers. Not one professional investor in 50, probably, doubted that wads of subprime mortgages could be refashioned into bonds that were just as creditworthy as U.S. Treasurys.
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And the opportunities? For the first time in a long time, stocks, tradable bank loans and mortgages are becoming cheap. The bear market is truly a value restoration project. Wall Street will be going on sale -- if the government will let it. For the entrepreneur, the silver lining in the federalization of finance is obvious. Start a bank or broker-dealer to compete with the institutions that will soon be smothered in Mr. Paulson's quarter-trillion dollar embrace. There's oxygen, still, in the free market.
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Related Books:
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Mr. Market Miscalculates: The Bubble Years and Beyond
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Security Analysis Sixth Edition
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- Daniel Kahneman On Confidence
From Don't Blink! The Hazards of Confidence: “The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story...
- Talks At Google: Secretary Hank Paulson: "hank: 5 Years From The Brink"
Link to video: Secretary Hank Paulson: "Hank: 5 Years from the Brink"Secretary Hank Paulson joins us in conversation about his new documentary. HANK: 5 Years from the Brink tells the story of how Paulson worked to persuade banks, Congress, and presidential...
- Bill Ackman’s Q3 Letter
Via ValueWalk. We chose to exit our entire stock and total return swap position in J.C. Penney at the end of August and incurred a loss of approximately 50% of our original investment. We did so because of a disagreement with the board about the timing...
- Big Long Is New Big Short As Bass Joins Subprime Bet
Investors who made some of the biggest profits from the 2007 bust in U.S. mortgages are once again in agreement. This time, they’re going long. Hedge fund manager Kyle Bass, who made $500 million betting against subprime debt in the crash, is raising...
- How Paulson Gave Hedge Funds Advance Word
Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself...