In the same way that you should take a software engineer's take on why a a SQL query is slow. They're probably the most knowledgeable person in the room but that doesn't always mean that they're right.
"A software engineer's take on why an SQL query is slow." isn't the correct analogy, IMO. First, this isn't a banker, it's a bank. A banking crisis isn't the equivalent of a script either.
Should you trust meta about monopolism in the social media space, data ownership, child safety, the effects of new media on professional journalism, etc. etc. Big political questions intertwined with his companies' interests.
In any case, both in the hypothetical fb case and the real chase case: (1) you should listen, because they're in a position to have knowledge and insight. (2) You should also be extremely skeptical, and assume that they are making statements in pursuit of their interests.
That said, the content of this particular article is quite worth listening to. It's not really about the what. It's about the why.
I wonder how many HN conversations would be cut short if we simply accepted that analogies are imperfect yet useful. They provide a very limited amount of insight into any topic—so yes, let’s use them, and let’s stop arguing about whether an analogy is the “right analogy”. A analogy will have some element of truth that transfers from one situation to another, and in a good analogy, it will be easy for readers to discover that element of truth.
You’ll find ways in which the analogy is “wrong”, but that’s just noise.
Analogies are like children. If its your own they're a brilliant, cute, funny, unique individual. If they're other people's they're loud, annoying, stinky little pests and oh god they're swarming you.
IDK... I do see you point, but I'd like to think both I and the commenter I responded to were using analogies in an ok way.
Analogies are a pretty good rhetorical device, IMO because we kind of think in abstract analogies anyway. We could have both made our points without analogy, but I don't think much content is lost.
His point is that Bankers are the professionals. This is true. I "complicated" the analogy/comment to highlight the tension between "bankers are knowledgeable professionals" and "bankers are an interested party."
In any case, I feel that analogies are ok. The problem with my comment might have been an overly combative or nitpicky tone, especially given that we probably agree of most of it.
It's more like a manager's take on whether they need more headcount or an engineer's opinion on how long a project is going to take. They are the most informed person in the room - however, they also have an incentive to present a certain story.
Most software engineers are absolutely garbage at SQL though. Their expertise often ends at CRUD queries, if they can even achieve that without their precious ORMs.
One big issue is ignoring causality and hindsight. E.g. author contrasts “low quality” assets of 15 yrs ago with today’s “high quality” assets, ignoring the fact that asset quality was apparent only in hindsight.
Well, their selective take is like a description of a mass shooting that only describes where the bodies ended up, but no discussion of who caused it, or even that bullets might have been involved, let alone which people actually did it:
"Households had too much leverage in 2008 : Mortgage debt % potential GDP..." "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis."
Drink one finger very time you find a bank mentioning the Glass-Steagall Act, and ten bottles every time you find them admitting they lobbied Congress hard to repeal it. [0]
"Why didn’t any Wall Street CEOs (or executives) go to jail after the financial crisis?" (also a list of criminal and civil charges, and which banks got fined) [1]
...and here's some shameless revisionism by Cato [2] ("It wasn't the banks [being allowed to issue the CDOs], it was the securities salesmen who spontaneously invented and sold CDOs"). I must remember that compelling excuse if I ever get busted running a casino in my own living-room.
> "In any case, the 2008 financial crisis had precious little to do with Glass‐Steagall, one way or the other. It was caused primarily by bad lending policies, which in turn led to the growth of the subprime market to an extent that neither the lawmakers nor regulatory authorities recognized at the time. The commercial banks and parent holding companies that failed — or had to be sold to other viable financial institutions — did so because underwriting standards were abandoned."
And zero acknowledgment that Credit Default Swaps were pioneered by Blythe Masters AT JP Morgan and used relentlessly to move risk off of balance sheets in a house of cards that led to millions losing their homes and life savings.
"In bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk."
Glass-Steagall’s repeal wasn’t proximate to any post-repeal banking crises. (Glass-Steagall wouldn’t have prevented mortgage CDOs.) It certainly wouldn’t have done anything for SVB or Signature.
That's debatable. Glass-Steagall wouldn't have prevented CDOs, but Glass-Steagall's repeal paved way for previously illegal mergers and acquisitions between commercial banks and investment banks. Had these mergers not had been allowed, it is debatable banks would have been "too big to fail", and the entire system wouldn't have been so susceptible to collapse.
> it is debatable banks would have been "too big to fail"
Pre-GLB’s LTCM is a potent counterfactual to this claim. Truth is, the topology of our banking system changed with computerisation. This enables tremendous opportunity. But it introduced novel fragility.
Not really. It's debatable the Fed's intervention was even necessary and the concerns they had about the effects of LTCM’s failure on global financial markets were mislead and greatly exaggerated. Buffet's offer alone could of settled the situation, and demonstrates that the Fed likely didn't need to intervene at all. Ergo, the global market relative to LTCM was probably big enough to absorb the financial shock.
The problem is akin to a boat. If you breach the hull which is one big container, the entire ship will surely sink. If you breach the hull of a ship which has many interior separate containers, only one container fills with water, and the ship continues afloat. The bigger banks and firms get relative to the market, the more susceptible the system is to a complete collapse, as they essentially become the market. There is simply no denying that Glass-Steagall prevented mergers of commercial and investment banks, and no denying that removing it made the system less robust in this very aspect. It's the same reason diversification reduces risk.
Does that mean that the system can't fail when there are no big players? No, absolutely not. But to say Glass-Steagall wasn't proximate to the 2008 crisis is highly dubious.
> debatable the Fed's intervention was even necessary and the concerns they had about the effects of LTCM’s failure on global financial markets were mislead and greatly exaggerated
As much as the Fed's involvement in 2008. If your claim is GS-GLB financial history was sanguine, I've got a bridge to sell you.
Pointedly: if you want to tank a financial regulation bill, bring up Glass-Steagall.
Glass-Stegall would have prevented JP Morgan Chase Washington Mutual etc from participating in collateralized debt swaps, or from taking depositors money to do so.
Re Glass-Steagall and 2008 crisis, Robert Reich and Elizabeth Warren disagree with you [https://robertreich.org/post/124114229225]. According to you, which legislation prevented the conflict-of-interest in banks writing trillions in subprime mortgages decades prior to 1999? or securities firms selling CDOs backed by subprime MBS? IIUC, the issue in 2008 was never "preventing mortgage CDOs" outright, but preventing the inflated valuations on junk tranches of subprime, i.e. mortgage lenders allowing securities sellers to intentionally create and sell junk with their assets.
(and I clearly didn't say Glass-Steagall would have done anything for SVB or Signature; I was saying banks like Chase's selective edit of the chain of events around 2008 was a whitewash because it omitted mention of key events.)
They argue that "nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements" and if "big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble." But nonbank funding channels were already alive, well, and causing chaos in the 1990s (LTCM) and before (S&Ls). Sure, banks juiced the problem. But it didn't start the fire, it didn't bring the fire home and it didn't meaningfully alter the fire's trajectory. And there is no evidence that their large depositors would have sat there if nonbanks offered competitive rates fueled by their nonsense.
As we've seen this cycle, banks and nonbanks will chase yield when rates are low and credit is cheap. To argue that e.g. SoftBank wouldn't have SoftBanked if JPMorgan and JPMorgan Securities were separate misses the forest for the trees.
> securities firms selling CDOs backed by subprime MBS
Bank originates mortgage. Bank sells mortgage to securities firm. Securities firm issues as CDO. Nothing about this requires the lending arm and securities arm be under the same roof. Mortgage CDOs became a thing because of computers, not Glass-Steagall.
Proponents of reinstating Glass-Steagall are broadly well intentioned. But there are real financial regulations that have real impact that this discussion crowds out.
Robert Reich and Elizabeth Warren have massive partisan and ideological axes to grind, and their careers basically rely on convincing people that it's all the fault of big businesses convincing the government to lift regulations and that they could fix all of this if voters only gave them and their side the power.
What specifically is the most incorrect claim/belief Reich and Warren have? And why is it that banks don't fail in Canada?
"it's all the fault of [hyperbole] big businesses convincing the government to lift regulations". Well who else was lobbying govt to roll back banking regulations, in the 1990s?
Which lobbyists paid former Sen. Phil Gramm? Gramm's wife Wendy as CFTC chairwoman till 1993 issued regulations that legalized the type of electricity trading that helped Enron make millions in illegal profits. In 1993 joined Enron and ended up on its audit committee, where she approved all the shenanigans. She made $ out of Enron, while her husband was passing legislation to help it, and Enron lobbyists contributing to his campaign.
Phil Gramm ended up on the board of UBS, and a McCain adviser on the economy. Insanity.
"...if voters only gave them and their side the power." Start by ending the revolving door. That's not "giving their side the power".
Once you acknowledge their bias, they do know an awful lot about banking
Sure, but I really don't. And a lot of other folks are the same. I know they are both biased and have financial incentives to lie or mislead me. As much as I might try, I know I might not be able to parse out the bullshit from the facts. Those facts are gonna stink of the bullshit even if I can verify it.
At least with something like a plumber, I can get a second opinion and so on, and I might just be able to take care of the issue myself instead. This just isn't the case with a bank.
