Sunday, July 28, 2013
Goldman CEO on risk: The worst 'absolutely will happen'
Goldman CEO: What I learned from the financial crisis
Goldman Sachs CEO Lloyd Blankfein discusses the lessons he learned from the global financial crisis, and why he thinks Fed chair Ben Bernanke has done a good job so far, at the Australian Institute of Company Directors in Sydney.
Investors should always prepare for the most extreme risk scenario because it will happen, Goldman Sachs CEO Lloyd Blankfein told the Australian Institute of Company Directors at a breakfast briefing on Friday.
Blankfein, who's been Goldman CEO since 2006, steered it through the fallout of the global financial crisis of 2007-2008. He said the experience had taught him to accept that the worst thing you can imagine will inevitably happen.
"Most risk management is really just advanced contingency planning and disciplining yourself to realize that, given enough time, very low probability events not only can happen, but they absolutely will happen," said Blankfein.
"The definition of infinity is that you wait long enough, everything happens."
(Read more: Why Goldman Sachs earnings weren't all that: trader)
Blankfein said in his view, the major problem during the financial crisis was that ordinary people were banking on the fact that the scenario they feared the most, the collapse of real estate prices, was not a possibility
.
Goldman Sachs CEO Lloyd Blankfein discusses the lessons he learned from the global financial crisis, and why he thinks Fed chair Ben Bernanke has done a good job so far, at the Australian Institute of Company Directors in Sydney.
Investors should always prepare for the most extreme risk scenario because it will happen, Goldman Sachs CEO Lloyd Blankfein told the Australian Institute of Company Directors at a breakfast briefing on Friday.
Blankfein, who's been Goldman CEO since 2006, steered it through the fallout of the global financial crisis of 2007-2008. He said the experience had taught him to accept that the worst thing you can imagine will inevitably happen.
"Most risk management is really just advanced contingency planning and disciplining yourself to realize that, given enough time, very low probability events not only can happen, but they absolutely will happen," said Blankfein.
"The definition of infinity is that you wait long enough, everything happens."
(Read more: Why Goldman Sachs earnings weren't all that: trader)
Blankfein said in his view, the major problem during the financial crisis was that ordinary people were banking on the fact that the scenario they feared the most, the collapse of real estate prices, was not a possibility
.
More Dreamliner ills; smoke in one, another grounded
There were more problems for Boeing's troubled 787 Dreamliner on
Friday - one was grounded, an oven overheated in another and damage was
found in wiring on two other planes as pressure mounted on Boeing over
possible new electrical problems with the advanced jet.
Qatar Airways said it had taken one of its Dreamliners out of service following what it described as a "minor" technical issue.
The airline and Boeing declined to give further details but industry sources said they were treating seriously reports that the aircraft had been grounded for days after smoke was seen near an electrical panel.
According to web-tracking service Flightaware, the aircraft, registered as A7-BCB, has not flown since Sunday, an unusually long downtime for a long-haul jet designed to save fuel bills.
Qatar Airways confirmed an aircraft had been taken out of service, but said no flights had been canceled as a result. "This is a minor issue for us, and not an incident, so we are not commenting," an airline spokeswoman said.
A spokeswoman for Boeing said, "We request that you channel all your enquiries to Qatar Airways."
Two people familiar with the matter, asking not to be identified, said smoke had been reported near an electrical compartment while the jet was on the ground in Doha. A failure in a similar bay caused an fire during a test flight in 2010.
A fire-brigade supervisor in Doha said it did not have any record of an incident with an airport-related call last week.
India's aviation regulator said earlier it had started an investigation after an oven in a 787 operated by Air India overheated during a domestic flight, causing smoke.
There was no interruption to services.
And Japan's ANA, which operates the world's biggest fleet of Dreamliners, also said on Friday it had found damage to the battery wiring on two 787 locator beacons.
Tests have been ordered on the beacons after a parked Ethiopian Airlines-owned Dreamliner caught fire at London's Heathrow this month, causing extensive damage to the plane.
The global fleet of Dreamliners was grounded for three months earlier this year due to battery-related incidents.
Aviation experts say it is common for the reported number of incidents to rise when an aircraft is in the spotlight. Aircraft regularly suffer glitches that go unreported and rarely pose a direct threat to safety.
However, aviation experts say U.S. and British authorities investigating the previous fires may seek to establish whether anything can be learned from a pattern of reported incidents connected in various ways to the jet's electrical systems.
Boeing Chief Executive Jim McNerney said this week he remained "highly confident" in the future of the 787 program and the integrity of the company's newest airplane.
The 787 incorporates a raft of changes in the way passenger jets are designed, including greater use of electrical systems that save weight compared to older hydraulics. It is the first passenger jet built mainly from lightweight carbon-composites.
Qatar Airways said it had taken one of its Dreamliners out of service following what it described as a "minor" technical issue.
The airline and Boeing declined to give further details but industry sources said they were treating seriously reports that the aircraft had been grounded for days after smoke was seen near an electrical panel.
According to web-tracking service Flightaware, the aircraft, registered as A7-BCB, has not flown since Sunday, an unusually long downtime for a long-haul jet designed to save fuel bills.
Qatar Airways confirmed an aircraft had been taken out of service, but said no flights had been canceled as a result. "This is a minor issue for us, and not an incident, so we are not commenting," an airline spokeswoman said.
A spokeswoman for Boeing said, "We request that you channel all your enquiries to Qatar Airways."
Two people familiar with the matter, asking not to be identified, said smoke had been reported near an electrical compartment while the jet was on the ground in Doha. A failure in a similar bay caused an fire during a test flight in 2010.
A fire-brigade supervisor in Doha said it did not have any record of an incident with an airport-related call last week.
India's aviation regulator said earlier it had started an investigation after an oven in a 787 operated by Air India overheated during a domestic flight, causing smoke.
There was no interruption to services.
And Japan's ANA, which operates the world's biggest fleet of Dreamliners, also said on Friday it had found damage to the battery wiring on two 787 locator beacons.
Tests have been ordered on the beacons after a parked Ethiopian Airlines-owned Dreamliner caught fire at London's Heathrow this month, causing extensive damage to the plane.
The global fleet of Dreamliners was grounded for three months earlier this year due to battery-related incidents.
Aviation experts say it is common for the reported number of incidents to rise when an aircraft is in the spotlight. Aircraft regularly suffer glitches that go unreported and rarely pose a direct threat to safety.
However, aviation experts say U.S. and British authorities investigating the previous fires may seek to establish whether anything can be learned from a pattern of reported incidents connected in various ways to the jet's electrical systems.
Boeing Chief Executive Jim McNerney said this week he remained "highly confident" in the future of the 787 program and the integrity of the company's newest airplane.
The 787 incorporates a raft of changes in the way passenger jets are designed, including greater use of electrical systems that save weight compared to older hydraulics. It is the first passenger jet built mainly from lightweight carbon-composites.
18 facts 2008 crisis hitting US again
If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008?
That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again. Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009.
It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around.
So will we be able to handle a financial crash as bad as we experienced back in 2008? What if it is even worse this time? Considering the fact that we have been through this kind of thing before, you would think that our leaders would be feverishly trying to keep it from happening again and the American people would be rapidly preparing to weather the coming storm. Sadly, none of that is happening. It is almost as if they cannot even see the disaster that is staring them right in the face. But without a doubt, disaster is coming. The following are 18 similarities between the last financial crisis and today…
#1 According to the Bank of America Merrill Lynch equity strategy team, their big institutional clients are selling stock at a rate not seen “since 2008.”
#3 In early 2008, the average price of a gallon of gasoline rose substantially. It is starting to happen again. And remember, whenever the average price of a gallon of gasoline in the US has risen above $3.80 during the past three years, a stock market decline has always followed.
#4 New home prices just experienced their largest two month drop since Lehman Brothers collapsed.
#5 During the last financial crisis, the mortgage delinquency rate rose dramatically. It is starting to happen again.
#6 Prior to the financial crisis of 2008, there was a spike in the number of adjustable rate mortgages. It is happening again.
#7 Just before the last financial crisis, unemployment claims started skyrocketing. Well, initial claims for unemployment benefits are rising again. Once we hit the 400,000 level, we will officially be in the danger zone.
#8 Continuing claims for unemployment benefits just spiked to the highest level since early 2009.
#9 The yield on 10 year Treasuries is now up to 2.60 percent. We also saw the yield on 10 year US Treasuries rise significantly during the first half of 2008.
#10 According to Zero Hedge, “whenever the annual change in core capex, also known as Non-Defense Capital Goods excluding Aircraft shipments goes negative, the US has traditionally entered a recession”. Guess what? It is rapidly heading toward negative territory again.
#11 Average hourly compensation in the United States experienced its largest drop since 2009 during the first quarter of 2013.
#12 In the month of June, spending at restaurants fell by the most that we have seen since February 2008.
#13 Just before the last financial crisis, corporate earnings were very disappointing. Now it is happening again.
#14 Margin debt spiked just before the dot.com bubble burst, it spiked just before the financial crash of 2008, and now it is spiking again.
#15 During 2008, the price of gold fell substantially. Now it is happening again.
#16 Global business confidence is now the lowest that it has been since the last recession.
#17 Back in 2008, the U.S. national debt was rapidly rising to unsustainable levels. We are in much, much worse shape today.
#18 Prior to the last financial crisis, Federal Reserve Chairman Ben Bernanke assured the American people that home prices would not decline and that there would not be a recession. We all know what happened. Now he is once again promising that everything is going to be just fine.
Are the American people going to fall for it again?
It doesn’t take a genius to see how vulnerable the global economy is right now. Much of Europe is already experiencing an economic depression, debt levels in Asia are higher than ever before, and the U.S economy has been steadily declining for most of the past decade. If you doubt that the US economy has been declining, please see my previous article entitled “40 Stats That Prove The US Economy Has Already Been Collapsing Over The Past Decade.”
And the truth is that most Americans already know that we are in deep trouble. Today, 61 percent of all Americans believe that the country is on the wrong track.
It isn’t that so many people are choosing to be pessimistic. It is just that an increasing number of Americans are waking up to the cold, hard reality that we are facing.Decades of incredibly foolish decisions have brought us to this point. We allowed our economic infrastructure to be gutted, we consumed far more wealth than we produced, our politicians kept doing incredibly stupid things but we kept voting the same jokers back into office again and again, and over the past 40 years we have blown up the biggest debt bubble in all of human history.
We have been living so far above our means for so long that most of us actually think that our current economic situation is “normal.”
But no, there is nothing normal about what we are experiencing. We are entering the terminal phase of a colossal debt spiral, and when it flames out the economic devastation is going to be absolutely spectacular.When the next major wave of the economic collapse comes and unemployment soars well up into the double digits, millions of businesses close and millions of American families lose their homes, I hope that those that are assuring all of us that there will not be an economic collapse will come back and apologize.
There are tens of millions of people out there right now that are not making any preparations at all because they have been promised that everything is going to be okay. When the next financial crash happens, most of them will be absolutely blindsided by it and many of them will totally give in to despair.
Don’t let that happen to you.
ISH/HJ
Republished from: Press TV
GOP banning bailout of crisis-hit Detroit
The Obama administration is making no sign of helping Detroit as its
emergency manager and republican governor steer the city towards
bankruptcy proceedings.
Yet, that is not enough assurance for some in the GOP who are pushing for passage of a law explicitly banning the bailout of Detroit, and any other municipality for that matter.
At least five republican senators have recently proposed tacking language onto spending bills that would broadly prohibit municipal bailouts.
These proposed measures, which would have far-reaching implications for towns and cities across the US if passed, are aimed towards preventing any federal aid to Detroit.
GOP leaders are attacking the city with notable venom at a time when its 700,000 residents–80 percent of whom are African-American–must contend with deepening crises of poverty and privatization.
Rising numbers of Republicans are declaring that the city has dug its
own grave and does not deserve federal help. John Cornyn (R-Tex.)
declared Thursday that Congress must not, under any circumstance, “bail
out Detroit or any American city that mismanages its public finances.”
Yet, when Wall Street took a hit from its self-made 2008 financial crisis-which devastated towns and cities across the US, including Detroit-Republicans and Democrats stood behind a massive federal bailout of big banks, pushed forward under George W. Bush, with President Obama picking up the baton.
Today, there is little interest from either side of the aisle to extend a helping hand to the largest city to file for bankruptcy in US history.
Unions appealed to members of Congress not to turn their backs on the city. In a statement Thursday, AFSCME Detroit Local 207 president Lee Saunders declared:
The whole country is watching how this crisis gets resolved. As the nation emerges from the worst of the Great Recession, it is time for Congress and the White House to make it clear they will not turn their backs on our urban centers.
Nearly 60 percent of Detroit children live in poverty and 33 percent of all land sits vacant. Half of all streetlights are non-functional, and a majority of public parks have shut down. Common Dreams
ISH/HJ
Republished from: Press TV
Yet, that is not enough assurance for some in the GOP who are pushing for passage of a law explicitly banning the bailout of Detroit, and any other municipality for that matter.
At least five republican senators have recently proposed tacking language onto spending bills that would broadly prohibit municipal bailouts.
These proposed measures, which would have far-reaching implications for towns and cities across the US if passed, are aimed towards preventing any federal aid to Detroit.
GOP leaders are attacking the city with notable venom at a time when its 700,000 residents–80 percent of whom are African-American–must contend with deepening crises of poverty and privatization.
Yet, when Wall Street took a hit from its self-made 2008 financial crisis-which devastated towns and cities across the US, including Detroit-Republicans and Democrats stood behind a massive federal bailout of big banks, pushed forward under George W. Bush, with President Obama picking up the baton.
Today, there is little interest from either side of the aisle to extend a helping hand to the largest city to file for bankruptcy in US history.
Unions appealed to members of Congress not to turn their backs on the city. In a statement Thursday, AFSCME Detroit Local 207 president Lee Saunders declared:
The whole country is watching how this crisis gets resolved. As the nation emerges from the worst of the Great Recession, it is time for Congress and the White House to make it clear they will not turn their backs on our urban centers.
Nearly 60 percent of Detroit children live in poverty and 33 percent of all land sits vacant. Half of all streetlights are non-functional, and a majority of public parks have shut down. Common Dreams
ISH/HJ
Republished from: Press TV
"Economics Cannot Trump Mathematics"
Originally posted at Monty Pelerin’s World blog,
Extreme Fear Is Reasonable
It is nearly impossible to convince people that an economic ending is likely, perhaps inevitable. It is beyond anything they have seen or can imagine. I attribute that to a normalcy bias, an inherent weakness of experiential learners. For many, accepting something that has not occurred during their time on the planet is not possible. The laws of economics and mathematics may shape history but they are not controlled by history.
The form of cataclysm and its timing is indeterminable. Political decisions continue to shape both. The madmen who are responsible for the coming disaster continue to behave as if they can manage to avoid it. Violating Einstein’s definition of insanity, they continue to apply the same poison that caused the problem. These fools believe they can manage complexities they do not understand. We are bigger fools for providing them the authority to indulge their hubris and wreak such damage.
Apocalypse In One Picture
James Quinn provided the following graph. If a picture is worth a
thousand words, this graph is worth millions. The route to economic
demise is depicted below:
The relationships in this graph are terrifying! Debt is shown relative to GDP. GDP growth has been one-third the growth in debt for the period. That is, the economy required $3 of debt to produce $1 more in real GDP. In recent years diminishing returns to debt required $6 of debt to increase GDP a $1. Whatever the benefits of debt, they have clearly diminished, almost to zero. Debt expansion has gone exponential in order to salvage the weak growth in GDP.
To put this into a perspective the average reader can understand, think of GDP as a household’s spending. The “family” depicted above has to borrow each year in order to maintain its spending level. Imagine the condition of your family if you borrow ed 6 times the amount of incremental spending each year. Then imagine the condition of your family after forty years of continuously increasing your debt levels substantially in excess of your income.
It is impossible for a family without a printing press and a cooperative Federal Reserve to engage in such behavior. The government is different, you say? Surely it is, but not necessarily in a meaningful financial manner. Just as you would not survive such behavior, governments cannot either. History is full of examples of government collapses resulting from excessive debt and overspending. A printing press only provides the luxury of more time before the failure.
You may object that a macroeconomy is different from a family. Debt (parroting the political claim) makes an economy grow faster. The evidence shown to the right does not support this claim. Government reported GDP growth rates are shrinking as the debt expansion accelerates. Since 1965 the growth rate of the economy has been declining.
Even if you accept government GDP reporting, the chart to the right shows a trend this is pointing to an average declining standard of living. That point will be reached when the GDP growth falls below the population growth.
The US economy has been underperforming since the 1970s according to government’s statistics. That is after all the games have been played with these numbers. How much longer can these trends continue and what happens at the end? No one can reasonably answer either of these questions.
What Is Known And Not Known
Two things are known:
What would happen to GDP and the standard of living if borrowing were dramatically reduced? How much of the last $10 trillion in debt borrowed between 2000 and 2009 went directly into reported GDP? Is it possible that reported GDP for this period could have been $10 trillion lower? If there is indeed a monetary/fiscal multiplier as Keynesians insist, then results would have been worse.
Answers to these questions are speculative. Those in favor of more debt argue that a calamity would have occurred had the massive rise in debt and its accompany stimulative effects not happened. For the Paul Krugmans of the world, more debt and stimulus is always the answer. All problems look like nails when you own only a hammer.
Rapidly increasing amounts of debt since 1965 have been accompanied by falling rates of growth. One may speculate what this growth would have been with different rates of debt expansion. Whether the rate of debt expansion increased or decreased the rate of real GDP is moot. Economists can use their competing paradigms to duel over this issue, but cannot come to a conclusion that is acceptable to most.
Mathematics, on the other hand, is definitive. There are mathematical limits that control the ability to service debt. Once these limits have been breached, some amount of the debt will be defaulted on. The breach point is referred to as a debt death spiral. The US has passed this mathematical point and is in a death spiral.
The political class in America, either via misguided economic policies or a deliberate attempt to hide the true condition of the country, has put us here. They will continue to employ whatever policies they believe will keep things going for a while longer. The tragic ending has been cast. Economics cannot trump mathematics.
Republished from: Blacklisted News
Extreme Fear Is Reasonable
It is nearly impossible to convince people that an economic ending is likely, perhaps inevitable. It is beyond anything they have seen or can imagine. I attribute that to a normalcy bias, an inherent weakness of experiential learners. For many, accepting something that has not occurred during their time on the planet is not possible. The laws of economics and mathematics may shape history but they are not controlled by history.
The form of cataclysm and its timing is indeterminable. Political decisions continue to shape both. The madmen who are responsible for the coming disaster continue to behave as if they can manage to avoid it. Violating Einstein’s definition of insanity, they continue to apply the same poison that caused the problem. These fools believe they can manage complexities they do not understand. We are bigger fools for providing them the authority to indulge their hubris and wreak such damage.
Apocalypse In One Picture
The relationships in this graph are terrifying! Debt is shown relative to GDP. GDP growth has been one-third the growth in debt for the period. That is, the economy required $3 of debt to produce $1 more in real GDP. In recent years diminishing returns to debt required $6 of debt to increase GDP a $1. Whatever the benefits of debt, they have clearly diminished, almost to zero. Debt expansion has gone exponential in order to salvage the weak growth in GDP.
To put this into a perspective the average reader can understand, think of GDP as a household’s spending. The “family” depicted above has to borrow each year in order to maintain its spending level. Imagine the condition of your family if you borrow ed 6 times the amount of incremental spending each year. Then imagine the condition of your family after forty years of continuously increasing your debt levels substantially in excess of your income.
It is impossible for a family without a printing press and a cooperative Federal Reserve to engage in such behavior. The government is different, you say? Surely it is, but not necessarily in a meaningful financial manner. Just as you would not survive such behavior, governments cannot either. History is full of examples of government collapses resulting from excessive debt and overspending. A printing press only provides the luxury of more time before the failure.
You may object that a macroeconomy is different from a family. Debt (parroting the political claim) makes an economy grow faster. The evidence shown to the right does not support this claim. Government reported GDP growth rates are shrinking as the debt expansion accelerates. Since 1965 the growth rate of the economy has been declining.
Even if you accept government GDP reporting, the chart to the right shows a trend this is pointing to an average declining standard of living. That point will be reached when the GDP growth falls below the population growth.
The US economy has been underperforming since the 1970s according to government’s statistics. That is after all the games have been played with these numbers. How much longer can these trends continue and what happens at the end? No one can reasonably answer either of these questions.
What Is Known And Not Known
Two things are known:
- So long as borrowing increases faster than GDP, the ability to repay diminishes. That has been occurring for more than forty years and the differential growth rates have widened dramatically in recent years.
- Not borrowing at this pace would likely have decreased reported GDP dramatically. While that may have been a proper economic response, it is now politically impossible (or highly unlikely).
What would happen to GDP and the standard of living if borrowing were dramatically reduced? How much of the last $10 trillion in debt borrowed between 2000 and 2009 went directly into reported GDP? Is it possible that reported GDP for this period could have been $10 trillion lower? If there is indeed a monetary/fiscal multiplier as Keynesians insist, then results would have been worse.
Answers to these questions are speculative. Those in favor of more debt argue that a calamity would have occurred had the massive rise in debt and its accompany stimulative effects not happened. For the Paul Krugmans of the world, more debt and stimulus is always the answer. All problems look like nails when you own only a hammer.
Rapidly increasing amounts of debt since 1965 have been accompanied by falling rates of growth. One may speculate what this growth would have been with different rates of debt expansion. Whether the rate of debt expansion increased or decreased the rate of real GDP is moot. Economists can use their competing paradigms to duel over this issue, but cannot come to a conclusion that is acceptable to most.
Mathematics, on the other hand, is definitive. There are mathematical limits that control the ability to service debt. Once these limits have been breached, some amount of the debt will be defaulted on. The breach point is referred to as a debt death spiral. The US has passed this mathematical point and is in a death spiral.
The political class in America, either via misguided economic policies or a deliberate attempt to hide the true condition of the country, has put us here. They will continue to employ whatever policies they believe will keep things going for a while longer. The tragic ending has been cast. Economics cannot trump mathematics.
Republished from: Blacklisted News
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