Barry Ritholtz interviewed by Danielle Park last Augest. Ritholtz never disappoints. There is more discussed in the interview (embedded below) than what is contained in these notes:
Characterizing the real estate market in 2005: The R.E. market in 2005 was basically "Renting with an option to default."
Why Experts Failed to see the Train-Wreck Approaching: There are 2 groups of individuals who are unable to see the obvious: Group 1 is made up of people whose income is dependent upon not seeing it. The entire financial industry, from brokers, to underwriters, to syndicators, all the way up the chain. Everyone whose salary is dependent upon perpetuating the nonsense will be unable to see the writing on the wall. Group 2 is made up academics and economists. Academics and economists are just not very good. The entire economics profession is based on a fallacy: that people are rational decision makers when it comes to economics. That's just not true; human being are emotion-driven, cognitively-challenged, error-prone creatures.
Ritholtz's response to a Lehman team's assertion, in 2004, that they were offering an investment that was just as safe as US Treasuries, but with a much higher yield: Either you guys are going to win a Nobel Prize or you will be wearing orange jumpsuits picking up trash on the side of the highway - because you will be in jail. Either it's alchemy - you have created gold out of dross - or it's just nonsense. Obviously it's much riskier than treasureies. Yet the bond traders ignored it.
On the Ratings Agencies: The ratings agencies are corrupt criminals who should all be in jail. They sold their ratings to the highest bidder. They should all be put out of business. They are an entirely corrupt group. Frankly, I don't understand why they have not been Arthur Andersoned. There is no reason for them to continue to exist. The fact that they were one of the prime causes and have suffered no ill effects, is astonishing. As corrupt as they are, government and Congress are even more corrupt. Congress is on the bankers' payroll.
On Investing in a Marco-Economic Disaster: Nothing has been fixed. We have the same problems and some new ones - like high frequency trading. But from an investor's perspective, you can't get too caught up in it. If you get too involved in what happens in DC, you will miss what happens in the broader economy. If you just look at headlines, you would never own an Apple or Google because the world is going to hell. But headlines have always said the world is going to hell.
Investing Rule #1: Always have an exit strategy. When the wings are falling off and the engines are on fire, that's not the time to grab the safety pamphlet.
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