scary us economic catastrophe article., page-6

Hi Tabitha,

It is an interesting read but I am not sure Paulson is a long term mastermind like the article says. Personally, I think he looks nervous and worried these days in his demeanor - not something easy to fake.

I think Napolean has some sage words "Never subscribe to conspiracy that which can be explained by incompetence". I think this is a fairly apt statement for most of George W Bush's reign.

On the other hand.....

I have often thought, surely these guys can't be this dumb. They must all know how this is going to end. History has been full of credit induced bubbles that end in tears - what endgame are these guys aiming for?

However, if that were true, you would not be able to have so many companies go under all at once. The reason being that individual companies act in their own self interest and not in the interest of the entire system. The fact that so many were not able to anticipate this probably means they actually thought the rules were different this time.

My father told me a funny story about a movie he watched back in the 50's. Horse racing was popular back then and a lot of money was wagered at the track.

A common ploy was to have someone spread a rumor around the track while a bookie who was in on the rumor could make out like a bandit. The story went that a rumor was spread that number 3 in race 2 was a prized horse from interstate and that it would be sure to take out the race as a 200:1 long shot. The rumor morphed and twisted. Eventually the bookie that originally started the rumor heard the morphed incarnation and was so convinced by it he put all his money on the long shot. It came in dead last.

I think this is exactly what has happened in the US Banking sector. These guys made money on transactions costs at first but at some stage believed that the rules had changed and they could make money out of poor quality loans by taking them onto their books. It will be comical how stupid even the most intelligent people will seem after this all plays out.