Black Knightian Swan Risk Management

Tuesday, September 18, 2007
The market reacted to the Feds half point cut rather vociferously today. Don't those traders read the horrible news about the foreclosure rates? What kind of irrational exuberance cheers the market when we all know that the record foreclosure rates of August will surely be surpassed in September and October and... well, who knows?

The House rose to the bait with even more alacrity than did Bernanke, tossing in $300 million in low income grants - undoubtedly 'for the children'. I can understand members of the House having difficulty understanding the concept of 'moral hazard'. After all, neither dead girls nor live boys are involved. Bernanke is another matter. 'No pain' bailouts draw additional risky behavior as a light draws moths. The Fed really isn't supposed to be so easily suckered and they might have waited for at least one big lender to go down the tubes before wading in.

I would have to imagine that the clever lads who came up with the concept of the 'no doc' mortgage are already working on another clever scheme. That one will undoubtedly be the 'real' Black Swan.

Or not.


Luther McLeod said...

Yeah, you're likely correct Rick. The readers of the tea leaves are reading them before the cup is empty, while they still swirl.

I suppose it is plain ol fear driving these decisions. Both Bernanke and Congress. Neither, for different reasons, willing to bite the unpalatable bullet.

Doug said...

How will the markets absorb this?
New York Times to end paid Internet service
The power of the Internet prevails.
Now you can not read Maureen Dowd for free.

Doug said...

"The number of subscribers met the paper's expectations, Schiller said.
"We consider TimesSelect very successful,"
she said."

"We now believe by opening up all our content and unleashing what will be millions and millions of new documents, combined with phenomenal growth, that that will create a revenue stream that will more than exceed the subscription revenue," Schiller said.

Doug said...

Murdoch makes case for free WSJ online

Knucklehead said...


I don't understand why you can't just let the press drum up their catastrophe. The poor dears haven't gotten their hurricane yet this summer... the floods just can't seem to keep audiences rivetted... no great swarms of tornados knocking down entire towns...

Why must you be so analytical and skeptical? Professional Apocalypsians must forecast apocalypsis (apocalypsi?). (Perhaps there can be only one?)

Rick Ballard said...


We had a real, honest to goodness, Black Swan on September 11 and the market absorbed it. The hoopla about the real estate bubble in what amounts to portions of four states (CA, NV, AZ and FL) is, IMO, a concerted attack on the Republican strategy of an "ownership" society. There is no question that the no doc mortgages exacerbated a localized phenomenon but the market has been pricing in the uncertainty for some time.

Anyway, if it weren't for the political angle, I'd probably let the announcements of the coming of the Four Horsemen pass without comment.

I, too, know the horror of the blank page.