Recommended. I didn’t know he was such a collector of jazz LPs.
The story of Gary Gorton and AIG
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As chief executive of Berkshire Hathaway Inc., which owns insurance companies, Warren Buffett has been sounding the alarm about the issue for years. Recently, he told PBS interviewer Charlie Rose: “All I can say is, beware of geeks…bearing formulas.”
What WB is saying is beware of geeks, because you sure as heck better beware of geeks NOT bearing formulas.
On a rainy morning last week, Mr. Gorton briefly discussed with his Yale students how perplexing the struggles of the financial world have become. About 30 graduate students listened as Mr. Gorton lamented how problems in one sector caused investors to question value all across the board. Said Mr. Gorton: “There doesn’t seem to be a fundamental reason why.”
I’m not an economist, but it seems pretty obvious that the fundamental reason why is that the underlying assets were not worth what everyone was saying they were worth.
All you homeowners: remember back a few short years, when you thought housing prices were getting totally ridiculous, and at the same time hoping it wasn’t going to end?
Ah, the good old days.
Maybe Gary’s problem is that he didn’t have a father who was always a step ahead. Apparently that was all that James Galbraith needed to be one of the few economists that saw the crisis coming IN GENERAL TERMS. Read http://www.nytimes.com/2008/11/02/magazine/02wwln-Q4-t.html?partner=permalink&exprod=permalink
Surely if an engineer had provided professional services that had resulted in a catastrophic failure of the kind described, that person would become unemployable, their career and professional standing in tatters (there might also be legal consequences).
Yes, but that would have caused something like housing to collapse.
p.s. Words chosen intentionally for greater effect.
p.p.s. I happen to be an engineer in just such a field where this is a concern. My company happens to take out insurance, and hire lawyers for just such instances. Ha!
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