Happy Father’s Day to all my readers and their dads.
My gift today was a babysitter so I can go see The Hangover in the theater with Mrs. TRB.
Just caught this article in the New York Times business section this morning, it’s Ben Stein musing on what his father would have thought about the current state of the economy and comparing the current crisis to the Drexel Burnham Lambert/ Michael Milken junk bond scandal, which Stein became very intimate with during his investigation.
Here’s a bit:
That colossal machination worked because Drexel and its colleagues were able for a while to deny the real default rate of the bonds. By persuading the markets that the bonds defaulted at a rate substantially less than the real rate, the sellers of the junk could demand and receive a higher price for several years. When the real default rate became known, as it inevitably did, the bonds collapsed in value.
The subprime crisis was essentially the old junk-bond scam on supersteroids, with nuclear weapons thrown in.
Collateralized mortgage obligation bonds were sold as having far lower risk of default than was really true for the subprime mortgages within them. This was bad enough. But those bonds were also booby-trapped by being attached to credit-default swaps, like a Viet Cong trap in Quang Tri province in 1971.
Stein, while not always correct in his market prognostications over the years (who has been?) is one of the more interesting commentators. Take some time to read his piece today. Yeah, couldn’t resist running the Ferris Bueller’s Day Off clip of him as the econ professor, still funny.