07 December 2007

Greenberg: Man of the Year?

I love the website Dealbreaker, a purveyor of shameless Wall Street gossip, low-brow humor that may or may not have a finance-industry connection, and once in awhile, an actual thoughtful entry about some matter of public contemporary concerns.

In fact, as soon as I saw our fearless leader, President George Bush II, and Treasury Secretary Paulson, on television spelling out their plan to solve the subprime-mortgage-related credit crunch, I thought to myself, "I wonder if the folks at Dealbreaker are going to have anything to say about this?"

They didn't disappoint me. In accord with my usual plundering impulses, their thoughts are copied and pasted below.


"First of all, let’s call it what it is: a massive bailout.

"Second, let’s see how it works: price controls.

"Third, let’s not pretend that this thing will stay as small as it started. When was the last time a government program ever did that? With defaults accelerating in every type of residential mortgage, there will be intense pressure to expand the program. Recall that we’ll very likely have either Hillary Clinton or Barrack Obama in the White House next year, with Democrats continuing to control the House and Senate. Do you still think the parameter’s of the freeze won’t expand?

"Fourth, let’s notice that the Bush administration is being just about as dishonest about this as they can get away with. They’re denying it’s a bailout. Denying it operates through price-controls. In fact, they’re denying they had any serious role at all. They just brought the parties to the table. Not even the editorial board of the Wall Street Journal buys that line.

"Fifth, let’s stop pretending we actually know what the costs of the bailout will be. It’s going to take quite some time to learn exactly how this will all work out. But we’re none too satisfied that the folks putting this together have even asked the right questions much less arrived at persuasive answers. What’s the moral hazard risk that future homeowners will also look for government bailouts? What investors demand as the price for taking on the risk of a bailout in the future?

"Sixth, can 'Mortgages' be named Time Magazines Person of the Year?"


Brilliant. I endorse every word of it. Well ... I endorse the first five. I think Time ought to abandon its bad habit of naming a gimmicky evasion as POTY. It should name an actual person, not "you," or "the computer chip," or "the planet Earth."

With that thought in mind, let me propose a POTY for TIME. Herb Greenberg.

Novastar Financial has had as much to do with the blowing up of this credit bubble as any single privately owned institution you might name. And Herb Greenberg flagged Novastar's problems years ago, as early as January 2004, and has rigorously pursued them every since. He rocks, too.

Greenberg is the Smith/Emshwiller of the subprime-mortgages story. Put him on the cover of Time.

For those not familiar with the Novastar story, let me just say that it has spent most of 2007 flirting with a stock price of zero, although it has received various sorts of rescue that have so far kept it solvent. Early this year, one of the company's long-time fans, a fellow who had created a website exclusively for the promotion of this company's wonderfulness, lost faith. He posted the following swan song:

"This will be probably my last writing here. Like most long NFI investor, I am shell-shocked after the conference that took place yesterday, and quite annoyed that I participated in the collective hallucination that led so many into such a disaster. Yes, hallucination, or more to the point, collectice delusion, a variant of the latter."

And there was more in that line.

It's sad to see faith die. But of course the stock markets aren't the place for unreasoning acts of faith in the first place.

The Paulson plan is, along with everything else one might say about it, another rescue for Novastar. A rescue for a "collective delusion". The federal government will get behind belief in tinkerbell and keep her flying for awhile longer.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.