Larry Summers on the cause and cure of financial crises

The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.

~ Lawrence H. Summers, "To fix the economy, fix the housing market," Reuters, October 24, 2011

Andy Grove on crisis and business

Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them.

~ Andy Grove

Jim Grant on the Hell that negative interest rates hath wrought

Dogmatism is foolish in this time of unprecedented wonders, but there's no law against opinions.  Here is our first opinion.  Because negative interest rates do not conform to human nature, as [Irving] Fisher demonstrated and common sense concurs, the market did not spontaneously produce them.  The central banks finagled them.

We have more opinions:

• The evil fruit of artificially low interest rates (even slightly positive ones) is an eventual financial crisis.
• Crisis will lead to still more central bank activism and, finally, to a loss of confidence in money itself.

~ Jim Grant, "The best economist on the lowest rates," Grant's Interest Rate Observer, July 26, 2019

Janet Yellen sees no new financial crises "in our lifetimes" (2017)

Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.

~ Janet Yellen, "Fed's Yellen expects no new financial crisis in 'our lifetimes'," Reuters, June 27, 2017

Commodore Vanderbilt on the nature of financial panics and the dangers of credit

I'll tell you what's the matter-- people undertake to do about four times as much business as they can legitimately undertake... There are a great many worthless railroads started in this country without any means to carry them through. Respectable banking houses in New York, so called, make themselves agents for sale of the bonds of the railroads in question and give a kind of moral guarantee of their genuineness. The bonds soon reach Europe and the markets of their commercial entres, from the character of the endorsers, are soon flooded with them...

When I have some money I buy railroad stock or something else, but I don't buy on credit. I pay for what I get. People who live too much on credit generally get brought up with a round turn in the long run. The Wall street averages ruin many a man there, and is like faro.

~"Commodore" Cornelius Vanderbilt, railroad tycoon, stock speculator and corporate titan, commenting on the Wall Street panic of 1873, as quoted in "The First Tycoon", by TJ Stiles

Jimmy Cayne on the collapse of Bear Stearns due to market forces

The market's loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy. Subsequent events show that Bear Stearns' collapse was not the result of any actions or any decisions unique to Bear Stearns. Instead, it was due to overwhelming market forces that Bear Stearns, as the smallest of the independent investment banks, could not resist. Only a few months after Bear Stearns collapse, the same market forces caused the collapse and near-collapse of much larger institutions such as Lehman Brothers. The efforts we made to strengthen the firm were reasonable and prudent, although in hindsight they proved inadequate. Considering the severity and the unprecedented nature of the turmoil in the market, I do not believe there were any reasonable steps we could have taken, short of selling the firm, that could prevent the collapse that ultimately occurred.

~Jimmy Cayne, former chairman and CEO, Bear Stearns, opening remarks in testimony given to the Financial Crisis Iniquiry Commission, May 5th, 2010

Alan Schwartz on speculation and rumor as the cause of the fall of Bear Stearns

During the week of March 10th, 2008, unfounded rumors and attendant speculation began circulating that Bear Stearns was in the midst of a liquidity crisis. Due to the stressed condition of the credit market as a whole and the unprecedented speed at which rumors and speculation travel and echo through the modern financial media environment, the rumors and speculation continued throughout the week. The rumors thus became a self-fulfilling prophecy and there was, simply put, a run on the bank.

~Alan Schwartz, former CEO, Bear Stearns, opening remarks of testimony given to the Financial Crisis Iniquiry Commission, May 5th, 2010

MoStan Asia's Stephen Roach on the increasing frequency of financial crises

The crises are coming with greater frequency. Over the last 25 years we have had an average of one crisis every 3 years. The gap this time is 18 months. The scale is bigger. This is a much more serious problem in the eurozone than it was in the late 90s with the the Asian financial crisis.

~Stephen Roach, chairman, Morgan Stanley Asia, Bloomberg Radio interview, May 10th, 2010

Myron Scholes on the importance of risk modeling

I haven’t changed my ideas. A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

~Myron Scholes, 1997 Nobel prize in economics winner, "Crash Course", NYT Magazine online preview, May 5th, 2010

Michael Pollaro on the link between interventionism and financial crises

You may be wondering – forget the 1930’s, these policies of Bernanke, are they not the same interventionist policies pursued only recently by former Federal Reserve Chairman Greenspan, the kind of policies that preceded not only the recent Housing Bust and Credit Implosion, but the Savings and Loan Crisis, the Peso Crisis, the Asian Crisis, Long Term Capital Management and the Tech Bust too.

The answer of course is yes.

You even may have noticed a disturbing pattern; that being, each crisis begets a larger interventionist response, yet before long we find ourselves in the midst of the next, even bigger crisis. You may then be tempted to conclude that despite repeated and ever growing monetary largesse, despite repeated and growing government intervention in the economy, the crises are getting bigger and bigger and bigger.

~ Michael Pollaro, "Ben Bernanke, Worthy of Person of the Year?," True/Slant, January 4, 2010

Bill Fleckenstein on clueless money managers

So much in the investment business is about marketing. I see people with horrendous strategies and horrible numbers and they're still running zillions of dollars! I mean, how can anyone have any money at all with someone who was loaded with financial stocks in 2008? If they owned financial stocks they basically have a neon sign on their forehead that says, 'I DON'T GET IT! I don't understand the financial crisis.' Or housing stocks or anything like that. If you didn't understand the biggest bubble in the history of the world, why should you be allowed to run money?

~ Bill Fleckenstein, interviewed on King World News, January 23rd, 2010

Jesse Eisinger: "Free-market ideology is in the process of imploding"

Crises create opportunities for political realignment. After years of chasing the New New Thing, we now need, in the phrase of the moment, a New New Deal. We have had our decades of celebrating financial deregulation and a Federal Reserve chairman, Alan Greenspan, who genuflected at the altar of the free market. But now Big Government has rushed to bail out banks and investment institutions. Free-market ideology is in the process of imploding. Liberals have longed for an opening to roll back what political scientist Jacob Hacker has called the "great risk shift."

~ Jesse Eisinger, "It's (Really) the Economy, Stupid," Portfolio, May 2008