Who called out the financial practices which were instrumental in causing the financial crisis before the writing was really on the wall? I am not talking about the usual suspects who are always predicting financial collapse for ideological reasons, but rather those put their money where their mouth was.
Thanks,
Rob
Gabriel Kolko wrote an article predicting a meltdown, around 2004. I’m trying to find it now. I’m sure there are much earlier ones, though.
For one, Nouriel Roubini, a professor of economics at New York University.
I’m reading The Black Swan now, which was written in 2006 and published in 2007. Though not the earliest, Taleb got the causes of the meltdown so scarily right you’d swear he wrote it after.
I was going to suggest him, but I think he might fall under the people always predicting crises. Yes, I know it’s more complicated than that. Either way, the people who predicted the crisis the earliest are not always those who made a lot of money. There is a saying that the market can stay irrational longer than you can stay solvent. So even if you predicted a crash pretty early on, you would have needed to time your bets as well, and to have had access to people who wanted to bet against you. That said, here is a short list of well known people who predicted the crash:
Investors
Academics
Two names to add to that, under academics:
Garry Schinasi
Gabriel Kolko
This, from 2004, was brought to my attention today. It doesn’t specify enough to qualify for the OP but it still is an interesting read, focusing on “securitisation” about midway.
Brooksley Born also warned about the derivatives market back in the 1990s. Probably should have listened to her, but what do girls know about these financial things?
Nouriel Roubini was not only predicting that the housing bubble would burst and wreak havoc in the financial system back in 2005-2006, he was also predicting that Italy might have to leave the Eurozone “within 5 years” if it did not institute serious economic reforms. I’ve read traders deriding Roubini, with the criticism essentially being that if you constantly predict a crisis, eventually one’s going to happen and you can claim you were right, but if you’d actually put your money where your mouth was you’d have lost it all. But nevertheless I think those predictions are so startlingly accurate it’s hard to dismiss them as guesswork.
Peter Schiff gave a speech to the Western Regional Mortgage Bankers Association meeting in November 2006 which laid it out pretty well. He was by no means the first to make such observations, but it’s entertaining stuff anyway. Part 1 of the speech.
Michael Lewis’s “The Big Short” details the stories of people who saw it coming and bet a lot of money on it happening. The OP’s characterization of them as “Cassandras” is extremely apt; for the most part people simply refused to believe them.
The earliest Cassandra he named is, I believe, Meredith Whitney, who not only predicted the bubble would burst but specifically predicted the death of Bear Stearns. Whitney’s famous report came out in 2007 but she had been sounding the alarm for years. CDO king Greg Lippmann had been predicting the disaster for years as well, and Steve Eisman had been shorting the mortgage industry for years before it actually fell apart.
It’s hard to believe that any of the Wall Street wizards didn’t know what was happening. They all knew, just as well as the list of whistleblowers in this thread, the mechanics of boom and bust cycles, and the dangers of overextending credit on too little capital, and the mistakes of the Great Depression.
I am tempted to say Roosevelt. He understood as presidents from Reagan to Bush (and most assuredly including Clinton) did not, that having unregulated financial institutions is a recipe for disaster. Incidentally, so did Adam Smith. He was all for free enterprise, but recognized clearly that it had to be kept free–by government action.
Lot’s of well placed people who worked on Wall St. knew with absolute certainty that the crash was coming at least 2 years or more before it actually happened. It was the subject of wide spread discussions at various social gatherings. Many of those people repositioned their portfolios to minimize the affects of the historic loss in value. I have heard numerous anecdotal examples of this from well-placed people. I have first hand knowleged of this, having attended a dinner party in 2007 with a fairly high ranking banker who proclaimed to all attendees that 2008 would be like nothing anyone has ever experienced. It was a clear and certain call to batten down the hatches at a time when the party was raging on and seemed like it would never end. It’s clear that the people who created and sold the valueless products knew full well what they were doing and approximately when to close up shop. Honestly, isn’t that the way things have always worked since the beginning of human history?
http://www.economics.arawakcity.org/node/257 Here is a story on Brooksley Born. The big financial whizzes like Rubin, Greenspan and Summers were really cruel to her in front of a congressional committee. They almost laughed at he naivete and treated her like a silly child. Many congressmen ridiculed her too. Thieves, all of them.