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Old 03-01-2009, 07:38 PM
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http://www.slate.com/id/221234 (broken link)
From Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation by Daniel Gross

Leverage was like an elaborate pulley system that allowed us all—from the humblest consumer to the most exalted private-equity baron—to hoist a mammoth weight. Then, in 2008, the rigging broke. The large weight plummeted, propelled by the twin forces of mass and gravity. And it turned that the Dumb Money forces were as procyclical during a bust as they were during a boom. Just as pervasive overconfidence inspired reckless lending, sudden pervasive lack of confidence inspired a hesitancy to lend. The system shifted, seemingly overnight, from a posture of trusting everyone to a posture of trusting nobody. A bubble breaks, former Federal Reserve chairman Alan Greenspan said, when it becomes clear that long-term expectations are patently unrealistic. "The result of this is a dramatic 180-degree switch that goes from exuberance to fear." We go from an environment where anybody will lend any amount of money to anybody (2006) to one in which nobody will lend to any amount of money to anybody (2009).
The End of Dumb Money has been like a death—of dozens of institutions, thousands of careers, millions of dreams, and billions in value. As we grapple with the aftermath, we seem to be proceeding through the five stages of grief. First came denial, which was rampant throughout the system. Next came anger at the size and manner of the bailouts. Third, bargaining: Last fall, it was common to hear arguments that taxpayers might actually make money on the bailout. And around December, the fourth stage, depression, set in. It still lingers. I hope that is where it stops. For it would be a shame if we moved on quickly to the final stage, acceptance. There is nothing acceptable about what happened. This crisis was not a random, once-in-a-lifetime thing that fell out of the sky. It was a manmade product that turned out to be immensely toxic and damaging. And we'll be paying for the cleanup for a long time. We can and should get angry. We should also get smarter.
Suggestions for how to manage "the bubble next time" on page 2.
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Old 03-01-2009, 08:23 PM
Location: Santa Monica
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