Many mistaken assumptions about the 2008 financial crisis remain in circulation. As long as policymakers believe the crisis was rooted in the housing bubble rather than human psychology, another crisis will be inevitable.
.. Recall that by mid-2008, home prices had returned to, or even fallen below, levels supported by their underlying fundamentals, and employment and production in the residential construction industry had declined to levels far below trend. The work of rebalancing asset valuations and reallocating economic resources across sectors had already been accomplished... To be sure, there still would have been around $750 billion worth of financial-asset losses in the form of defaults on subprime mortgages and home-equity loans. But that is only one-quarter of what global equity markets lost in seven hours on October 19, 1987. In other words, it would not have been enough to sink the global financial system... Ben Bernanke, then Chair of the US Federal Reserve, seemed confident in the summer of 2008 that the correction in housing prices had not triggered any unmanageable financial crisis. At the time, he was mainly focused on the dangers of rising inflation... And then the bottom fell out. The reason, Gennaioli and Shleifer show, is that beliefs changed.
- Investors came to believe that financial markets were saddled with highly elevated risk, owing to a number of factors.
- The interbank market had seized up,
- homeowners were defaulting on their mortgages,
- Bear Stearns had collapsed,
- the US Treasury had intervened to rein in Freddie Mac and Fannie Mae, and, above all,
- Lehman Brothers had declared bankruptcy.
.. All of this led to the sudden run on both the shadow and non-shadow banking systems, as investors scrambled to dump assets. The increased risk that they had imputed to the system became a reality... And yet nothing about the fallout from the crisis was inevitable. Had the Fed been in possession of contingency plans for putting too-big-to-fail institutions into receivership and becoming the risk-bearer of last resort, we would probably be living in a very different world today... Gennaioli and Shleifer’s second important contribution is to show that “crises of beliefs” like the one that precipitated the disaster of 2008-2009 are deeply rooted in human psychology, so much so that we will never be free of them... Crises of belief are manifestations of a chronic condition that must be managed... When fundamental beliefs have shifted permanently, one should not expect the same policy mix that supported full employment, low inflation, and balanced growth before the crisis to do so afterwards... For a decade now, people have been looking for a silver lining to the disasters of 2008-2018, hoping that this period will bring about a more productive integration of finance, behavioral economics, and macroeconomic orthodoxy. So far, they have been searching in vain. But with the publication of A Crisis of Beliefs, there is hope yet.
Did Trump run in 2016 mostly to boost his business profile? Adam Davidson says yes.
There are lots of details and surprises to come, but the end game of this presidency seems as clear now as those of Iraq and the financial crisis did months before they unfolded.”
We are now in the end stages of the Trump presidency.” What is it that’s gone on in the last few weeks or months that’s made you think this?
Adam Davidson: For a year and a half now, I’m one of several reporters who’ve been studying intently Donald Trump’s businesses, his relationships with people around the world. And as a rule, this group of reporters finds it increasingly shocking just how flagrant the Trump Organization was in dealing with some of the shadiest—frankly, in cases, purely evil—people who made their money in wildly illegal and corrupt ways.
I do think most Americans, including Trump’s hardcore supporters, have a general sense that this is a guy who isn’t going to be a stickler for the rules, and has probably done some sort of technically illegal things or shady things. But I don’t think the full lawless and also kind of pathetic and lame nature of the Trump business has entered the national narrative in the way I think it should.
.. I’m suspecting, but I can’t say for sure—that Michael Cohen will have recordings or emails that show that the Trump Organization knew they were basically helping fairly evil people continue their crimes by putting the Trump brand on their projects so as to make them less suspicious, I think we’re going find it very hard for an awful lot of Republicans to support... Do you think Donald Trump is a good businessman, as a businessman, setting aside ethics?No, definitely not.
Why?
He has, in sort of financial terms, either lost money or certainly barely made money over the course of his career. So if you start with control of $200 million of your father’s money, and one alternative is you just invest that safely in the stock market, and the other alternative is you do whatever business you do, he has lost compared to that sort of benchmark, at least for much of the time frame that he’s been in business.
So that is just a sign of, “OK, he’s a rich man,” but it’s different to start as a rich man and end up as sort of roughly exactly as rich. That’s less impressive to real business people.
.. The other thing is, especially in the real estate industry, you want to see someone amassing wealth—that over time, their holdings, their empire, is bigger, not smaller, and they’re not going to be taking as wild a risk as they were when they were younger because they’ve been able to amass a kind of sustainable wealth, a bundle of assets that are really worth something.
We certainly see that. There’s certainly plenty of people in New York real estate who, over the course of Trump’s career, have done exactly that. He hasn’t. He’s this brash guy doing big, loud projects in the 1970s, and he’s a brash guy doing less big, less loud projects in the 2000s, and by 2010, he’s basically a failed real estate guy who then starts a new career as, basically, a pitchman.
.. he’s richer than I am, and I know his followers seem to see that as really relevant. But if you look at his peers, if you look at any sensible benchmark, this is not a guy who’s really impressing a lot of people.
.. Regardless of how many bankruptcies he had, or how he’s compared to other real estate developers, he made himself into a universally recognized brand. It seems to me that even most of us who were given $200 million of our father’s money could not do that, so I’m wondering what you think that is and how you think that fits or doesn’t fit with what you say is his not-very-good business sense.
.. Over the course of Donald Trump’s life, branding has become much more central to how American businesses strategize, how they measure their success, etc. To say the obvious thing that everyone points to, Coca-Cola is sugar water that has the Coca-Cola brand on it. But even Boeing and others are very aware of the brand as a central part of their value, and we’ve learned a lot about how to manage brand.
Brands are a new thing. They’re commonly understood to have started probably with Ivory soap, maybe 130 years ago—1879, I think—and have developed into one of the central tools of American business. I think there’s been a dramatic sea-change over the course of the ’70s and ’80s and how we manage brands, how we think about brands.
If the test is simply, “Have people heard of it?” then I guess a lot of people have heard of him. But if the test is, “Has he been able to monetize that brand? Has he been able to turn that into real brand value and sustaining brand value and growing brand value, so that each year the brand itself is worth more?” that is not the case.
.. There are, I think, 14 Trump hotels in the world, and that’s a fairly stable number. When you look at the projects that he’s been doing over the last decade, there was an attempt at a Trump Baku, Azerbaijan, an attempt at a Trump Mumbai, an attempt at a Trump Uruguay. It’s nothing like the incredible expansion of Four Seasons or Ritz-Carlton.From a branding standpoint, it’s a pretty pathetic business, and we saw that in the just throwing his name on anything, no matter how peripheral or lousy the product is. I think one of the many things we can learn from Trump support is that a lot of people conflate fame with success, and trappings of wealth with actual wealth.
.. [Michael Cohen’s ] main job was not as a lawyer of any kind. His main job was as a deal-maker, as a guy who would travel the country and the world looking for possible projects, looking for partners who might want to get the Trump name on their hotel or buildings.
Within the Trump Organization, that was a very clearly distinct role—the deal-maker versus the lawyer role—and that was his primary role. So the reason I think he’s so significant is there’s this period of very rapid expansion into these overseas licensing deals. It’s sort of remarkable. Between 2006 and then really speeding up in 2010, ’11, ’12, into 2016, they’re just going all over the world. By “they,” I mean three people—Don Jr., Ivanka, and Michael Cohen—and they are signing deals with really famously corrupt people in famously corrupt parts of the world, doing virtually no due diligence that we can tell or that they can claim, and taking some enormous legal risks, all the while saying, “Well, we didn’t know they were bad. We didn’t know the details,” etc., etc.
.. So he will have the email traffic that will tell us what, exactly, is happening. What, exactly, did they know about these partners? How aware were they of these partners’ illegality? Or how careful were they to not know? Because in an American law, being deliberately … it’s called willful blindness. So if I do business with you, and you constantly show up with all the telltale signs of a notorious criminal, and I never ask you, and I ask everyone not to tell me, that’s deliberate ignorance. That’s willful blindness and that’s, essentially, legally the same as actually knowing... We know the role Michael Cohen played in trying to get a Trump Tower built in Moscow several years ago. You’ve been looking at the Russia story and at the Trump business story, and earlier you referred to journalists who are on the beat of the Trump business story. To what degree do you think that these are going to eventually meld and become the same story?
.. I think the bigger story is the Trump business story, and the Russia stuff is a subset of that. Look, Donald Trump is somebody who’s been trying to score big through business since the 1970s or 1960s. He’s a guy who’s been trying to make it politically for a couple years. So I’m pretty sympathetic to the argument that this really was not a presidential run. This was an effort to burnish his brand, to sell more properties around the world, and specifically to get a Trump Tower Moscow. I think that was a major, major goal for Donald Trump for reasons that still don’t quite make a lot of sense.
.. When the Paul Manafort charges broke and it became clear how much illegal activity he was engaged in, separately from his work on the Trump campaign, it was pretty striking that a guy like this could go around, and commit this many financial crimes overseas, and still be a lobbyist and work in Washington. Have you been shocked at how much white-collar crime seems to go unprosecuted or investigated until it is closely examined?
Yeah. It’s been really upsetting. I think one of the key lessons of all of this is just how little we prosecute white-collar crime in general, and particularly international white-collar crime
.. I will say, even in that Trump is an outlier, that the Trump Organization took risks, did work with partners that very few Americans would ever consider working with. So I don’t want to give the impression that he’s just run-of-the-mill, he’s just like everybody else, because that’s something I hear a lot, and that always drives me crazy. He’s not.
.. That’s not because, necessarily, all business people are moral. It’s because business people are supposed to be good at balancing risk and return. Take the Mammadovs that he did this deal in Azerbaijan with. As far as we can tell, Trump made $5 million or so from that deal. If he had done his due diligence and if he had learned, as he would have, that they were likely to be money laundering partners of Iran’s Revolutionary Guard, he faced a life-changing amount of fines and potential criminal liability. If you’re a billionaire, as he claims, then you shouldn’t do that for $5 million. It’s an absurd risk to take. It makes no sense at all, and we see him taking such risks again and again and again. So he really is an outlier. He’s not like everybody.
The other risk from Trump’s talks with North Korea
The fact is, establishing the outlines of a “grand bargain” has never been the hard part. Indeed, the George W. Bush administration negotiated a joint statement in 2005 containing some of the key elements. The hard part has always been nailing down the specifics and enforcing them. Trump and Kim would just leave that to their respective teams, a process that would inevitably involve years of motion with little movement, and ample opportunities for deadlock, breakdown and North Korean cheating.
.. Trump’s supporters, starting with Fox News, would rapturously applaud the outcome, without pausing to remember that they relentlessly attacked President Barack Obama for far more rigorous agreements. Trump’s critics would undoubtedly temper their opposition, because the alternative is catastrophic war. And while Bolton would hate this approach under a different president, he may like the politics of it for Trump for now — and figure that he can press for military action later.
But here’s the rub: There is a real risk that this kind of outcome would work much more to Pyongyang’s advantage than Washington’s.
.. Our partners would take their foot off the sanctions gas, even if our concessions were meant to come later. After a grand, but premature, Trump announcement that he has “solved” the North Korea nuclear issue, South Korea would naturally accelerate its engagement with the North, including its economic ties. China, fearing that U.S.-North Korean engagement would weaken its hand, would scramble (even more than it already has) to offer incentives to increase Beijing’s influence with Kim.
.. we might not even get the full benefits of a freeze on North Korea’s capability. We know North Korea has a history of promising big and then working in secret to advance its program.
.. And since the Trump administration has deliberately degraded our diplomatic capacity and nonproliferation expertise — and Trump won’t be paying attention to what happens after the cameras are turned off — Pyongyang would enjoy an advantage in the period following a summit.
.. North Korea, in this scenario, would be implementing a new version of its old playbook: Make a series of promises in exchange for economic breathing room — and break them later. This could easily raise the risk of war in the medium term.
.. It’s an argument against approaching the summit with politics and pageantry in mind, rather than hardheaded practical concerns.
.. Congress should press Mike Pompeo during his confirmation hearing for secretary of state to acknowledge these risks and account for how he would intend to deal with them
.. Trump won’t be thinking about the risks, only about the political reward. It is up to the rest of us to hold him accountable to deal with the reality
Plane Travel Less Risky than Choking to Death on Pretzel
You are more likely to choke to death on a pretzel than to die in a plane crash. With just one fatal accident for every 16m passengers flown, 2017 was the safest year ever for air travel. But one area of concern relates to the danger that drones pose to aeroplanes. A recent report found that drones buzz too close to planes about 250 times every month. Although light, they are capable of harming an airliner’s engine, wing or windscreen