What’s going wrong in the financial sector is not so unusual after all.
One of the funniest moments in the great credit crunch of 2007 came in the summer.
“We are seeing things that were 25-standard deviation events, several days in a row,” said David Viniar, CFO of the smartest financial firm in the world, Goldman Sachs (NYSE: GS).
That Viniar. What a comic.
According to the Goldman Sachs mathematical models… August, Year of Our Lord 2007, was a very special month. Things were happening then that were only supposed to happen about once in every 100,000 years.
Either that… or the Goldman Sachs models were wrong…
We recall looking out our window. Outside, we saw a summer day much like any other. And inside, what we saw in the news was also rather typical – a credit crunch. No, credit crunches don’t come along every day… but nor do 100,000 years separate one from another. In the United States, recently, we have had the crash of the dotcoms, the crash of Long Term Capital in ‘98 and the crash of ‘87; outside of the United States, there have been a number of credit crunches, in Japan, Russia, Mexico and various Asian countries.
When you make loans to people who can’t pay the money back, trouble is only a couple standard deviations away. So far, during the first eight months of 2007, some 1.7 million houses have been caught up in foreclosure proceedings in the United States. That is just the beginning. According to Congressional estimates, up to 2 million families are expected to lose their homes over the next two years.
Read more
