Although I’ve never discussed “The Cocktail Party” with anyone, I have a pretty good idea of how Jim felt. Back in a more recent day, back in the go-go nineties, more or less, there was a near-endless outpouring advice from Wall Street experts on what was hot and what was not, on how, if you just trusted to “efficient markets,” well, you couldn’t lose, because markets know everything and they never make mistakes, because they can’t afford to. The competition forces the players to be honest! The market is self-disciplining and self-cleansing, not because anyone “wants” to be, but because everyone has to be!
Well, a lot of people believed that, and a lot of people invested in whatever was being hyped, from “Pets Dot Com”* on down. And then, of course, the day of reckoning occurred. The chorus that followed the descent was somewhat different. “You believed what you heard on the Street! You’ve got to be kidding me! Nobody believes anything they hear on the Street! It’s all jive! Everybody knows that!”
This is the tune that Matt Levine is pumping out at Dealbreaker, in a post headed Same Old Boring Story” regarding the Libor scandal, updated here under the longer title “The City of Baltimore Didn’t Need to Subsidize Your Mortgage Through Libor,” the point being that suckers civilians (usually) had a choice as to whether to rely on Libor, other options (usually) being more expensive, because they were less risky. Matt’s second piece backs away, a little, from the argument made in his first piece, that “everyone” knew the Libor rates were phony. Over at AllAboutAlpha.com, “cfaille” has a mercifully short tick-tock making the same point, in less hyper language than Matt, and with more awareness that the “everyone” Matt refers to means “everyone who’s cool”—that is, about .003% of the world’s population. And I wonder—sometimes—when a story like this breaks, Matt doesn’t say “I knew that! I did! I’m cool!”
Afterwords
The grandaddy of the “everybody knew” riff came in the Great 2007-2008 Massacre, when we learned, ex post facto, that “everyone knew” that the Big Three rating services—Moody’s, Standard & Poor’s, and Fitch—were, well, you know, captives of their clients and were consistently under-rating the risks of securities issued by their clients. Except that in this case it was the Street itself that was the sucker, and, while little suckers go under, big suckers get made whole, particularly if Tim Geithner is around. Maybe Matt felt that all the bailout activities during the crisis were misguided, that the “bad companies” should have been allowed to fail, in which case I would applaud his consistency, though not his judgment.
*A sure thing because “Pets can’t drive,” if you remember.
