Entrepreneurs, Investors and Financial Engineers – Not All are “BusinessPeople”

Posted on October 17, 2012

From blogmaverick.com by Mark Cuban:

The Cause of Bubbles =Investment vs Financial Engineering

Oct 11th 2008 3:12PM

Let me get this straight. In 2008, funds trying to squeeze out another basis point or two thought they were being conservative buying insurance on heavily leveraged portfolios of sub prime loans and other debt. Once those loans started to default, it created a cascading deleveraging event which lead to major financial institutions failing and the “smartest” minds on Wall Street being forced to dump everything to raise cash, which in turn lead to a crisis of confidence and deleveraging that created the worst week in the history of the stock markets. Did I get this right ?

In 1987, funds, trying to squeeze out another basis point or two thought they were being conservative, buying insurance on leveraged stock portfolios. Once the stock prices on those portfolios started to drop, their insurance programs pushed them to dump everything AND sell stock index futures to raise cash, which in turn lead to a crisis of confidence and deleveraging that created the worst single day melt down in the history of the stock markets. Did I get this right ?

Think it wont happen again ? Of course it will. Whatever money the Fed makes available to stimulate the economy will be used, as intended, by entrepreneurs and businesspeople to create and grow businesses.

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