…in particular, the Clinton administration, which sought to make mortgage financing “more available, affordable, and flexible,” thereby encouraging borrowing by people ill-equipped to repay their loans. Clinton’s policies were embraced by his successor, George W. Bush, who was equally intent on promoting “the American dream” of homeownership among minorities and the poor.”, Robert Teitelman and Avi Salzman, “Review: The Big Short Falls Short”, Barrons, December 19, 2015

Review

The Big Short Falls Short

The movie scores high as entertainment, but fails the truth test by ignoring the government’s role in creating the housing bubble and bust.

By Robert Teitelman and Avi Salzman

December 19, 2015

Short Shrift: “The Big Short” fails to acknowledge the government’s outsize role in creating the housing crisis. Illustration: William Waitzman for Barron’s

As entertainment, The Big Short merits its rave reviews. Based on Michael Lewis’ book of the same title and directed by Adam McKay, this tale of the housing bubble that begot the financial crisis of 2008 is funny, fast-paced, and graced with appealing stars, including Christian Bale, Ryan Gosling, and Steve Carell.

In the accuracy department, however, The Big Short falls far short. The movie suggests that bankers securitized subprime loans and passed off this dross as gold simply because they ran out of higher-quality paper. But it ignores the fact that blame for the housing bubble begins not with Wall Street but with Washington—in particular, the Clinton administration, which sought to make mortgage financing “more available, affordable, and flexible,” thereby encouraging borrowing by people ill-equipped to repay their loans. Clinton’s policies were embraced by his successor, George W. Bush, who was equally intent on promoting “the American dream” of homeownership among minorities and the poor.

Incredibly, those who lost their homes are represented in the movie by a family of renters; it’s their landlord who defaults on the mortgage. Evidently, Hollywood dares not suggest that people who bought houses they couldn’t afford were responsible, even in a small way, for their fate. The movie’s creators might argue that their aim is entertainment, not education. But they are shaping perceptions of historical events in ways that could produce inadequate policy responses to future crises affecting the economy and markets.

— Martin Fridson

Martin Fridson is chief investment officer of Lehmann Livian Fridson Advisors.

Op-Ed

Working the refs on nutrition science

The federal government updates its highly influential dietary guidelines every five years.

(Getty Images / iStockphoto)

Jonah Goldberg

Have you heard? The GOP is declaring war on science again.

In February, a government-appointed nutrition advisory panel said Americans should eat less sugar and red meat. It also suggested that environmental considerations should factor into a healthy diet, which livestock producers understood as an attack on their industry.

Republicans in Congress think the guideline process is out of control and are now trying to rein in the panel. By their lights, nutrition scientists should concern themselves with nutrition — not sustainability. Critics say they’re pandering to special interests.

The funny thing is: Both sides may be right.

Who’s right? I lost nearly 50 pounds in part by cutting out carbs. That’s clear enough for me, but it’s also clear there’s a lot we don’t yet understand.-

For decades, the government has advised Americans what they should eat. The advice isn’t just advisory; it drives everything from school lunches and agricultural subsidies to marketing for those bowls of candy we call breakfast cereal. But the science behind this enterprise has always been shaky.

In “Good Calories, Bad Calories,” Gary Taubes chronicled how the federal government went all-in for a low-fat, high-carbohydrate food pyramid. The man most responsible, nutritionist and epidemiologist Ancel Keys, was convinced that America’s fat-rich diet explained the rise in heart disease in the U.S.

It was a plausible theory, but there was scarce evidence it was true. In 1957 the American Heart Assn. concluded that the correlation between fat and heart disease “does not stand up to critical examination.”

Three years later, the AHA reversed course, without any new evidence. Keys had simply taken over the relevant committee and asserted that “the best scientific evidence” was on his side.

Armed with a government grant, Keys went off to prove what he already believed. He launched the Seven Nations Study, comparing the diets of populations he cherry-picked. The study — surprise! — confirmed Keys’ thesis. Left unmentioned: Keys had data from 22 countries, and his correlations vanished in that sample.

No matter, the War on Fat had begun. Soon the federal bureaucracy joined the fight and kids were drinking that blue sugar water we call skim milk. Everyone had good intentions, but special interests protected their investments and experts protected their reputations. In 1984, the National Institutes of Health convened a “Consensus Conference.” Participants had to already be in agreement. No wonder they issued a consensus document that was then used to stifle debate.

In 1988, the surgeon general issued a report declaring ice cream to be a “comparable” public health threat to cigarettes. The science was settled.

Except it wasn’t. If you’ve been paying any attention, you’ve seen the stories about how fat isn’t necessarily bad for you, while carbs are the real enemy. Studies have found that more milk fat in your diet correlates with less heart disease. Who’s right? I lost nearly 50 pounds in part by cutting out carbs. That’s clear enough for me, but it’s also clear there’s a lot we don’t yet understand.

Given this history, you can see why Republicans in Congress are skeptical of the whole nutrition guidelines process and want to make sure the government’s scientific advice is actually scientific, not the reflection of some interest group. Environmentalists, to the GOP, aren’t politically pure — they want to advance their agenda just like everyone else.

On the other hand, you can see why critics think the GOP is politicizing, rather than de-politicizing the process. It looks to them as though the GOP is simply doing the meat industry’s bidding.

Regardless, Congress is right to revisit the guidelines and how they’re produced.

“There’s a lot of stuff in the guidelines that was right 40 years ago but that science has disproved…. [S]ometimes, the scientific community doesn’t like to backtrack,” David McCarron, the incoming chairman of the medical nutrition council at the American Society of Nutrition, told the Washington Post.

Even when everyone’s intentions are good, politics can get in the way of science. Special interests work the refs, but the refs often have an agenda as well. Winners of policy fights hate to lose — or admit they’re wrong. And people who shout about a settled consensus are often only shouting to drown out those who might disagree.

…For Messrs. Hopkins and Flannery, their rare victory has come at a price. Both denied wrongdoing from the moment the SEC alleged in 2010 that they misled investors in a bond fund during the run-up to the financial crisis in 2007. The SEC’s chief administrative law judge, Brenda Murray, tossed the case against them, only for the commissioners to find them liable on appeal after a 37-month wait. The federal court ruling this month on the men’s appeal said the SEC’s finding against them was “not supported by substantial evidence.” Mr. Hopkins, 64 years old, left State Street as a managing director after the firm offered him retirement as a result of the case, and he hasn’t worked in financial services since. On two occasions, he said, firms indicated they might offer him a job but needed to check with their legal departments first. “I never heard anything back,” said the Wellesley, Mass., resident. Mr. Flannery, 57, was a senior executive at State Street, managing hundreds of people and earning total compensation of more than $4 million in 2007, the year he left the firm, according to court filings. Since the SEC filed its case, the Scituate, Mass., resident has been effectively locked out of the investment industry, though he has done some work in renewable-energy finance, according to his lawyer.”, Jean Eaglesham, “SEC Appeals Process on the Slow Track”, The Wall Street Journal, December 22, 2015

Markets

SEC Appeals Process on the Slow Track

Regulator’s use of its own tribunal has coincided with longer delays in the handling of appeals

Since Mary Jo White became SEC chairman, the median time for the agency to decide appeals has increased to 19 months, nearly double the time of predecessors. PHOTO: ANDREW HARRER/BLOOMBERG NEWS

By Jean Eaglesham

After five years, four judges, three rulings, two appeals and the loss of their careers, John Flannery and James Hopkins this month won their legal battle against the Securities and Exchange Commission.

The former State Street Corp. executives’ long legal fight took place almost entirely in the SEC’s in-house court system, which agency officials have lauded as offering a fast-track alternative to federal court. In fact, the SEC’s use of its own tribunal, more frequent in recent years, has coincided with longer delays in the agency’s handling of appeals, according to a Wall Street Journal analysis of rulings stretching back a decade.

Since Mary Jo White became SEC chairman in April 2013, the median time for the agency to decide appeals of its in-house judges’ decisions has increased to 19 months, the analysis found. That is almost double the median times under her two main predecessors, Christopher Cox and Mary Schapiro. (The SEC didn’t decide any appeals while it was led by  Elisse Walter for four months before Ms. White took over.)

Critics—including former SEC officials, business groups and defense lawyers—said the SEC’s approach means defendants often lose both ways. The trial portion of the civil case moves much more quickly than such matters typically would in federal court, giving limited time to prepare for trial, and defendants then can wait years for the SEC to decide appeals.

“I can’t get those years back,” Mr. Hopkins said after being cleared of allegedly misleading investors ahead of the financial crisis. “But there seems to be no consequences for the SEC.”

An SEC spokeswoman declined to comment on the case, but said the agency has managed to cut the delays in the last couple of years by changing how it handles appeals.

The frustrations with the wait time on appeal are among several criticisms of the agency’s use of its own judges to try cases.

Using enhanced powers granted under the Dodd-Frank financial-overhaul law in 2010, the SEC under Ms. White has stepped up its use of its in-house court, including for serious matters. Themove has been controversial, in part because the agency’s five administrative law judges generally rule more often for the SEC than federal judges or juries, as documented in a series of articles in the Journal this year.

A key part of the agency’s argument has been that the internal tribunal is more efficient.

“I think we can all agree that it is better to have rulings earlier rather than later,”  Andrew Ceresney, SEC enforcement chief, told a legal conference last year.

Yet the agency’s briskness in deciding cases isn’t often matched when it comes to hearing appeals. Since Ms. White took over, the agency has regularly missed its own target—between seven and 11 months—to decide appeals after a filing, a goal that is elastic depending on the complexity of the case. The SEC has met the longer 11-month target in only about one in five of the decisions under Ms. White’s leadership, the Journal’s analysis found.

The target, which is nonbinding, was set in 2003.

The process works like this: If SEC commissioners agree to bring charges through the in-house court, the case is assigned to one of the agency’s judges. After the judge issues a ruling, both sides have the option to appeal. That appeal is heard by the commissioners, the same group that opted to bring charges in the first place. Defendants can seek to appeal that ruling in federal court.

Critics have accused the SEC of unfairness for using commissioners to hear appeals.

“The root of the problem [is]…you have the commission in the role of prosecutor and judge,” said  George Canellos, a co-director of enforcement at the SEC until last year, at a legal conference in Washington, D.C., last month.

Since the start of 2006, only three of 107 defendants appealing a finding of liability by an SEC judge have persuaded the agency to dismiss the case, the Journal’s analysis found.

It isn’t clear what is causing the delays, but critics said the push to send more cases to the in-house court likely worsened a logjam of appeals before commissioners.

“The wait for a ruling on appeal can be interminable and can also disadvantage defendants,” said Joseph Grundfest, a former SEC commissioner who is a law professor at Stanford University.

The SEC has taken steps, including streamlined procedures and additional staff training, to address the delays in the appeals process, according to people close to the agency. As a result, the median time for SEC commissioners to rule on in-house cases on appeal has fallen from 24.5 months last year to 15.5 months this year to date, according to the Journal’s analysis. “Under Chair White’s leadership, the time for resolution of cases before the commission has dropped substantially from the beginning of her tenure,” said an SEC spokeswoman.

The SEC in September also proposed a new target for deciding on appeals, giving the agency between eight and 10 months, as part of a wider overhaul of its in-house court. The proposal starts the clock when the briefs on the appeal are completed, rather than counting from when the appeal is filed, as happens now. The Journal’s analysis suggests that the change would give the SEC on average an extra five months than under the previous target.

Commissioners can only decide on an appeal after the briefs are completed, so the new benchmark is a better measure of how long the SEC is taking, according to people close to the agency. They added that some delays can be caused by defendants, such as requests for extra time.

James Cox, a law professor at Duke University in Durham, N.C., said most defendants are “blowing smoke” about delays and often want the process to drag on to avoid the coming punishment.

For Messrs. Hopkins and Flannery, their rare victory has come at a price.

Both denied wrongdoing from the moment the SEC alleged in 2010 that they misled investors in a bond fund during the run-up to the financial crisis in 2007. The SEC’s chief administrative law judge, Brenda Murray, tossed the case against them, only for the commissioners to find them liable on appeal after a 37-month wait. The federal court ruling this month on the men’s appeal said the SEC’s finding against them was “not supported by substantial evidence.”

Mr. Hopkins, 64 years old, left State Street as a managing director after the firm offered him retirement as a result of the case, and he hasn’t worked in financial services since. On two occasions, he said, firms indicated they might offer him a job but needed to check with their legal departments first.

“I never heard anything back,” said the Wellesley, Mass., resident.

Mr. Flannery, 57, was a senior executive at State Street, managing hundreds of people and earning total compensation of more than $4 million in 2007, the year he left the firm, according to court filings.

Since the SEC filed its case, the Scituate, Mass., resident has been effectively locked out of the investment industry, though he has done some work in renewable-energy finance, according to his lawyer.

…visually show us that The Fed really doesn’t know what it’s doing? How so? The Fed had rates at over 6% in 2000/2001 and when we experienced the Dot Com (NASDAQ/Tech) bust, they rapidly dropped interest rates to 1% by 2003 and kept them there for several years. Many economists, including at least one Nobel Laureate, blame these low Fed rates (a negative real interest rate, when inflation was taken into account) for instigating the U.S. housing bubble. The Fed then rapidly raised rates to 5% by 2007. Whether this contributed to the the U.S. housing bubble bursting is the subject of debate. At any rate, once the housing bubble burst and the financial crisis was upon us, the Fed abruptly lowered rates down to 0.00% to 0.025% by 2009, and left them there until December, 2015. The Fed has now raised them to 0.25% to 0.50%. Many economists, financial experts, libertarian and conservative politicians, and myself, believe The Fed has taken us on a financial and economic roller coaster ride, that has fostered asset bubbles and busts and financial and economic instability. This one simple historical Fed funds chart sure makes a strong case, doesn’t it? Think about it. What if in hindsight they had just kept the fed funds rate at say 2% to 3%, or so, during this entire period? My guess is we would have had fewer asset bubbles and busts and more financial stability. And over the entire period, its hard to say, maybe greater economic activity and employment (likely not worse). The Fed constantly trys to smooth economic cycles and its conflicting dual mandate (price stability and full employment) isn’t working. (Even highly-respected, former Fed Chairman Paul Volcker says the dual mandate is not possible or appropriate.) It’s time that the Fed focused solely on price stability and let the economy have normal business cycles, which are a necessary economic event and important to prudent lending/credit cycles. If the Fed can’t stop its manipulation of financial and economic activity, then maybe its time to eliminate these highly-fallible central government planners and let the free markets determine money and rates? At a minimum, it’s time for Congress to annually Audit the Fed, especially its monetary policies and practices. P.S. The only reason that Fed minutes are not made public until five years have elapsed, is professional embarrassment for sitting Fed officials. That’s not a good public policy reason.”, Mike Perry, former Chairman and CEO, IndyMac Bank

…but I understand what he has been through. It’s tragic that in America, if you are around big business failure (which happens all the time in a competitive free market…”creative destruction”), the government seems to always come after you, with a bias that wrongdoing must have occurred, and often accuse business people with false charges of negligence, fraud, etc.. I believe this hurts prudent business risk taking/entrepreneurship, our public capital markets, and our economy and jobs. It’s really nice to see that Mr. Quattrone has made such a successful comeback.”, Mike Perry, former Chairman and CEO, IndyMac Bank

December 20, 2015, Maureen Farrell, The Wall Street Journal

Tech

Behind Frank Quattrone’s Comeback in New Tech Era

Famed deal-maker is again in high demand, but controversy lingers from his dot-com days

Frank Quattrone leaving a federal courthouse in New York in 2003. His conviction of obstructing an investigation into how shares of IPOs were steered to clients was overturned in 2006. He launched Qatalyst Partners in 2008. Deals by the firm have brought in more than $1 billion of fees. PHOTO: GINO DOMENICO/BLOOMBERG NEWS

By Maureen Farrell

When Aruba Networks Inc. was considering a sale of the wireless-networking company to Hewlett-Packard Co. last year, the board of directors turned to an investment banker who made his name during the last technology boom.

Frank Quattrone worked for 4½ months trying to nail down a deal. But then there was a problem. H-P Chief Executive Meg Whitman refused to negotiate with Mr. Quattrone because he had been so difficult to deal with in previous deals, says someone close to Ms. Whitman.

Aruba brought in another investment bank to finish the $3 billion takeover agreement. That firm was paid $7.7 million for its work. Mr. Quattrone’s firm got $30 million.

In this new era of rising tech stars, the 60-year-old Mr. Quattrone is again one of the biggest deal makers, often beating competing bankers at much larger firms who are a generation younger than he is.

Mr. Quattrone is still controversial and still does business much as he did in the dot-com era. A relentless networker who isn’t shy about telling potential clients about the high prices he got in earlier deals, he also ruffles the feathers of adversaries by pushing beyond the usual rough and tumble of deal-making, according to some bankers and executives.

The strategy is so effective that competitors rarely even bother trying to score points by bringing up his previous regulatory woes. In 2004, Mr. Quattrone was convicted of obstructing an investigation into how IPO shares were steered to clients. The conviction and a ban from the industry were overturned in 2006.

In the past seven years, Mr. Quattrone and his 40-person team of bankers at Qatalyst Partners LP in San Francisco have advised on more than 85 deals worth a total of at least $158 billion, sometimes outmaneuvering much larger firms. Those deals have generated more than $1 billion in fees for Qatalyst, consulting firm Freeman & Co. estimates.

Mr. Quattrone succeeds partly because the latest crop of Silicon Valley startups has something in common with the last one. Many of the founders, employees and early investors at those companies want to cash out, now or later, and no one makes tech deals happen like Frank, as he is known.

“You can’t create the Sistine Chapel using paint by numbers,” he says in an interview. “Every deal we do is a custom piece of art.”

This article is based on interviews with Mr. Quattrone, three of his partners at Qatalyst and more than 20 people who have done business with him or Qatalyst.

In the late 1990s and early 2000s, Mr. Quattrone was the go-to guy for tech companies hoping for a hot initial public offering. In 1997, his team at Deutsche Morgan Grenfell led the underwriting for the IPO of Amazon.com Inc. He earned a $120 million pay package at Credit Suisse First Boston for his work in 2000.

This time, Mr. Quattrone is using his network of venture-capital investors and technology executives developed over more than 30 years in Silicon Valley to help orchestrate sales of companies. When he launched Qatalyst in 2008, Mr. Quattrone predicted that fewer tech startups would go public. Instead, large companies would acquire small ones to gain access to their technological innovations and fast-growing new markets.

He was right. This year, nearly $360 billion in mergers and acquisitions of U.S.-based technology companies have been announced through Friday, a record high, according to research firm Dealogic. In contrast, only about 17% of IPOs in the U.S. were done by tech companies.

Growing skepticism of the enormous valuations that venture capitalists are putting on private tech companies could push some of them to sell, rather than do an IPO. That would help Mr. Quattrone, since investment banks typically earn more from handling M&A deals than IPOs.

Mr. Quattrone was one of the first investment bankers to put down roots in Silicon Valley. His regulatory woes sidelined him for more than three years after the dot-com bubble burst. Mr. Quattrone went through a long period of “soul-searching,” he says. He didn’t think he would go back to investment banking but then decided to.

He has trimmed the bushy mustache and unruly hair that were part of his image for years. A framed caricature in his office shows Mr. Quattrone as a mustachioed pope.

Yahoo CEO Marissa Mayer says she sees Frank Quattrone at least every other week socially or to talk about business, including ‘broad management philosophies.’ PHOTO: LAURENT GILLIERON/EUROPEAN PRESS AGENCY

Mr. Quattrone has toned down some marketing tactics that used to help his team land deals, like the live mule sent to the CEO of a tech company who worried that wooing IPO investors would make him “feel like a mule.”

In a business where relationships open the door to billion-dollar deals, Mr. Quattrone’s long history in Silicon Valley gives him an advantage over younger rivals, according to company executives who have worked with him.

He still leans on longtime contacts and former clients, who help him arrange one-on-one dinners, drinks and golf outings to meet, greet and befriend young entrepreneurs.

Mr. Quattrone sometimes courts potential clients years before their companies are ready to make a deal, connecting them with his network of chief executives, directors and venture capitalists.

His ambition is as bold as ever. He says he wants to put together transactions “that would rock the world and change the industry,” not the “little deals that Morgan Stanley and Goldman Sachs wouldn’t take.”

A Morgan Stanley spokeswoman and Goldman Sachs Group Inc. spokesman wouldn’t comment on Mr. Quattrone’s remark.

His well-known aggressiveness rubs some people the wrong way. Rival advisers complain that Mr. Quattrone and his close-knit team have occasionally bluffed about the level of interest in companies being sold by Qatalyst.

In 2011, Google Inc. initially offered $30 a share, or about $9.4 billion, to buy Motorola’s cellphone business, according to a securities filing and people close to the sale process.

Qatalyst advised Motorola Mobility Holdings Inc. and pressed Google to increase its offer. If the takeover talks stumbled, Qatalyst warned, other would-be buyers might pounce, one person recalls.

Google boosted its bid to $40 a share, sealing the deal for more than $12 billion, by far the largest in the Internet giant’s history. It turned out that no one else made a bid for Motorola Mobility, according to a securities filing made after the acquisition was announced. A Google spokesman wouldn’t comment on the sales process.

Mr. Quattrone says he never exaggerates potential offers. George Boutros, who worked closely with Mr. Quattrone during the dot-com bubble and reunited with him at Qatalyst five years ago, adds: “People trust us and know that we’re honorable and ethical. You can’t be successful if you lie.”

David Cowan, a partner at venture-capital firm Bessemer Venture Partners, says executives at “more than one” large technology company have told him they won’t even consider buying any startup that is advised by Qatalyst.

Mr. Cowan says that attitude only enhances Mr. Quattrone’s appeal. “The more acquirers complain about working with Qatalyst, the more I think I want to use them,” he says.

Bow-tie instructions

Yahoo Inc. Chief Executive Marissa Mayer says she sees Mr. Quattrone at least every other week socially or to talk about business, including “broad management philosophies” and views on technology “shifts.”

They live in the same building in San Francisco and met at a black-tie dinner while Ms. Mayer was working for Google, now part of Alphabet Inc. He told her about searching Google for instructions on tying the bow tie he was wearing that night. She says they also talked in person the weekend after Yahoo hired her as CEO in 2012.

In 2013, Mr. Quattrone made several trips to New York to get to know David Karp, the founder and chief executive of blogging platform Tumblr. Jonathan Turner, a Qatalyst co-founder, knew a member of Tumblr’s board.

Tumblr soon hired Qatalyst to explore its strategic options. Ms. Mayer got one of the first phone calls from Mr. Quattrone and within a month announced the $1.1 billion purchase of Tumblr, her largest acquisition at Yahoo.

Ms. Mayer and Mr. Quattrone won’t comment on whether they have discussed her turnaround strategy at Yahoo or plan to explore a spinoff of the company’s core Internet business.

Last year, Mr. Quattrone had a glass of wine with billionaire tech investor Jim Breyer after a Qatalyst event in Jackson Hole, Wyo. Mr. Breyer is best known for his 2005 bet on a tiny social network called Facebook Inc. Mr. Quattrone declines to comment on the meeting.

Meg Whitman, Hewlett Packard Enterprise’s chief executive, refused to negotiate with investment banker Frank Quattrone because he had been difficult to deal with in previous deals. PHOTO: ANDREW BURTON/GETTY IMAGES

Mr. Breyer also owned a stake in Datalogix Holdings Inc., a data-mining company that had begun working with Goldman and other banks on a possible initial public offering. During the conversation, Mr. Quattrone offered advice on how Datalogix could broaden its customer base.

Over the next several months, Datalogix and Qatalyst talked extensively about the company’s future. Instead of the IPO, Datalogix decided to put itself up for sale and hired Qatalyst to look for a buyer. In January, Oracle Corp.acquired Datalogix for more than $1.2 billion.

“Frank helped us understand how Datalogix’s solution was so valuable to what Oracle was trying to build in the cloud,” says David Fialkow, another Datalogix director and managing director of venture-capital firm General Catalyst Partners.

Force of personality

Mr. Quattrone uses his “personality to get people focused and provide a sense of urgency and make a deal happen,” says Stewart Alsop, a partner at venture-capital firm Alsop Louie Partners.

Mr. Alsop was a director at Twitch Interactive Inc. when Qatalyst was hired to advise the popular Internet video channel on a possible sale.

The investment bank sent potential buyers a list of terms, asking them to agree and offer a purchase price, says someone familiar with the process. In August 2014, Amazon bought Twitch for about $1 billion.

The deal delivered a giant profit to early investors such as Alsop Louie. An Amazon spokeswoman declined to comment.

Mr. Quattrone’s clients don’t always walk away so happy. Ebates Inc. hired Qatalyst after the retailing website was approached last summer with a takeover proposal from Japan’s Rakuten Inc. Ebates co-founder Paul Wasserman says it was hard to reach Qatalyst after the firm negotiated its fee.

People close to the deal say Qatalyst didn’t drum up any other offers, and Ebates directors decided that company executives should negotiate a takeover price directly with Rakuten, which agreed to pay $1 billion.

A person close to Ebates estimates that the fee Qatalyst collected for its work on the deal was equivalent to roughly $1 million an hour. “If I had to do it over again, I would have said no” to hiring Qatalyst, says Mr. Wasserman.

Qatalyst declines to comment on the fee. Mr. Boutros says it sometimes is better for a company’s executives to negotiate directly with potential buyers. Mr. Quattrone adds: “We have no ego about that.” A Rakuten spokesman declines to comment.

In January, H-P’s Ms. Whitman told the chief executive of Aruba, Dominic Orr, over dinner at her house in Atherton, Calif., that she would move forward with the takeover only if Aruba hired another investment bank, says a person familiar with the negotiations.

That person says Mr. Orr agreed. He wouldn’t comment.

Mr. Quattrone tried to get Ms. Whitman to change her mind but failed. “H-P expressed our concerns about negotiating directly with Qatalyst Partners,” says a spokesman for Hewlett Packard Enterprise Co, which was spun off from the old H-P in November.

Ms. Whitman also hasn’t forgotten the “difficult circumstances” that she believes Mr. Quattrone and his team created while working on deals when she was eBay Inc.’s CEO from 1998 to 2008, the person close to her says. She declines to comment.

In 2011, Ms. Whitman was a new director at H-P when the company agreed to pay $11 billion for software maker Autonomy Corp. Qatalyst advised Autonomy on the sale, and she became H-P’s chief executive the following month.

The deal has been a nightmare. In 2012, H-P wrote down the value of Autonomy by $8.8 billion, blaming more than $5 billion of that on what it said was improper accounting designed to inflate the software company’s maker’s and profit.

Autonomy’s founder has defended the company’s accounting and accused H-P of smearing management at Autonomy.

Mr. Quattrone declines to comment on the sale but says he has a good relationship with Ms. Whitman and expects to work with her in the future. The person close to her says Ms. Whitman remains leery about Qatalyst but wouldn’t rule out buying other companies advised by Mr. Quattrone.

…Regulators have pointed to a number of worrisome signs in recent weeks. A federal agency said on Tuesday that credit risks were “elevated and rising” for American corporations and many foreign borrowers, even as investors are demanding significantly higher interest rates on junk bonds and foreign debt. The report, by the Office of Financial Research, however, said overall risks to stability remained “moderate.” Banks, too, are taking larger risks, according to a semiannual report published on Wednesday by the Office of the Comptroller of the Currency. The report said banks struggling to hit profit targets were loosening underwriting standards, particularly in high-growth areas like auto and construction lending. “In the area of credit risk, the warning lights are flashing yellow,” Thomas J. Curry, the comptroller, said in a speech on Wednesday. “We can’t afford to wait until the warning lights turn red.” Ms. Yellen and other officials have emphasized that they would prefer to address such risks through tighter regulation. But they won’t mind the incremental benefits of raising the bar for new lending. Jeremy Stein, a former Fed governor who has returned to teaching at Harvard, has observed that higher rates have the virtue of addressing even unknown problems. Raising rates “gets in all the cracks,” Mr. Stein said in a 2013 speech. “Changes in rates may reach into corners of the market that supervision and regulation cannot.”Higher rates also reduce the incentives for risk-taking by banks and other lenders by fattening their profit margins. Banks were quick to take advantage of the Fed’s announcement on Wednesday to raise the rates they charge on many loans but not the rates that they pay to depositors.”, Binyamin Appelbaum, “Calm Acceptance as Fed Enacts Its First Increase in Seven Years”, The New York Times, December 18, 2015

“This is the truth. The FED and other banking regulators acknowledge it’s the truth post-crisis, but its always been the truth. The Fed’s monetary distortions create rational inflation expectations (in the monetary values of assets like homes, other real estate, and stocks), foster increased risk-taking, speculation, and mal-investment, and result in  asset bubbles and busts and financial instability. Think about it, these handful of monetary “experts” at The Fed have been wrong in forecasting just about everything, both pre and post crisis. Why then does anyone still believe they know better than the free markets, where people and institutions (on behalf of people) actually put trillions of dollars at risk every day? Wake up America. It’s high-time we ended central government planning of our money and rates and let the free markets handle this important task.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Economy

Calm Acceptance as Fed Enacts Its First Interest Increase in Seven Years

By BINYAMIN APPELBAUM

The Fed’s chief, Janet Yellen, taking questions Wednesday after a rate increase was announced. Credit Jonathan Ernst/Reuters

WASHINGTON — The Federal Reserve’s much-anticipated “liftoff,” its first interest rate increase since the financial crisis, unfolded as quietly and smoothly as Fed officials could possibly have wished.

For the Fed, however, the hard work now lies ahead.

The Fed persuaded participants in the financial markets that a quarter-point increase in its benchmark interest rate didn’t matter much. But the big questions about the American economy haven’t changed.

It’s not clear whether steady-but-lackluster growth is now as good as it gets, or whether the economy is just starting to heat up. It’s not clear why inflation is so sluggish, or how many people without jobs would like to return to work.

In short, it’s not clear how quickly the Fed should raise rates.

“Nothing is really resolved about the normalization process except that we’ve moved through this first tiny step,” said Tim Duy, an economist at the University of Oregon who follows the central bank closely.

The Fed said on Wednesday that it would raise its benchmark interest rate to a range of 0.25 to 0.5 percent, ending a seven-year period of near-zero interest rates. By keeping rates low, the Fed has sought to encourage borrowing and risk-taking by businesses and consumers. It will reduce those incentives as it pushes up rates.

The Fed is raising short-term rates in a new way, by paying banks and other financial firms not to offer loans at rates below the bottom of its benchmark range.

To set the new base line, the Fed said it would borrow up to $2 trillion at a rate of 0.25 percent. On Thursday, however, firms offered only $105 billion to the Fed — less than the $114 billion average daily sum offered to the Fed during testing over the last two years.

Janet L. Yellen, the Fed’s chairwoman, emphasized that the central bank planned to move gradually, a term she has previously suggested means that the Fed will raise rates by about one percentage point per year. But there is already considerable divergence among Fed officials. Seven of the 17 members of the policy-making committee said the Fed should move more slowly, raising rates as little as 0.5 points next year.

Jon Faust, an economics professor at Johns Hopkins University and former adviser to Ms. Yellen, said Fed officials were basically trying to discern which of two possible versions of the economic reality was correct.

In the first version, low interest rates have helped the economy build up some significant momentum, and the Fed needs to raise rates more rapidly to keep a lid on inflation and financial excess.

Alternatively, low rates are necessary to preserve the modest pace of economic growth, and increasing them too abruptly could push the economy into recession.

“I think one of the trickiest and most important parts will be trying to figure out what’s going on with inflation,” Mr. Faust said.

Prices climbed slowly in recent years, suggesting that the economy remained weak. The Fed’s preferred measure of inflation — an index of personal consumption that excludes volatile food and oil prices — rose just 1.3 percent in the 12 months ending in October.

But Ms. Yellen and other officials have argued that temporary pressures like the fall of oil prices and the strength of the dollar are suppressing inflation, and that the strength of the labor market is a more important indicator.

The Fed said in its policy statement on Wednesday that it would “carefully monitor actual and expected progress toward its inflation goal.” Analysts described that as a higher bar than the Fed had previously established, indicating that it wants to see evidence that inflation is meeting its expectations before it presses too far ahead in raising rates.

Andrew T. Levin, a professor of economics at Dartmouth, said that change was important because the Fed’s forecasts had been “persistently mistaken” in recent years. “It will be helpful for policy makers to explain what sorts of inflation readings over coming months would make them comfortable,” said Mr. Levin, who has argued that the Fed should be careful not to raise rates too quickly.

Policy makers would be grateful for a clear-cut answer, but they probably won’t get it. Their choices would become more difficult if inflation remained sluggish even as other economic indicators continued to gain strength. A deepening divergence between the Fed’s models and reality would make it harder for Ms. Yellen to maintain unanimity about the central bank’s path.

The Fed has other reasons to press ahead with raising rates. One longstanding concern is that low rates will distort investment decisions, encouraging excessive speculation and even asset bubbles.

Regulators have pointed to a number of worrisome signs in recent weeks. A federal agency said on Tuesday that credit risks were “elevated and rising” for American corporations and many foreign borrowers, even as investors are demanding significantly higher interest rates on junk bonds and foreign debt. The report, by the Office of Financial Research, however, said overall risks to stability remained “moderate.”

Banks, too, are taking larger risks, according to a semiannual report published on Wednesday by the Office of the Comptroller of the Currency. The report said banks struggling to hit profit targets were loosening underwriting standards, particularly in high-growth areas like auto and construction lending.

“In the area of credit risk, the warning lights are flashing yellow,” Thomas J. Curry, the comptroller, said in a speech on Wednesday. “We can’t afford to wait until the warning lights turn red.”

Ms. Yellen and other officials have emphasized that they would prefer to address such risks through tighter regulation. But they won’t mind the incremental benefits of raising the bar for new lending. Jeremy Stein, a former Fed governor who has returned to teaching at Harvard, has observed that higher rates have the virtue of addressing even unknown problems.

Raising rates “gets in all the cracks,” Mr. Stein said in a 2013 speech. “Changes in rates may reach into corners of the market that supervision and regulation cannot.”

Higher rates also reduce the incentives for risk-taking by banks and other lenders by fattening their profit margins. Banks were quick to take advantage of the Fed’s announcement on Wednesday to raise the rates they charge on many loans but not the rates that they pay to depositors.

William C. Dudley, president of the Federal Reserve Bank of New York, has emphasized that the Fed needs to make sure that changes in its benchmark rate are indeed influencing broader financial conditions.

But Ms. Yellen, asked about that on Wednesday, suggested she did not see great reason for concern. “We have a far more resilient financial system now,” she said, “than we had prior to the financial crisis.”

A version of this news analysis appears in print on December 18, 2015, on page B8 of the New York edition with the headline: Calm Acceptance as Fed Enacts Its First Interest Rate Increase in 7 Years.

…Having reviewed this matter, I have determined the Summary was withheld properly pursuant to FOIA exemption (b)(8). In addition, I have determined that the OCC will not use its discretion to release the Summary.” Sincerely, Daniel P. Stipano, Deputy Chief Counsel, Office of the Controller of the Currency, December 17, 2015 (Excerpt from “Appeal-Final Decision 2016-XXXXX-YY, below.)

“I don’t think anyone should believe government bureaucrats’, at the FDIC-R, statements or allegations about IndyMac Bank (me or others) or the statements made in the Office of the Inspector General of the United States Department of Treasury’s 2009 material loss review of IndyMac Bank, when more than seven years after IndyMac Bank was seized by the FDIC-R, the OCC refuses to release a summary 2007 CAMELS report (IndyMac Bank’s last safety and soundness report). It’s pretty clear that the federal government’s banking regulators don’t want the facts and the truth out in the public domain, so that anyone can read it and decide for themselves. That doesn’t seem right. It seems un-American and Kafkaesque.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Dear Mr. Perry:

This is in final response to your recent appeal to the Office of the Comptroller of the Currency filed pursuant to the Freedom of Information Act. Your request has been completed. Our final response is attached.

Thank you.

ADMINISTRATIVE AND INTERNAL LAW
Office of the Comptroller of the Currency

Appeal-Final Decision 2016-XXXXX-YY

…The biggest damage is in the riskiest credits: while double-B rated bonds have lost 2.3%, single-B bonds are down 6.3% and triple-C 13%.”, Richard Barley, “U.S. Junk-Bond Storm: Picking Through the Wreckage”, The Wall Street Journal, December 16, 2015

Markets Heard on the Street

U.S. Junk-Bond Storm: Picking Through the Wreckage

The high-yield bond selloff is more nuanced than it at first appears

Chesapeake Energy Corporation’s campus is in Oklahoma City. Chesapeake’s bonds have been among the hardest hit in a recent selloff of junk-rated energy-company debt, driven in part by continued declines in oil and gas prices.PHOTO: STEVE SISNEY/REUTERS

By Richard Barley

The U.S. high-yield bond market has come to represent the sum of all fears for investors. A poisonous combination of misallocated capital, restricted liquidity and declining commodities is hammering returns. But under the hood, the state of the market is more nuanced.

December has made an already rough year much worse. At the end of November, U.S. “junk” bonds had lost 2% this year, according to Barclays index data; by Monday’s close the market was down 5.8%.

The energy and metals and mining sectors unsurprisingly are bearing the brunt, down 21.6% and 25.4% respectively. Other sectors are doing much better by comparison. Consumer cyclical bonds are still in positive territory, albeit only just, up 0.1%; noncyclical consumer bonds are down just 0.3%. Unfortunately for the high-yield market as a whole, energy and mining companies carry a big weight: excluding financial-sector companies from the index, they account for 23% of the debt outstanding.

The swing in oil prices to a seven-year low and the decline in other commodities is driving divergence in the market. It is pushing up risk premiums across the board; that will hit both stronger and weaker companies. But it is also affecting the distribution of risk. Lower oil and commodity prices should be helpful for consumers, although the effect may take time to be felt. That is why consumer-facing companies are holding up well. The high-yield market as a whole isn’t in meltdown.

Indeed, the market has done what it has always done: provide capital to riskier companies and then sort the winners from the losers. The extended period of ultralow interest rates encouraged both companies to lever up and investors to take risk; the inevitable result is that capital has been misallocated. The biggest damage is in the riskiest credits: while double-B rated bonds have lost 2.3%, single-B bonds are down 6.3% and triple-C 13%.

The problem layered on top of that, however, is more complex: constraints around liquidity, in part due to regulation aimed at making the financial system safer, in part due to fund structures with an inbuilt liquidity mismatch. The risk is that funds facing pressure may be tempted to sell what is easiest—which is likely to be better-performing bonds—rather than the market laggards they really need to get rid of. For other investors, that offers a potential opportunity.

The twists and turns of the high-yield market now need to be watched closely. If higher-rated, stronger companies from sectors outside the oil and commodities complex were to face difficulty in raising cash, then the risk is of a wider credit crunch. At least not many companies will be trying to do so in the rest of December. January will be the real test.

… Between 2008 and April this year, the U.S. added 4.6 million barrels a day of new supply—nearly doubling its output……The lifting of the U.S. ban on crude exports is likely to be part of the omnibus spending bill Congress is working on this week, one the White House signaled it is inclined to sign. This important step reflects recognition of the new reality in world oil: the U.S. shale revolution and its impact on global markets.”, Daniel Yergen, “The Global Battle for Oil Market Share”, The Wall Street Journal, December 16, 2015

“I thought the “experts” (of just a few years ago) said the world was running out of oil and the U.S. had been long done, as a major oil producer? I guess those “experts” were wrong? Oh my, the scientists and other “experts” can be massively wrong, how can that be? But today’s global climate change “experts” could never be wrong, right?”, Mike Perry

Opinion

The Global Battle for Oil Market Share

Iran and its rivals vie for advantage amid low prices, oversupply and the likely end of the U.S. export ban.

Pumpjacks for an oil well near Williston, N.D. PHOTO: BLOOMBERG NEWS

By Daniel Yergin

What will the global oil market look like in 2016? This year is closing out with the industry in turmoil. The price of oil is hovering in the mid-$30s a barrel, supplies are swamping the market, the U.S. is on the cusp of ending its decades-old oil-export ban, and geopolitical rivalries continue to sow uncertainty.

The lifting of the U.S. ban on crude exports is likely to be part of the omnibus spending bill Congress is working on this week, one the White House signaled it is inclined to sign. This important step reflects recognition of the new reality in world oil: the U.S. shale revolution and its impact on global markets. Although it would have seemed unthinkable only a few years ago, the U.S. has shot up to rank as one of the “big three” petroleum producers, along with Russia and Saudi Arabia.

Ending the export ban, a relic of the 1970s, will help eliminate the discount on domestic crudes that has been hurting U.S. producers. But it is highly unlikely to increase prices at the pump because U.S. gasoline prices key off the global crude price, not the domestic one.

Among the advocates for lifting the ban have been the European Union and Japan. It isn’t that they expect the volume of American exports to be high, but rather that these exports will further diversify the global market and thus contribute to energy security. Had the ban remained in place, the EU would have insisted on it being one of the key issues in negotiating a new U.S.-EU trade agreement. Maintaining the ban also would have left unanswered a most perplexing question posed by Sen. Lisa Murkowski, chairman of the Senate Energy Committee, earlier this year: Why remove sanctions on Iranian oil as part of the nuclear deal, but leave “sanctions” on U.S. oil exports?

With prices in the mid-$30s a barrel, the Gulf countries, led by Saudi Arabia, continue to say that they would consider cutting output, but only if others do the same. There is little sign of that happening. Venezuela, an OPEC founder, rails against the market-share strategy and stridently calls for production cuts. But it might as well be talking to the wall. President Nicolas Maduro’s socialist government, defeated this month in parliamentary elections largely due to gross economic mismanagement, has no ability to make cuts.

Iran calls on its Arab neighbors to cut back. Yet at the same time it is gearing up to increase its own exports as fast as possible once the sanctions are lifted, likely sometime in the next few months. The Arab Gulf producers certainly don’t want to cut their output to make room for Iran, with which they are fighting what they see as a proxy war in Yemen. That underlines another critical point: that this battle for market share also represents a geopolitical struggle in the Middle East.

In the past six months, Russia, the world’s largest oil producer, has received a series of high-level visitors from the Gulf. No doubt oil has been a subject of conversation, although Russia has consistently conveyed that it will not cut production. It seems more likely that these trips reflect a geopolitical rebalancing, building new links with Russia.

The Gulf countries are reacting to the nuclear deal with Iran—and what they perceive as improving relations between the U.S. and their arch rival. They see Iran as embarked on a campaign to be the regional power and, in the process, encircle them. For Gulf nations, the war in Yemen is aimed at preventing Iran from establishing a protectorate on the southern border of Saudi Arabia.

Unlike in Saudi Arabia and Russia, output in the U.S. is declining. Between 2008 and April this year, the U.S. added 4.6 million barrels a day of new supply—nearly doubling its output. But with oil now below $40 a barrel, producers are struggling to adapt and in some cases even to survive. Output is down about 400,000 barrels a day since April. And it looks as if U.S. production will average about 8.8 million barrels a day in 2016, down from 9.3 million in 2015.

The global demand for oil is increasing. Growth worldwide in 2015 was twice that of 2014. This year U.S. motorists will drive more miles than ever before, according to the Federal Highway Administration. SUV and light-truck sales rose to 60% of the U.S. auto market in 2015, from under 50% three years ago. With oil prices this low, don’t expect this trend to end soon.

While there are specific causes for the oil-price collapse, it is also part of the general commodity rout across the global economy. The IHS Materials Price Index, which tracks commodities (including energy), is down 55% since July 2014. The decisive factor is the slowdown in the Chinese economy, which had been driving the supercycle in commodity prices, along with the overall slowdown in global economic growth and overcapacity for commodity production.

Expectations of future oil-price increases have dampened due to large and still growing global inventories, which at some point will flow back into the market. But the most important question for 2016 is: When will Iranian exports ramp up—and by how much? Tehran is determined to move quickly.

“Our only responsibility here is attaining our lost share of the market, not protecting prices,” Iran’s oil minister, Bijan Zanganeh, has declared. “It’s our right to return to the level of production we historically had.”

This ramp-up will occur only after “implementation day” of the nuclear agreement. Iranian President Hassan Rouhani is striving to get the nuclear compliance done before the country’s parliamentary elections in February to show voters that his government can deliver concrete results that will better the economy.

The lifting of sanctions on Iranian exports, if that does occur, will mean still more supply and a new stage in the battle for market share in world oil. It is a battle that will be shaped by prices—and by the geopolitical rivalries across the Gulf.

Mr. Yergin, vice chairman of IHS, is the author of “The Quest: Energy, Security, and the Remaking of the Modern World” (Penguin 2012).

…These highly rated securities were manufactured out of lower-rated, or subprime, mortgages. They got their triple-A rating because bond insurers and lower-rated security holders agreed to absorb the first losses. And, of course, even so, defaulted mortgages don’t become worthless—they default to the value of the repossessed house. So how “toxic” were these securities? Well after the worst of the meltdown, Washington’s own Financial Crisis Inquiry Commission noted that “most of the triple-A tranches…have avoided actual losses in cash flow through 2010 and may avoid significant realized losses going forward.”…. Far from being the lonely seers their fans imagine, the big shorts benefited from seeing the words “housing bubble” 425 times in The Wall Street Journal and the New York Times in the seven years leading to the crash…..Even John Paulson, the biggest short of all, according to later court testimony by a top deputy, didn’t foresee Armageddon, only that the “housing market had appreciated excessively and that housing prices would stabilize or flatten out or decline.”… It was their withdrawal of confidence (by large, institutional investors) from the global financial system that caused the crash, that caused a sharp, unprecedented contraction of global trade, that caused a global economic panic that ultimately put the rich payday in the pockets of the “big short” protagonists. These protagonists were myopically focused on a narrow class of mortgage securities when being shortjust about anything would have afforded them an equally luscious accidental payday.”, Holman W. Jenkins Jr., ‘Big Short’, Big Hooey, The Wall Street Journal, December 16, 2015

Opinion

‘Big Short,’ Big Hooey

Forget mortgages. A change of accounting rules could have avoided the crisis.

Christian Bale as Michael Burry in the movie ‘The Big Short.’ PHOTO: JAAP BUITENDIJK/ASSOCIATED PRESS

By Holman W. Jenkins, Jr.

Nobody expects a Hollywood movie to be journalism, but “The Big Short,” the Hollywood movie about the 2008 financial crisis, partakes of journalism in one sense. It partakes of what might be called the universal journalistic bias, namely to exaggerate the importance of whatever is being reported.

Widely lauded for many virtues, especially comedic, the film nevertheless dwells mistakenly on an asset class that represented just 2% of bank assets and whose role in the global crisis has been grossly distorted. These highly rated securities were manufactured out of lower-rated, or subprime, mortgages. They got their triple-A rating because bond insurers and lower-rated security holders agreed to absorb the first losses. And, of course, even so, defaulted mortgages don’t become worthless—they default to the value of the repossessed house.

So how “toxic” were these securities? Well after the worst of the meltdown, Washington’s own Financial Crisis Inquiry Commission noted that “most of the triple-A tranches . . . have avoided actual losses in cash flow through 2010 and may avoid significant realized losses going forward.”

Or as this column pointed out at the very start of the subprime crisis in 2007, the “fluctuations in the S&P 500 wipe out as much wealth every ho-hum day.”

The “big shorts” paid millions to Goldman Sachs and others to concoct convoluted contracts that let them bet against these securities, and to find banks to take the opposing, or “long,” bet. (The irony being that, in this way, the movie heroes actually supported the manufacture of more subprime housing loans.) If they had really seen what was coming, our heroes would have saved themselves a lot of trouble and expense and simply shorted the big banks and the entire stock market—a bet that any day trader can make from the comfort of his bathrobe.

Far from being the lonely seers their fans imagine, the big shorts benefited from seeing the words “housing bubble” 425 times in The Wall Street Journal and the New York Times in the seven years leading to the crash. In 2004, the FBI warned of an “epidemic” of mortgage fraud.

Even John Paulson, the biggest short of all, according to later court testimony by a top deputy, didn’t foresee Armageddon, only that the “housing market had appreciated excessively and that housing prices would stabilize or flatten out or decline.”

The truth is a lot more interesting. The global crisis was a manufactured event—manufactured out of radical uncertainty about how government would treat the biggest banks, 2% of whose assets consisted of suddenly illiquid but not worthless mortgage securities. That may seem a mouthful, but Vince Reinhart, who had just retired as a top Fed official, stated matters plainly when he said the whole game had become “predicting government intentions.”

What’s more, this colossal snafu was telegraphed a long way off. Treasury Secretary Hank Paulson, in late 2007, had tried to round up private funding for a Super SIV (structured investment vehicle) to relieve banks of these securities and any accounting markdowns. Had he succeeded, or had the government simply waived its own rules to let banks hold these securities on their books at non-firesale values, the crisis would have been avoided.

Understand what we’re saying: The government saw early on how its regulatory machinery had become a trap for itself and the banks but couldn’t act fast enough, coherently enough, and apolitically enough to forestall unintended consequences. Yet at another level, as we’ve pointed out many times, confidence actually held up pretty well. Whatever the uncertain outcome for bank shareholders and wholesale creditors, the public showed strong faith that Washington, having learned from the 1930s, would uphold the solvency of the banking system for depositors.

Traditional bank runs didn’t happen. ATMs were not drained of cash by panicked withdrawals. The global panic was confined to large investors and the biggest bank customers who were not protected by formal deposit-insurance guarantees.

It was their withdrawal of confidence from the global financial system that caused the crash, that caused a sharp, unprecedented contraction of global trade, that caused a global economic panic that ultimately put the rich payday in the pockets of the “big short” protagonists. These protagonists were myopically focused on a narrow class of mortgage securities when being short just about anything would have afforded them an equally luscious accidental payday.

If you need an epilogue, look no further than this week’s junk-bond panic. Government (in this case, the Fed’s QE) again stimulated production of riskier assets for yield-hungry investors. At the same time, its bank capital and accounting regulations have again starved the market of liquidity to meet even a modest change in sentiment. Result: exaggerated volatility and losses for unwary investors.