Kevin Drum reads The Wall Street Journal and is prepared to hail fund manager Bob Rodriguez as “pretty spectacularly prescient”:
He saw storm clouds gathering in 2005 when newly minted pools of supposedly high-quality “Alt-A” mortgages began acting oddly….He quickly dumped the holdings, reckoning that by the time he figured out what was actually going on, whatever disaster the odd behavior foreshadowed would have already occurred.
….He stopped buying Fannie Mae and Freddie Mac debt and took giant insurer American International Group Inc. off the list of approved commercial-paper investments. He refused to invest in financial-services companies because of what he saw as “a pandemic collapse” in the rules by which lenders approved mortgages.
As of 2004, he began moving his fund to more than 45% cash, even as one big shareholder yanked out $300 million because of his bearish stance.
To me, the most troubling thing about this story is that while I’m sure Rodriguez is a prosperous man, and I’m well-aware that a lot of other titans of finance have lost a lot of money in 2008, I’ve seen no indication that Rodriguez analyzing the situation accurately and making the moves that ex post were the correct moves to make has actually gone and made him the wealthiest fund manager in America. You’d like to be able to say that, looking back on things, it would have been smarter for more people to follow Rodriguez’s lead. But things like shifting your fund to a cash-heavy position while some major shareholders pull out vast sums because they don’t like your bearish stance would have been a bad career move for most folks.
Ever since the crash, there’s been a lot of self-serving talk from people in the business about how nobody could have foreseen this. That’s wrong. What would be more accurate — and more disturbing — is that it’s not clear that it actually would have been smart for people in the business to have behaved in a radically different manner even if they had understood the situation well. There are a lot of fields of endeavor where it’s more important to be in tune with the CW than it is to actually be correct, and this seems to me to mostly be one of them.