Parting shot from a disillusioned fund manager

“Goodbye and f…. you!”

A hemp-inspired comment maybe?

This came out of the farewell letter from Andrew Lahde, manager of a small California hedge fund, Lahde Capital, which recentlyreturned 866 percent betting against the subprime collapse.

He has retired to live the good life, to repair his health from the damage of living in the eye of the financial cyclone and to contemplate the unfolding drama that was predicted a decade ago but remained invisible in the eyes of the people who might have done something about it.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it.

On the positive side, he has got good word for hemp!

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say good-bye and good luck.
All the best,
Andrew Lahde

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Chris Lloyd
15 years ago

There is a lot of talk about how tighter prudential regulations could have made a difference. I guess this is tautologically correct if sub-prime loans had been illegal then we would not have had this particular crisis. But, as I have commented elsewhere, I am coming to the view that failure in risk assessment is a central cause risk assessment being currently performed by commercial ratings agencies.

I cannot see any reason not to lend money to someone on a low income if you know the risk, charge an appropriate risk premium, and do not on-sell it to someone else disguised as AAA. Ratings agencies, as I understand it, make their money from the companies whose products they rate. This is little different from having a privatised health inspection industry where restaurateurs pay the inspector for their services. The incentives are all wrong and I would not eat in restaurants in any country that had such as system. I guess the ratings problem did not manifest itself in previous decades because the riskiest loans were regulated. So lack of regulation is a cause, but not the cause. With better information flows, regulation would not be so critical.

The solutions to me seem obvious. Option 1: nationalise financial rating. The government have the right incentives. Or option 2: introduce legal penalties for the raters when they get it wrong to try and align their incentives.

15 years ago

Option 1 is a disaster – part of the problem was that the ratings agencies did not fully understand the nature of a sub-prime-backed security. I don’t expect that anyone thinks that government will do better.

Option 2 is probably more on track. In the US ratings-agencies are (dodgily imho) protected under the first amendment. That is indeed a problem.

I don’t think Lahde is talking about ‘tighter’ prudential regulations. The reference is to Fannie and Freddie, I suspect. They were regulated by an entire agency with 200 staff and a $65m budget. But, blindingly obviously with hindsight, not effectively.