Which raises the question: Why [no] runs on semis or software companies? The short answer is their business model does not depend upon a belief system — of solvency, liquidity, profitability or risk management.
It wasn’t a crisis of confidence that did the iBanks in, it was a crisis of competence.
That was the element CEOs like Dick Fuld, Hank Paulson, Stan O’Neal and Jimmy Cayne failed to consider: When you are a bank, your existence depends upon the confidence of your clients, investors and counter-parties. Anything you do that puts that at risk is extremely dangerous. If you want to run lots of leverage, push the envelope, well, then, you better hope nothing else goes wrong. At 35X, you do not leave any room for error.
It is inexcusable that the investment CEOs did not seem to realize this. It was unconsionable that the firms had been purposefully put into a risk taking position in extremis. That the CEOs blamed short sellers and rumors, but exonerated themselves, only serves to emphasize their own failures, their lack of comprehension of what they had dome to themselves. It was their own incompetent stewardship that purposefully and unknowingly placed these firms at such grave danger of destruction.
Macro modelers take note: no realistic results without accounting for ape psychology.
Here's a nice video feauring the confidence men (financial CEOs) and their recent payouts:
And this (both via Barry Ritholtz):
Related: Central limit theorem and securitization.