Jeff Madrick, reporting from the annual meeting of American Economists, laments the lack of remorse shown by some of the country’s more mainstream economists over their role in the financial crisis.
“There was no session on the schedule about how the vast majority of economists should deal with their failure to anticipate or even seriously warn about the possibility that the second worst economic crisis of the last hundred years was imminent,” he writes.
There wasn’t much in the way of introspection, no self-analysis either of these professors’ personal roles, or of economics itself. At the very least, writes Madrick, serious investigation should have followed the realisation that Wall Street had risen to such dizzying heights that it accounted for one third of the nation’s total corporate profits. Maybe we lacked serious investigation. But the warning signs were there. Economists were indeed looking puzzled. Chris Dierkes mentions a few here. In the UK we are blessed with the prescience of Vince Cable.
It’s easy to be blinded by wealth. The City enjoys, or at least has enjoyed, extreme favouritism from policy makers—a special treatment disproportionate to its actual value. But in truth, we were never short of warnings. We were short of bankers responsible enough to heed those warnings.
Back to Madrick - this should be your credit crunch takeaway fact:
US Investment banks took on $25 to $40 of debt for every dollar of capital.
Is it any wonder the money markets are so gummed up?