That was a song title back in the 40ies. The answer was, "I don't know nuttin'." Funny song but in the case of the N.Y. Times' Joe Nocera, he figured it out last week.
Joe actually read the Financial Crisis Inquiry Commission's ("FCIC") report--or at least parts of it. You see, Joe gets paid to do things like that whereas I don't. Then again, while Joe may not have an instinctive understanding of what goes on in the business, as his last week's article proves, he's a pretty good, quick study. I'm not going to go through his analysis for it is best if you read it for yourselves, but Joe does come to two very correct conclusions:
1. The report is a hodgepodge of facts and figures which reaches no definative conclusion and, indeed, may raise more questions surrounding the events of 2008, and
2. It's going to happen again.
Now there is a show-stopper! Where have we heard that before...on these pages perhaps? Guilty as charged I'm happy to say. Joe and I agree because we have both reached the same conclusion: the fault was not in a rush to deregulate leading to a lack of regulation; we had plenty. It was not due to a cascade of fraudulent practices...although there were plenty of those. It was not due to new products that were created; but they facilitated what happened. It was not due to the actions of Fannie and Freddie; although they clearly exacerbated the crisis. It wasn't even due to the prolificacy of the Fed...although God knows it couldn't have happened without it, or the rating agencies or the accountants. In fact, we are not entirely to blame as this was a global disaster. All of these things are important but to use Mr. Nocera's words, the real cause was hiding in plain sight: It was the human condition.
The events of 2007 and 2008 were not unusual. We have had financial collapses throughout history although none, perhaps, as devestating or as globally comprehensive as this one. Every one, however, has remarkable similarities. There is generally an asset involved be it tulip bulbs or ocean front property in Boca or Santa Monica or Las Vegas. There is always an excess of liquidity. There is generally a period of prosperity. There is many times a preferred asset class of investment as witnessed by the dot.com. period of the nineties. There may be governmental stimulus or directed investment or consenual oversight as there was in the seventies following the oil shock as banks operated as disinteremdators on behalf of sovereign borrowers. And there is always, ALWAYS, a delusion on the part of all participants that what has gone up will NEVER come down or that any downturn will be "mannageable." It is in our stars, always has been, always will be.
Mr. Nocera figured this out and good on him. Some of us have known this for quite some time. Some of us have actually witnessed this manifestation of humanity on multiple occasions and have actually spoken out and warned against a repeat of history. And all of us have, for the most part, been ignored. I have no idea how much the work of the FCIC cost the taxpayers. A lot would be my guess, and while an interesting exercise it was more or less a wasted effort, except for the fact that I suspect there are a few more Joe Nocera's out there who have figured it out which may lead to something different that the Barney/ Chris the Crook monstrosity that is supposed to save us from ourselves. With a bit of help that I have received I'm going to try to help out with a few thoughts tomorrow. Stay tuned.
Ed. Note: This is being posted a day late. I have no idea what happened yesterday
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