Posted on 11/15/2011 8:12:25 PM PST by neverdem
It should be clear that among the causes of the recent financial crisis was an unjustified faith in rational expectations, market efficiencies, and the techniques of modern finance. That faith was stoked in part by the huge financial rewards that enabled the extremes of borrowing, the economic imbalances, and the pretenses and assurances of the credit-rating agencies to persist so long. A relaxed approach by regulators and legislators reflected the new financial zeitgeist.
All the seeming mathematical precision that was brought to investment, all the complicated new products, including the explosion of derivatives, that were intended to diffuse and minimize risk, did not work as had been claimed. Instead, the vaunted efficiency helped justify an explosion of weak credit and an emphasis on trading along with exceedingly large compensation for traders.
If those remarks sound critical—and they are meant to inspire caution—let me also emphasize that the breakdown in financial markets and the “Great Recession” since 2007 are also the culmination of years of growing, and ultimately unsustainable, imbalances between and within national economies. These are matters of failures of national economic policy and the absence of a disciplined international monetary system.
Take the most familiar and egregious case. The huge surpluses China has accumulated from its external trade reflect the view of the Chinese government that it is desirable to have rapidly growing export industries that support employment growth. China was willing to build up trillions of short-term dollar assets, mainly US securities paying low interest rates—and thus kept the process going. Conversely, the United States happily utilized that inflow of low-interest dollars from China to sustain heavy consumer spending—much of it on Chinese products—a growing budget deficit, and eventually an enormous housing bubble...
(Excerpt) Read more at nybooks.com ...
LOL! Are you crazy, Paul? Socialism leveraged and compounded with more socialism...
...and continued by bailout socialism.
Paul Volcker is an idiot. He completely misses the point, that it’s the moral hazard created by central banks which got us this mess.
Yes, but he is a well educated idiot. Notice all of the big words; they almost lend legitimacy to his blathering.
I enjoyed the article. Thanks for posting.
After Volcker missed the boat with his investigation of the oil-for-food scandal, I don’t lend a lot of credibility to his meanderings.
I didn't read it, so I can't say. What did it have to do with his bailiwick, economics and finance?
Volcker was appointed to conduct an investigation of the oil-for-food scam but his findings did not expose the true extent of the involvement of several key UN and government officials. Some felt that he had a conflict of interest:
“After Volcker missed the boat with his investigation of the oil-for-food scandal, I don’t lend a lot of credibility to his meanderings.”
Thanks for that reminder, Ben Hecks. I spent over an hour of wasted time years ago (2006) watching Paul explain his findings of the oil-for-food scandal to a Princeton audience (it was on the internet...I can’t seem to find it now...but at the time I posted the link on Free Republic). I lost all respect for him after that.
http://www.princeton.edu/main/news/archive/S15/87/88A77/index.xml
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