Monday, 26 January 2009

“Six Errors on the Path to the Financial Crisis:" A Must-Read Analysis in the New York Times

To understand what has happened to us over the last few years, my favourite economist counsels reading an article by Alan Blinder in Saturday’s New York Times. “Six Errors on the Path to the Financial Crisis” gives an account of what happened, complete with the warnings which were made but not heeded. They begin with a call for more regulation in 1998—“the financial turmoil would have been less severe if derivatives trading had acquired a zookeeper a decade ago”—and include the decision to let Lehman Brothers collapse—“After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone”

Blinder attributes much of this blindness to what was going on to entrancement with “laissez faire-y tales,” but says that all is not lost. “Recognizing and understanding these errors will help us fix the system so that it doesn’t malfunction so badly again.”

I’d like to think that this article as well as Paul Krugman’s continuing economic critique are being read in the Obama White House. And I’m waiting to see what happens tomorrow when Stephen Harper brings down his own re-tooled budget

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