comments:
Wrap it up, boys. Apparently all the political historians, economic historians, financial historians, economists, regulators, and crisis scholars are all confused wrestling with this historical period (source below). The OP enlightened us that it is indeed reduced to two cartoon villains of Alan Greenspan and Milton Friedman. I'm have so much trepeditation quoting the following Professor who concludes with the published article, "The Financial Crisis of 2008: A Review of Notable Books": So, what does ten years of books on the financial crisis of 2008 tell us? What should we learn from the crisis? Serious readers of the crisis will distill these books into a long list lessons. Here are my top five. First, the crisis was a “wicked problem:” confusing, difficult, and constantly morphing. The books to avoid are those that would have you believe a simple explanation for what happened or in a single preventative to future crises. Financial crises rank at the level of war, poverty, and climate change—not least because of their consequences. The cumulative output gap following the financial crisis of 2008 amounted to between $6 and $14 trillion[45]. From peak to trough in 2008, 8.8 million jobs were lost and $19.2 trillion in household wealth evaporated.[46] Second, government officials muddled through, probably avoiding another Great Depression, but at mind-boggling commitment of resources and the violation of longstanding norms and expectations. However, doing nothing was not an option. In the midst of a financial crisis, leadership proves its value. As Milton Friedman and Anna Schwartz wrote almost 50 years ago, “The detailed story of every banking crisis in our history shows how much depends on the presence of one or more outstanding individuals willing to assume responsibility and leadership… In the absence of vigorous intellectual leadership…the tendencies of drift and indecision had full scope. Moreover, as time went on, their force cumulated. Each failure to act made another such failure more likely.”[47] Third, the crisis exposed deep vulnerabilities in our financial system that have not yet been fixed, that might never be fixed, and that presage future instability. Markets have a propensity toward over-confidence. Systems of governance—the front-line defense against crises—can grow lax. And accommodative credit will be abused. As a result, financial crises will reoccur. The research of Carmen Reinhart and Kenneth Rogoff[48] documented the fact that from 1800 to 2012 almost no year was free of financial crises somewhere in the world. Financial crises are a fact of life; no experts believe that we have now eliminated the threat of future financial crises. Familiarity with the causes, consequences, and remedies of financial crises would be valuable preparation for future leaders in business, government, and the professions. Sadly, memories are short. These days, many instructors encounter the glaze of unfamiliarity that descends when one discusses the financial crisis of 2008. Today’s MBA students were in high school and undergraduates were middle-schoolers. Even adults display a desire to forget and move on from the late unpleasantness. Nevertheless, collective memory is the bedrock of wisdom. Walter Wriston (former CEO of Citibank) famously said, “Good judgment comes from experience; and experience comes from bad judgment.”[49] Remembering the bad judgments that underpinned previous financial crises is profoundly important for future wisdom. Moreover, to understand crises is to know capitalism better. Karl Marx and others have pointed to the recurrent financial crises in capitalist economies as proof of the terminal illness of the capitalist system. On the other hand, Joseph Schumpeter and others averred that periodic slumps and crises were healthy laxatives, necessary cleansers of economic inefficiencies that presage growth. Schumpeter called capitalism a “gale of competition.” Financial crises expose the worst (and sometimes the best) in markets, institutions, instruments, leaders, and entrepreneurs. Finally, to understand crises is to better understand ourselves. The Great Depression was the major economic event of the 20th century, one that profoundly affected national and world history, directly touching millions of families. It is too early to tell how—or even whether—the financial crisis of 2008 and its aftermath will settle into our collective memory. The books described here not only inform us about past events and suggest how we might act differently in the future but also help us better understand what it means to be human beings and citizens—who we are, how our characters and our limitations shape our communities, and how we ought to strive to live well and wisely together.