Tuesday, November 25, 2008

The Blind Leading the Financial World

Proving that hindsight may be just as unclear as foresight, critics have blamed unregulated financial markets for the current economic travails the nation finds itself in. However, one can hardly regulate adequately what one does not understand, and Paul Jackson, partly on the basis of remarks made by Ben Bernanke in a New Yorker interview, suggests that those in charge were utterly and inexcusably clueless regarding the entities that they were regulating. Mr. Jackson writes:

The picture being painted in the rearview mirror now suggests a far worse transgression than a policy misstep: it suggests that key regulators and economists understood little about the secondary mortgage markets to begin with. The reason so few in the financial markets saw this coming is because so few actually understood either how the market was structured, or how far it really reached. And that, to me, is far more troubling than a debate over regulatory ideology and course.

Yet that’s the sort of line of questioning that’s missing from most journalistic inquiries these days, where reporters are more content to dig into how the Fed put its current policies together to respond to the crisis, and where everyone takes it at face value that regulators moved as aggressively as they knew how as part of some decisive response to the financial crisis.

What is worse is the probability that those who now will set out to regulate these markets going forward still do not understand what has happened.

Hat Tip: Kevin Funnell

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