The New York Fed posted an apology for not predicting the economic catastrophe that began in 2007-2008. Better late than never, right? Except this apology dodges responsibility…
The article describes how nobody could have foreseen the catastrophic events of 2007 and on. To be sure, nobody in the rational behavior, efficient market ivory towers could foresee them because their own ideology required that they be blind to market failures. They were weather forecasters that denied the existence of tornadoes and hurricanes; geologists that refused to admit that earthquakes can happen; doctors that could not imagine the possibility of an epidemic. They were useless, in a word.
No, they were worse than useless. They got politicians and academics alike to deny reality and to strip away protections that were necessary to keep disaster from happening. They encouraged a host of policies – subprime lending, home equity loans, no regulation for credit default swaps, et cetera, et cetera – that people not in power said would lead to disaster. Those who were in power became the biggest gang of criminals the world has seen by using their money and influence to have legislatures make their actions legal.
Many of us outside the government and outside the ivory towers saw the reality and knew we were in for a disaster. The double bubble in housing and government debt would lead to a major economic collapse. We called it. We couldn’t say precisely when, but it was obvious it was going to happen, and it did. We also made the call that Europe was coming apart economically and, well… see for yourself.
We live in an age of irresponsibility. People that hold power deny their mistakes with an arrogance that transcends logic. Heads do not roll. The intelligence failure of 9/11 cost more lives than jobs. The same can be said for the terrible destruction of New Orleans in the 2005 Hurricane. In this latest, economic disaster, the perpetrators of the crimes were, for the most part, rewarded. Madoff is doing time. Who else?
So the New York Fed issues its non-apology at 6PM on Black Friday… it’s even dodging the attention it should be enduring for shutting its eyes to the greatest financial disaster in 70 years. Worse, as an Economics teacher, I’m supposed to teach the stuff that got us into this mess like it’s accurate and useful. The establishment’s refusal to recant is particularly galling.
Irving Fisher was the biggest bull market booster in 1929. When he realized he was dead wrong, he abandoned his wrong ideas and developed a workable model for analyzing economic depressions. I can appreciate that. The current crowd has no such ability or desire to recant. It’s as mentally paralyzed as the Chinese Communist Party in the midst of the Great Leap Forward: ideology is more important than reality. We see this in the Fed and we see this in Congress. They tell us their little ivory lies, and even if we don’t believe them, we are bound by their vision.