Anniversary to forget

2 Nov. 2018
Author
Roberto Plaja

Unless you really learn something from it

Unless you really learn something from it

Unless you really learn something from it.

Much has been written recently on the events of the global financial system ten years ago. Correspondingly, little has been offered in terms of useful explanations and lessons to be learned from it.

I recently had a cycling accident during which my memory of the actual event disappeared completely.

Perhaps, just as in the case of my accident, some things are better forgotten?

Below are other important crises of the last 30+ years which, I assure you, were just as riveting and frightening as the one in 2008 when they happened:
— The stock market crash of October 1987.
— The Asian crisis and LTCM failure of 1997-1998.
— The dot.com bubble of 2000-2003.

All crises had significant worldwide consequences. Though we can argue ad infinitum on which one was the worst, my point here is: the subprime crisis, however different, rhymed well with the rest of them (to use Mark Twain’s characterization of history). Financial crises have something in common, a fact that, given their frequency, should make it relatively easy to avoid the next one. Yet we punctually end up in very similar places when the conditions are ripe. It’s like we never learn, or we are hardwired to succumb to the same sins over and over again.

From the reams written about the one in 2008, you would think its main cause was the failure of systemic protective walls: institutional deficiencies, organizational weaknesses, unlawful behavior, lack of proper supervision, “market” failure (whatever that means), shortages of controls and insufficient legislative backdrop. But the truth is far simpler and far less reassuring.

Essentially, we wouldn’t want it any other way: like dreaming of winning the lottery, hoping to enjoy infinite bliss and believing you can pay for performance, it’s very hard for humans to think logically about financial outcomes (dogs have no problems). Because no one likes to go to a party where the punch bowl disappears when things get exciting, we push things to the breaking point. Even bankers are not exempt: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” (1) The guy who said this, the CEO of a major institution, actually saw it coming, but still did nothing. Think about it for a second.

Furthermore, let’s not discount the impact of the Federal Reserve (and other central bankers’) policies. Or the contributions of our elected politicians. Abetting aberrant behavior under the cover of “saving the system” or the credo “everyone should have a home” is exactly what brought us here – and what keeps us from having a chance to learn.

My skepticism about the purpose to rehash all the stuff about the subprime and other crises comes from this general observation: the way it is all presented and the manner our politicians pontificate upon them is perhaps entertaining but completely useless.
We need to learn how to behave; till then, rest assured no single set of rules or restrictions will prevent future recurrences.

Notes
(1) Citigroup CEO Chuck Prince to the Financial Times, in July 2007.
Much has been written recently on the events of the global financial system ten years ago. Correspondingly, little has been offered in terms of useful explanations and lessons to be learned from it.

I recently had a cycling accident during which my memory of the actual event disappeared completely.

Perhaps, just as in the case of my accident, some things are better forgotten?

Below are other important crises of the last 30+ years which, I assure you, were just as riveting and frightening as the one in 2008 when they happened:
— The stock market crash of October 1987.
— The Asian crisis and LTCM failure of 1997-1998.
— The dot.com bubble of 2000-2003.

All crises had significant worldwide consequences. Though we can argue ad infinitum on which one was the worst, my point here is: the subprime crisis, however different, rhymed well with the rest of them (to use Mark Twain’s characterization of history). Financial crises have something in common, a fact that, given their frequency, should make it relatively easy to avoid the next one. Yet we punctually end up in very similar places when the conditions are ripe. It’s like we never learn, or we are hardwired to succumb to the same sins over and over again.

From the reams written about the one in 2008, you would think its main cause was the failure of systemic protective walls: institutional deficiencies, organizational weaknesses, unlawful behavior, lack of proper supervision, “market” failure (whatever that means), shortages of controls and insufficient legislative backdrop. But the truth is far simpler and far less reassuring.

Essentially, we wouldn’t want it any other way: like dreaming of winning the lottery, hoping to enjoy infinite bliss and believing you can pay for performance, it’s very hard for humans to think logically about financial outcomes (dogs have no problems). Because no one likes to go to a party where the punch bowl disappears when things get exciting, we push things to the breaking point. Even bankers are not exempt: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” (1) The guy who said this, the CEO of a major institution, actually saw it coming, but still did nothing. Think about it for a second.

Furthermore, let’s not discount the impact of the Federal Reserve (and other central bankers’) policies. Or the contributions of our elected politicians. Abetting aberrant behavior under the cover of “saving the system” or the credo “everyone should have a home” is exactly what brought us here – and what keeps us from having a chance to learn.

My skepticism about the purpose to rehash all the stuff about the subprime and other crises comes from this general observation: the way it is all presented and the manner our politicians pontificate upon them is perhaps entertaining but completely useless.
We need to learn how to behave; till then, rest assured no single set of rules or restrictions will prevent future recurrences.

Notes

(1) Citigroup CEO Chuck Prince to the Financial Times, in July 2007.

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