11 Things I Learned While Trying to Figure Out the Financial Crisis - 2parse/blog
11 Things I Learned While Trying to Figure Out the Financial Crisis
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Like a lot of people, I’ve been struggling to understand this financial crisis over the past few weeks. I don’t pretend to be an economic expert - I’ve always been more interested in foreign policy, politics and history - but the issue of this crisis is obviously so important, it seems that it is everyone’s responsibility to find out what went on, what caused this.
I also feel that this is an issue which is confusing our politics, our partisan impulses. Both the right and the left have many reasons to hate the bailout - yet the pragmatists on both sides agree that something must be done. Everyone is angry. Very few predicted this. I only came across a few who prominently warned about a crisis such as this - subscribers to the Austrian school of economics such as Ron Paul; liberal capitalists such as Warren Buffet and George Soros; and economists like Nassim Nicholas Taleb.
This crisis has succeeded in confusing ideological categories - which is probably part of the reason it has spwarned so many interesting and non-ideological takes, as people struggle to understand these momentous events in terms they are familiar with. (Here’s one ingenious example.) On the whole, Republican politicians instinctively trusted the market and although some attempted to reign in Fannie Mae and Freddie Mac, they saw no imminent threat to the financial system. A few Democrats saw the need for more oversight to prevent excessive risk-taking that might endanger the financial system; many more Democrats (especially as the party in Washington is dominated by neo-liberals), didn’t see the profit in warning of an unknowable future catastrophe. Those financial firms whose main purpose was to minimize risk and maximize profit accomplished this by reducing the risk of any individual transaction while placing greater and greater stress on the system - trading many small risks for a giant catastrophic risk. But theyse firms didn’t know this because the entire system was opaque and oversight was minimal. As long as things were going well, there was no reason to figure out what was going on.
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