Possible Insight

Archive for October 2008

Financial Crisis Act I: Government Meddling

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Let me start by saying that the financial crisis is a very complex situation.  I read several economics blogs every day and quite a few academic papers every month.  My semi-professional opinion is that no economist even comes close to fully understanding the financial system, let alone the complete macroeconomy.  Luckily, I haven’t seen any of them delusional enough to assert that they do in a professional forum. So when you hear a talking head spouting off about the crisis, take what he says with a grain of salt (this includes me, of course). At best, he only sort of knows what he’s talking about.

Because of the complexity, I think we should be very careful to take baby steps.  Going off half-cocked is much more likely to make things worse than better.  I think we need to do three things.  First, we need to understand the underlying causes of the mortgage meltdown that kicked off the cascade (not because I think fixing the cause will solve the problem, but because it will help us avoid making things worse).  Second, we need to examine how the cascade was magnified so we can hopefully install some breaks going forward. Third, we need to agree on the outcomes we most want to prevent as a society (as individuals, I’m sure we all want to keep our houses, jobs, and savings).

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Written by Kevin

October 1, 2008 at 5:23 pm