Pointing Fingers

Adam Davidson at Planet Money recently asked, “Who Do We Blame?” Which, I think, is a perfectly legitimate question. While the most important things are getting ourselves out of this crisis and reducing the chances of another one happening, asking who is at fault for this one is a reasonable exercise, for at least two reasons: first, it responds to our basic human curiosity; second, since many of the parties involved care only about their reputations (Bush, Clinton, Greenspan, Paulson, etc. have enough money for several lifetimes), going after people’s reputations is one of the few ways to create some measure of accountability. Politicians who inveigh against “pointing fingers” usually have something to hide.I started writing a comment on the Planet Money thread, but they have a character limit on comments, and it’s hard for me to write anything in fewer than 1250 characters. So I emailed them my response and, what do you know, they put it up as a post on their blog. To save you any suspense, I think that if you are going to blame any individual (as opposed to, say, a whole category of activity, like “lax loan underwriting”), it should be Alan Greenspan, for reasons described further in that post.


Originally published at the Baseline Scenario and reproduced here with the author’s permission.

3 Responses to "Pointing Fingers"

  1. Attila   March 18, 2009 at 6:17 am

    To me it was quite obvious in 2005 already that Greenspan should have spent less time playing media star and more restraining the sub-prime mortgage pushers, but I think he knew that asset bubbles were the only way to keep the people happy and the economy running, because with globalization and ever greedier plutocraty squeezing the incomes of workers, asset-based debt was the only way to sustain consumption. Many people thought that perhaps the bulging twin deficits might lead to trouble someday, but since it was readily financed by the “global savings glut” where’s the problem, said Bernanke.

  2. Attila   March 18, 2009 at 6:31 am

    But Trichet too should have known a few things about creative accounting by banks, as he signed the statements of Credit Lyonnais a few months before the bankruptcy was admitted (and several months after The Economist published an article denouncing the scam) (The Economist has a remarkable track record foreseeing disasters, such as the real estate crash of the 90s, the current mess, the Vivendi-Universal fall)

  3. Marc Maiona   March 22, 2009 at 2:17 pm

    I respectfully disagree with your conclusion. The American public, in its hysteria, has been distracted from acknowldging the true parties responsible for this crisis, and similarly distracted away from the simple fact asset bubbles grow and pop regardless of regulation and oversight. For every provision in a regulation, people will find 6 ways around it – perhaps all of which are legal. There is no way to protect people from everything that could possibly harm them – nor should there be. That’s what we all have mothers and fathers for, its not why we have a government. True there are “innocent bystanders” who have been hurt, or lost their jobs and are now losing their homes or savings. But last time I checked the Constitution did not guarantee anyone the right to a house (whether it be free, subsidized or full price), just as it did not guarantee people would get a refund if they put their money with Bernie Madoff. Its time for adults to act like adults and take responsibility for their own actions (or inactions).That responsibility includes letting a failing business – regardless of size or “interconnectedness” – do what it properly should do: FAIL. Perhaps most annoying in all of this is the government got it right with Lehman Brothers, and then totally soiled the bed from that point forward. The role of government is not to bail out or prop up failing businesses, and most assuredly not to do so tacitly on my and your behalf (which they undoubtedly have done by foisting the debt onto20the taxpayers). If I wanted to invest in Freddie Mac or AIG I would have bought their stock. I resent the result that my children will pay a debt ignorantly and illegitimately incurred by the government.Responsibility also includes being honest about what everyone in this country with a pulse and an IQ above 72 knew for years: we were willing participants in the greatest game of musical chairs ever seen. Between 2003 and 2007, I traveled a lot for work. During that time I truly lost count of the number of conversations I had with the person in the airplane seat next to me that invariably turned to “can you believe what’s going on with housing prices?”. The majority of those discussions ultimately came to the mutual agreement that “this too shall end”. Unfortunately, when the music stopped, a lot of people didn’t have a chair. Everyone thoroughly enjoyed the game when it was being played, but a lot of people played longer than they should have, or got into the game too late. It is not government’s role to supply more chairs, just as it is not the obligation of people who didn’t play – or even of those who played but knew when to stop – to put another coin in the jukebox. The game is over, life goes on.Responsibility requires we not “spin” the truth, or be politically correct, or characterize things differently than what they truly are. Earlier this week I heard it said, in reference to AIG (an un-failed failure), that “they wrecked the economy and left the taxpayers holding the bag”. This is intellectual dishonesty at its finest – and on two fronts. First, while I don’t claim to fully understand derivatives, swaps and the like, I do know that AIG sold products based upon and related to the great game of musical chairs, and, whether we knew it or not, we needed those products to play (maybe not at the very beginning, but certainly in the middle and latter stages of the game). Thus, they were one of many who filled a need based upon simple economic laws of supply and demand. AIG and others made a plethora of bad business decisions and did not deserve bailing out, but they are not the culprit. Rather, I believe the players in the great fools game are the ones who wrecked the economy, not those who supplied the music and the chairs. Think of it this way: what if no one had played, despite the great tunes and the multitude of chairs? Just as we do not blame the poppy farmer for the death of someone who overdosed on her oin – the dead guy put the needle in his own arm after all – its time we all admit the plain and unpleasant truth: a lot of borrowers made downright stupid, naïve or greedy decisions, and we will never hear of a case where a lender held a gun to a borrower’s head to force them to take a mortgage. The borrowers blew it, plain and simple.Second, neither AIG, Freddie Mac, Fannie Mae nor Citigroup “left the taxpayers holding the bag.” CONGRESS PUT THE BAG IN OUR HANDS! And they did so without the slightest understanding of what they were doing, what they were buying or what the impacts would be. The scale of the hypocrisy of the members of Congress who today are screaming “they want the taxpayer’s money back from AIG’s bonus recipients” is entirely off the charts. I want the bailout funds back, not just the bonuses! When tens of millions of taxpayers demand Congress unwind the bailouts as their last act before resigning en masse, we will know sanity has returned. In the meantime, Congress’ obnoxious attempt to deflect attention from their own errors, incompetence, conflicted interests and corruption is beyond the pale.