A Silence of Complicity: Where were the experts when the world economy crumbled?
The business schools and think tanks were missing in action in the period before the financial crisis. This was a silence of complicity and the rest of the world is paying the price.
By Gonzalo Ibanez on Friday, January 16th, 2009 - 733 words.
Two things should shock us when we try to consider and measure the present economic situation of the world, especially in those leading countries where capitalism was born and enthusiastically practiced, headed by the US. First of all, the seriousness of the situation. We have been forced to realize we face a huge crisis the deepness and extent of which seem boundless. Secondly, the fact that the crisis which exploded six months ago came as a total surprise for the overwhelming majority of people from every walk of life. Before that, every one of us thought that really we were living in a perfect world, a world which was growing wealthier and wealthier every minute. The awakening has been terrible, with world-wide economic figures plummeting. From one day to the next, many people have had to come to terms with the fact that they have lost an important part of their savings and investments, and not because of reckless decisions, but because in those countries whose pattern of management had been seen as an ideal, the worst mistakes, even frauds, were committed and in so doing the entire world was dragged along behind them.
There is, nonetheless, a third point to be stressed. Prior to the explosion of the crisis there was complete silence on the part of the most prestigious business schools and economic research centers of those more advanced countries, a silence which continues up to the present moment. This would suggest that events surprised them just as much as they surprised the common people — you and me, for instance. That is, of course, impossible. Those centers, universities, private enterprises and government offices employ the most highly skilled people with the best academic degrees, the MBA’s, PHD’s, MSC’s. Besides that, several of those people have been awarded with the most coveted prizes, including the Nobel Prize. Where were they when the crisis was hatching? What were they thinking when the huge mistakes and frauds were committed? What did they recommend to escape the crisis? Where are their “think tanks” now when we need them in the face of the problems the world is trying to solve?
The entire world has lost trillions of dollars; the US alone has lost a great proportion of its mythical wealth, and that loss is not only in the balance sheets but in the crude reality of every family: millions of people have fallen into unemployment and poverty; with impotence they watch their pension funds vanish into thin air, they lose their homes because they cannot pay the loans with which they bought them, the education of their children is reduced practically to nothing. When we consider all this, it is not possible to accept either the mistakes or the frauds committed by those who were in control of everybody’s economic life, nor is it possible to accept the silence of those considered to be in the best position to study and analyze our economic life. The only possible conclusion is that this silence has been a silence of complicity.
Free-market economics is based on our use of liberty. That is the reason why we study: to gain a liberty that is prudent and well-informed in every field. But, in parallel we should be alert to mistakes and frauds. The Business Schools, the Centers of Economic Research, and all the other similar institutions rank among the fundamental pillars of the free-market economy because they are called on to help us to fulfill these two essential requisites. Thus, the silence they kept when their duty was to speak or even shout out contributed as much to the collapse of the economic system as did the mistakes and frauds we have seen. By this silence they then forced a massive intervention by different world governments in order to avoid the worst consequences.
How many people are now thinking that a system which restricts liberty to prevent abuse is preferable to one which allows everything including abuse? The combination of bad practice be it due to ignorance or fraud, and this silence of complicity puts the survival of the free-market economy in serious risk.
When we look at the way these institutions have behaved in the present crisis we may agree with Henry W. Longfellow, who wrote, What were they but a pageant scene? What but the garlands, gay and green, that deck the tomb? (. . . of the free market economy?)
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A Silence of Complicity: Where were the experts when the world economy crumbled?
The business schools and think tanks were missing in action in the period before the financial crisis. This was a silence of complicity and the rest of the world is paying the price.
Its very true..I do wonder though if these great minds had even considered that things could go wrong…so much of it could have been just the herd mentality..the system was flawed from the beginning, and anyone that really looked at it could see it..Myself, I though the dollar would go first, it being based on pretty much nothing..I find it interesting that in the aftermath of this crisis the dollar has rebounded, and is once again strong..Prolonging the inevitable for another while perhaps..The entire banking system, the concept of fractional reserve banking, its pretty much just pulling money out of thin air…since the banks have stopped lending is all this imaginary money not disappearing?..
I wonder where Chris Dodd and Barney Frank, with their decades of "experience" and chairmanships of the US Senate and House banking/finance committees were since 06 and before. Since this is all a Republican problem, why did these solons do nothing about it? Why did Harry Reid say, prior to Bush + company taking any action, that "no one in the Senate knows what to do".
The kernel that got this failure going is the real estate bubble in the US. The kernel that got that bubble going was the abanadonment of prudent lending standards on mortgages. The seed of that lies with ACORN (pun intended) and the idea that lending should be based on race eather than ability to repay the debt. Barack Obama's very brief career (other than as a politician) was as a lawyer filing lawsuits against banks so they would lend based on race, not financial capacity.
Where were the sober voices? Bush and McCain both introduced motions to restrain Fannie and Freddie from adding "toxic debt" to their portfolios and selling it to others, and Fannie and Freddie served as examples to other banks elsewhere in addition to selling them mortgage backed securities that any sober person would have thought suspect. Fannie and Freddie, though, could tout the US taxpayer as guantor (sp?) of the securities, so what's to worry?
My personal thought is that politics overwhelmed economics, by omission or comission. And, where and whenever that is tried, it fails. Government is the problem, not the solution, but since governments can print money and citizens can't (or won't) they can pretend to make it all well.
Free markets allow a body to walk away from frauds and shoddy service, and allow those who meet consumer needs better than others to prosper. Monopolies, whether "private" or government, can get away with poor treatment of consumers…where else can you go? If you have lots of money, you can duck to the head of the line, get what you want. If you don't, stay in the queue, mind your manners.
The "stimulus" plan unveiled in the US Congress this week is indeed an ugly child, mostly one-time welfare payments than "investments" that will make the US economy more efficient and thereby produce more jobs. Approval of an expanded SCHIP is the crucial first step to nationalize US healthcare. The US federal government is running unprecedented deficits and Bama's inauguration is at least 4x what Bush spent in 05, but the news media is gushing about the elegance of the ceremony. Not quite how they commented on Bush.
But, the double standard is such a standing joke it almost is not worth mentioning anymore. Nobody on the left could care a whit. Objective standards, go to hell. We just want to play! We don't like those people, send them back to the ovens. Oh yeah, we are open-minded, inclusive of those different from us, loving, thoughtful, respecting of the rights of all humans…but don't even think of doing something we disapprove of. We will scorch the earth you walk on, you horrible people. You should be punished in every way possible for your disagreement with your moral superiors.
Yah, well, in 1943 the "right people" were getting herded onto trains for the camping trip of a lifetime. And just who are the Nazis of today?
Dear Sir:
I thank you very much for your post. I guess us old goats (I am 58) need to hang together!
If Dodd was competent, he had to know what was coming. If just a fool, he should resign in disgrace rather than calling for replacement of GM's CEO. He is not resigning, but resurgent in his majesty as a savant. This is a clear statement of moral and intellectual bankruptcy. He knew, I think, and he let it happen. Um, treason of a sort, for the pain inflicted on so many people. How can such dereliction of duty be honorable?
Besides that, he thinks Hugo Chavez is a really good guy. Maybe he is a fine companion to get drunk with. So far, he has made a muck of his country's economy and civil liberties (but remember, only the "right people" should have liberties, as Lenin said). He is incompetent as a head of state. I personally think Dodd envies the guy…just think what our boy Chris could do if he controlled the military, the election councils, had his own paramilitaries operating in neighborhoods to make sure things work "right". Chris would really feel good. Finally, maybe, like a real man achieving his real destiny. Chris and Adolf and Vlad (Lenin) and Mao and Ho might really be all of a piece. I will skip over a piece of what.